Have you ever changed your bank account? Have you even thought about it or looked around at different deals on offer? Do you even know what type of account you hold?
For most consumers, the thought alone of changing bank accounts is wearying enough with the imagined effort. Mountains of admin, fears of missed payments or cancelled direct debits and days spent waiting for the arrival of new cards and cheque books are enough to put off even the savviest of financial consumer.
Study after study reveals how anchored consumers are with their bank accounts, most of which were chosen for them in childhood. They are more likely to change their partners, change address and change job than look at switching their bank account. Things are so bad that a sizable minority would even prefer to go to the dentist – an almost literal kick in the teeth for the UK’s 50m strong current account market.
This lack of movement and competitiveness provided the backdrop to the Independent Commission on Banking’s recommendation in 2013 that more was needed to be done to break the hegemony and the introduction the seven day switch guarantee followed. With 75 per cent of accounts being run by just four high street banks, a shake-up was the order of the day in the post-crash world of regulation.
But in 18 months or so, how much has really changed? Not much according to figures released by the FCA. Of the 50m accounts in operation, only 1.64m have taken up the opportunity to change provider.
The lack of uptake is, according to the FCA, down to a lack of awareness and confidence among consumers. To an extent they are probably correct. It is highly unlikely that unflinching customer loyalty to the banks or rigorous cost-benefit analysis of different types of account on offer is affecting any change.
ifs University College believes there is more to the FCA’s reading of the situation however and the cause of this starts even earlier. If consumers lack awareness and confidence, even the most well-intentioned of financial scheme is likely to fail. The answer is not only for more legislation and market freedoms, but for more – and better – provision for financial education to be available for consumers.
Research from the Young Persons’ Money Index bears this out. From a sample of more than 2,000 teenagers, it was revealed that those who have had regular, appropriate and dedicated financial education are nearly twice as likely to switch bank accounts and choose more suitable financial products for their appropriate stage of life, than those who have not had any. It is through context and understanding which ultimately leads to confidence and behavioural change.
Sadly, ifs University College was not surprised by the findings of the FCA’s report. With financial education being neglected for so long, it may be a good while yet before account switching becomes the norm.