Banks should 'nudge' us to switch current accounts

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But despite the appearance of various new banks and the rise of the rewards account, the CMA say there isn't as much competition in the market as there should be.

In fact, although switching has been made much simpler, just 16% of us looked into moving, and only 3% of us actually switched during 2014.

Alasdair Smith, who chaired the 18-month investigation into the personal current account market, said the lack of movement meant that "banks have been able to sit back and take their existing customers for granted".

Sitting pretty

Just 8% of us moved current accounts in the three years between 2011 and 2014 - compared with the 31% of us who've changed energy provider in the same period.

Almost 60% of us have had the same account for more than a decade - and an amazing 37% have been using the same current account for more than 20 years.

It's no wonder, then, that the CMA found the bigger banks with higher market share - which tend to be the older institutions - have more expensive fees, charges and services than the newer, smaller banks, or those keen to expand.

In fact, the four largest banks in Britain look after more than three quarters of all personal current accounts, and despite the efforts of challenger banks, these four have lost less than 5% of market share since 2005.

Oops, sorry

One of the ideas the CMA have come up with to get us thinking more about switching is getting the banks to let us know there are other options available at "trigger points".

As well as telling people whose accounts are going to significantly change - for example, young customers graduating from youth or student accounts to an adult account - these trigger points could include:

• A change to the terms and conditions of our account
• The closure of a local branch
• A serious or widespread loss of service - such as one caused by an IT breakdown
• When we face overdraft charges
• A major dispute between us and the bank

But such nudges will only work if people have confidence in the switching process - and it seems we don't.

The CMA cite a survey that found 55% of us considered switching to be "a hassle", and 42% were worried that something might go wrong.

The introduction of the Current Account Switching Service (CASS) in 2013 was meant to address these worries, giving customers a guaranteed quick and easy way to move banks.

And yet research by the Financial Conduct Authority (FCA) found that only 51% of people were aware of CASS, and the Payments Council say fewer than half of us are confident that it would complete our switch without making some kind of error.

Moving, but not leaving

Under the terms of CASS, all of a customer's standing orders, direct debits and credits are moved across to their new bank and the old account is effectively closed once the switch is complete.

But not everyone wants to move wholesale to a new bank, and electing to keep our old account open means our move isn't covered by the Current Account Switch Guarantee.

Figures from Bacs show that of the more than 82,000 people who switched their current account in September, almost 4,000 chose to do so without closing their old account.

So the CMA have suggested providing an equivalent guarantee for the partial switching service - and they believe this could address some of the other reasons behind our reluctance to move.

For one thing it'd let people try their new bank on for size, letting them get an idea of service quality and whether the account is right for them, before cutting off the old account.

It would also allow people with overdrafts to keep that form of borrowing open while the new bank decides whether or not to offer them an equivalent facility.

Overdrafts

The CMA found that "light" overdraft users could save an average of £140 a year by moving to a better current account, and that "heavy" users would benefit by £260 a year - but both are far less likely to switch accounts.

It's partly because it's difficult to work out how much an overdraft with a new bank will cost us - but it's also because applying for an overdraft with a new bank is not a guarantee of being granted one, or of getting the amount we want or need.

That can be a serious barrier to those who know they're going to be in the red frequently, or by a significant amount.

Free banking

Meanwhile many of us realise that "free" accounts aren't really free - we pay for them by foregoing interest, or through the fees we pay for those overdrafts and other services.

But the CMA echoed previous findings about the difficulty of comparing them meaningfully.

Some of the submissions received by the CMA suggested that customers see "little reason to switch away from a product that they mistakenly believed 'cost them nothing'."

But the CMA say that while it's "possible" that this could have some impact on our level of engagement regarding hidden costs or lack of reward, they don't believe free banking is to blame for a lack of switching.

In the Netherlands, for example, where free banking is not the norm, there are similarly low switching rates.

What's more, insisting on an end to free banking would mean having to introduce an approved minimum monthly fee - and the CMA note with a hint of irony that setting a price floor isn't "normally considered to be a means of increasing competition".