Tuesday, 09 August 2016 12:50
Don't make us move banks - reward us instead for staying
Loyalty Magazine argues against "naive CMA" suggestions
Britain's High Street banks have been ordered to launch a technological "revolution" to foster competition and get consumers to change provider.
But surely the lesson from the similar energy switching campaign demonstrates the futility of this approach?
Of course we all want the best, cheapest and most cost effective service from our banks but why should we constantly have to change provider to achieve this? If we won't easily change energy provider every 12 months, does the naive Competition and Markets Authority really consider that a phone-based comparison app will really get us to change banks?
Let us take the credit card market of the nineties as a comparison. At this time, payments providers were using zero per cent interest periods to get customer to move to their cards, assuming that when the rate went up, customers would stay put. They didn't. Switching card provider became an art form. It was crucially important to pay attention to the calendar to ensure one did not go over the zero per cent period, or a swinging 25 per cent plus interest rate would be applied, but for those running £10k or more of debts on cards, it made sense to play the system.
But banking? Really? Consider first how many standing orders you have operating from your account every month, then add your salary coming in, and any payments made from it. There is your mortgage or rent, your payments cards, insurances, driver and television licence - the list is endless. Are you really going to risk any one of these being missed in order to save a little money on the occasions when you go overdrawn without permission?
The CMA is massively missing the point. Banking should be more competitive and I suggest that the new entrants such as Mondo and Atom will go a long way towards shaking it up, but asking people to use an app to check if a more competitive service is being offered elsewhere is a really stupid idea. For a start, Martin Lewis and MoneySupermarket.com and many others have been doing the comparison thing for years.
Loyalty Magazine suggests the CMA should encourage banks to reward loyalty instead. If a customer has been with them since they were 15, then let's see some recognition for this. Payments cards use loyalty rewards effectively, and there are a handful of banks that do the same.
Barclays Blue rewards business customers, the Co-operative Bank launched current account rewards in January (you can only earn up to £5.50 a month, but its better than nothing). M&S Bank will send you vouchers for spend.
An interesting example overseas is Axis Bank in India which has its eDGE loyalty rewards programme. This gives points on all its services.
In previous findings, the CMA said 60 per cent of Britons have stayed with the same bank for over 10 years, while over 90 per cent of small and medium sized businesses get their business loans from the bank where they have their current account.
Many customers view switching as 'risky', the CMA said.
As part of its 405-page Provisional decision on remedies' in May, the CMA suggested customers who switch to a better banking deal could save around £116 a year, depending on whether or not they put their overdraft to use, but are they sure of their figures?
That banks could certainly do better is not under question, but is the gain worth the pain of switching?
And can someone tell the CMA that a "new phone-based app is not going to be the answer to everything. It certainly hasn't proved so for anyone else yet.
The consumer group Which? welcomed the CMA report, but said it was questionable whether the measures would be enough to promote more competition. We couldn't agree more.