It is no great insight to observe that Britain’s retail banking sector is too concentrated and that its customers suffer as a result. Not only are services routinely poor and costs routinely high; a string of scandals, from pre-financial-crisis recklessness to the mis-selling of insurance, have made clearer than ever the extent to which banks operate for their own benefit rather than that of their depositors.
And, given the circumstances, why would they not? With some three-quarters of all current accounts held by five high street behemoths – Barclays, Lloyds, HSBC, RBS and Santander – and the procedures for shifting from one to another lengthy and complex, there is little competitive pressure to keep them in line.
There are glimmers of improvement. Notwithstanding the problems at the Co-operative Bank, the ranks of the challengers are swelling. Only last week, TSB returned to the fray, with 631 branches spun out of Lloyds Banking Group. Virgin Money, Metro Bank and several supermarkets are also trying to break into the market.
Progress is slow, however. No less important than the existence of alternative institutions is the ability to switch easily between them. But traditionally, it has taken as much as a month to shift from one bank to another. For those with straitened resources, multiple direct debits or both, the process is as nerve-racking as it is time-consuming.
No wonder that although more than 40 per cent of us say we are not averse to moving our money, only a fraction actually do it. Last year, less than 3 per cent of Britain’s 46 million current-account holders switched; indeed, the average current account is held for a whopping 17 years, and more than a fifth of us are still using the first one we opened.
Here, too, there are changes afoot. As of yesterday, thanks to a shake-up spearheaded by the Payments Council, it will take a maximum of seven days to move a current account. The customer also now has the option of specifying exactly which day their new account is up and running, and for the first 13 months any erroneous transactions with the old one will be automatically redirected.
Anything that encourages consumers to shop around is to be welcomed. Only when their customers have an easy option to walk away will banks be forced to differentiate themselves with better products and better service. Some have already responded, launching cash offers to new customers and more sophisticated schemes will follow. Best of all, it is the smallest banks who stand to gain the most.
Even so, the matter is far from closed. So long as changing banks means a new account number, with all the concomitant administrative headaches, only those most desperate to move will do so. Seven-day switching is a step forward. But until account numbers are portable, the deck is still stacked heavily in favour of the same, few institutions as before.