accenture-a-new-dawn-seizing-the-switching-opportunity

A New Dawn?Seizing the Switching Opportunity

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Seizing the Switching Opportunity

In our view, the industry switching solution proposed by the UK Payments Council will deliver significant benefits to customers. But to compete successfully under such a regime, banks will need to rethink their products, marketing and processes.

The Independent Commission on Banking (ICB) has joined other regulators in the view that improvements to personal current account switching processes would encourage greater competition in retail banking. However, Accenture research reveals a perception among consumers that switching is more difficult than it actually is. This misconception helps to explain the current relatively low switching rate and suggests that any solution should focus on improving the consumer experience and addressing the perceived difficulties with switching, rather than the underlying technology.

Seizing the Switching OpportunitySeizing the Switching Opportunity

Switching: back off the back-burner In its final report in September 2011, the ICB pinpointed current account switching as a restriction on consumer choice in the UK, and discussed how competition could be increased if switching were made easier.

These concerns are not new. The difficulties that individuals face in switching accounts and the resulting impacts on competition were raised by the Cruickshank Report in 2000. Since then, the issue has been highlighted by the OFT, the Treasury Select Committee and the European Commission. And pressure remains, with a number of initiatives in the UK and EU targeted at making switching quicker and easier.

Today, switching typically takes 18 days, and the ease of switching has improved significantly since Cruickshank. Yet switching rates remain low. And with criticism of switching processes by politicians and regulators appearing perennial, the ICB has now taken it back off the back-burner.

Difficult switching: perception or reality?Customer behaviour makes it difficult to measure switching rates accurately. Some customers open a new account and then switch gradually, running both accounts in parallel. They often leave the old current account open, using multiple accounts to segment their finances or access overdraft facilities. Some accounts just lie dormant.Despite these barriers to measurement, there have been several attempts to estimate current account switching over a 12-month period. These include Accenture’s 2011 UKI FS Customer Survey, which indicates that annual switching is running at around 6%. A reasonable estimate of switching over the last decade is in the region of 6% to 7% a year, (see Figure 1).

While the UK’s “free-if-in-credit” model makes it difficult to compare switching rates for UK current accounts with other countries or industries, the rate does appear low. Current account switching rates across Europe are typically around 2% higher and switching in the UK in other industries is higher still, with insurance, utilities mortgages, and fixed and mobile telephone switching rates varying between 17% and 47%1.

Figure 1: Estimation of UK current account switching rates, 2002-2011 Sources: as stated


20021

EuropeanCommission

8% 8%7%

7% 6% - 7%

6% 6%

9%

3% - 3.5%

3% - 11%

3%

20031

EuropeanCommission

20041

EuropeanCommission

20051

EuropeanCommission

20095

EuropeanCommission

20084

OFT20062

NationalConsumerCouncil

20073

Mintel/Bacs

20106

Bacs20117

TreasurySelect

Committee

20118

AccentureCustomer

Survey

12

10

8

6

4

2

0

Range of evidence to TSC

1 European Commission “Retail Banking Survey” in Sector Inquiry on Retail Banking. Interim Report II: Current Accounts and Related Services: http://ec.europa.eu/competition/sectors/financial_services/inquiries/interim_report_2.pdf2 http://collections.europarchive.org/tna/20080520143211/http://www.ncc.org.uk/nccpdf/poldsocs/NCC107rr_switching_findings.pdf3 Mintel, ‘Current Accounts’, June 2007; Bacs Family Finance Tracker4 http://www.oft.gov.uk/shared_oft/reports/financial_products/oft1005d.pdf5 http://ec.europa.eu/consumers/strategy/docs/3rd_edition_scoreboard_en.pdf6 Bacs Family Finance Tracker7 Evidence provided to the Treasury Select Committee detailed in its report on Competition and choice in Retail Banking: http://www.publications.parliament.uk/pa/cm201011/cmselect/cmtreasy/612/61202.htm8 Accenture UKI FS Customer Survey 2011

1 Switched on to Switching, National Consumer Council, 2005.

• Figure 3 shows of those that switched their current accounts, two-thirds declared the experience both “fast” and “easy”, while nearly three quarters said switching was “worth it”. However, evidence shows that processes still require improvement, with almost one-quarter claiming to have had “problems” when switching.

• Although 23 % of switchers experienced problems, more than twice as many anticipated them. As switching improves, and fewer customers find themselves labouring under misapprehensions about the process, switching could rebound sharply and permanently, requiring banks to pay specific attention to customer retention.

Restricted competition or happy customers?High levels of switching are generally seen as indicative of healthy competition, so the low rate of current account switching is often regarded as indicating either that competition in the sector is limited, or that customers face difficulties in switching. However, it may also mean that customers do not wish to switch.

Accenture’s research indicates that, of the overwhelming majority of individuals who did not switch accounts in the past year, 90% remained loyal to their bank because they had no desire to change provider. The remaining 10% wanted to switch, but were concerned that switching was either too risky or too much hassle (see Figure 2).

In reality, the low level of switching is likely to reflect a combination of all three deterrents: perceived hassle, the risk of things going wrong, and reasonably high customer satisfaction. But when considering whether improvements to switching processes are needed, it is the real or perceived difficulties that are critical. In our research, only 58% of switchers said switching was problem-free.

Customers’ nervousness underlines that where problems do occur such as failure to transfer direct debits they can have serious consequences. So switching would probably increase if customers had greater confidence that the process was as safe and simple as possible. Even more importantly, the customer experience would improve. So it is worth examining the viability and impacts of changes to improve switching.

50%

37% 37% 36%

29%

24%

20%

Too risky Takestoo long

Might end up withworse provider

Too muchpaper work

Banks all the same Habit Benefits not worth it

#1 reason for not switching, 2011

Figure 2: Top reason for not switching accounts despite wanting toSource: Accenture 2011 UKI FS Customer Survey

Figure 3: Assessment of switching experience, 2011Source: Accenture 2011 UKI FS Customer Survey


Switching was SLOW

Switching was DIFFICULT

I had PROBLEMS when I switched

I DIDN’T KNOW who to switch to

Switching was NOT WORTH IT

64% of switchers said the process was FAST

66% of switchers said the process was EASY

58% of switchers had NO PROBLEMS

76% of switchers KNEW WHO TO SWITCH TO

72% of switchers said the process was WORTH IT

37%

36%

50%

37%

20%

13%

23%

7%

9%

10%

Current Account Switching

Ways to improve switching There are two ways a customer can switch a current account: switch it themselves, manually transferring their balance and direct payments; or use a bank switching service, where the receiving bank manages elements of the switching process.

People considering switching are most concerned about hassle (including the length of time taken) and the risk of errors. Two options to address these problems are generating particular interest: full account portability, and a central redirection solution.

Since the cost of any improvements to switching will ultimately be borne by the customer, we believe it is important to focus on how these options would affect the customer experience, relative to the cost.

1. Introducing full account portability Full account portability allows an individual to move their account from one provider to another, complete with all direct debits and credits, while also retaining their account number. This is often seen as similar to mobile phone switching. But there are three fundamental differences between a bank account number and mobile telephone number from a full portability perspective:

• Mobile providers start with a ‘clean’ account, and no risk of retrospective transactions being due on the closed account


• The benefits of a unique transferrable bank account number are less apparent. An individual changing their telephone number has to alert friends, family and business contacts. With a bank account, only a small number of individuals and/or businesses need to be told

• The routing process for payments to bank accounts includes bank specific sort-codes. This means the unique identifier for a bank account is 14 digits (six digit sort code and eight digit account number). It is perfectly possible for identical eight digit account numbers to exist on different sort-codes. Full account portability would require unique combinations of sort codes and account numbers from a central industry-wide database. To allow the industry to continue to route payments between banks, an alternative mechanism would need to be put in place, requiring significant industry investment, quite possibly also incurring the need to re-allocate individuals’ account numbers anyway

Overall, this is the more complex and expensive of the two solutions on the table.

2. Creating a redirection serviceThe UK Payments Council has proposed an alternative solution: an industry-wide commitment that consumers and small businesses will be able to switch bank accounts in seven working days including new cards, PINs and cheque books with payments into the old account redirected for a fixed period.

Adoption of this solution would require banks to assess the readiness of their operations, IT and processes, and act to address any gaps. The necessary steps would include:

• Reviewing switching processes and identifying simplification opportunities prior to IT changes

• Monitoring switching lead times and determining the root-causes behind variability

• Defining account switching value streams and identifying bottlenecks

• Identifying non-complex, paper-based activities for automation

Table 1 summarises the issues and enhancements to current switching processes, and maps these to the two options. In our view, the UK Payments Council’s suggestion is the only truly viable route.

CustomerSwitchingProposition

No industry wideguaranteedswitch time

Average of 18 daysto switch

High variation inswitching timeamong banks

Initiation and Transfer Support

Variation incorrectness / qualityof data beingexchanged in theswitching process

Transferable Account Number

Customer issuedwith new accountnumber

Curr

ent D

raw

back

s:Po

tent

ial E

nhan

cem

ents

:

Redirect paymentsfor a period of up to13 months

Automatedbalance transferbuilt into theswitching process

Customer retainsaccount number

UK PaymentsCouncil Proposal

Full AccountPortabillity












Addr

esse

d by

:

Direct Credits andOther InboundPayments

Inbound credits (e.g.salary) may continue to be paid into the oldaccount whilst bills are being debited from the new account

Direct Debits, SOs and Bill Payments

Billers continue to send Direct Debit collection requests to the old account

Participants under the current switching scheme fail to exchange list of DDs, SOs & Bill Paymentswithin the 3 day SLA, causing delays in the process

Balance ofAccount

Old bank slow to release outstandingbalance of account to ensure pendingpayments can be met

Cheques

Outstanding cheques on old account clearedafter completion of transfer may bounce

Switcher guarantee with max switching timeline of 7 working days

Scheme and common process / rules for all banks to follow

Improve and standardise ID&V process e.g. removal of wet signatures

Improve data quality and standardise information exchanged

Remove unnecessary process steps causing delays

Direct Debits will becollected from newaccount from day 7

Participants are bound by enhanced scheme rules and monitoring of SLAs

Cheques drawn would be returned to the collecting bank that would then forward the cheque to the new account

Table 1: Drawbacks and possible enhancements under the two proposed approaches

Accenture Contacts

Otto BenzSenior ExecutiveFinancial Services UK+44 20 7844 [email protected]

Kim BergSenior ManagerFinancial Services UK+44 20 7844 [email protected]

Karl MeekingsManager, Banking ResearchFinancial Services UK+44 20 7844 [email protected]

Seizing the Switching Opportunity

Seizing the switching opportunityWhether or not full account portability is pursued, the UK Payments Council’s proposals would radically transform customers’ switching experience. By tackling many of the concerns of customers who want to change provider, the effect could be to double the volume of switching. With implementation of the UK Payments Council’s changes scheduled for 2013, banks must ask themselves some key questions now to ensure they remain competitive and profitable.

For example, in products, they need to reassess the competitiveness of their current account offerings; decide whether changes are required to pricing to ensure profitability post-operational and IT changes; and examine opportunities to develop new products to capture additional profitable customers.

And in marketing and communications, banks should review their customer retention initiatives to improve loyalty and manage higher churn; launch marketing campaigns about their new portfolio of current accounts to inform and acquire consumers; work out how to use the increased transparency in the banking market to compete more effectively; and leverage marketing information and analytics to improve customer offerings.

ConclusionOur research underlines that changes do need to be made to improve the perception and customer experience of current account switching. These would not only create a better service for customers, but may also lead to enhanced competition across the sector.

The industry is already committed to improving the process significantly by introducing a central switching facility. However, since the cost of any improvement in service will ultimately be borne by the customer, the industry and policy makers need to weigh up the cost against the perceived benefits when considering further improvements.

What is clear is that the switching process will change dramatically over the next two years, creating operational and IT challenges for banks. However, the good news is that banks can seize opportunities presented by easier switching to deliver better customer experiences in a competitive environment.

accenture-a-new-dawn-seizing-the-switching-opportunity

Documents

switching rates

difficult switching

annual switching

switching opportunityseizing

ease of switching

low switching rate

uk current accounts

personal current account