The Government has convinced major banks to support the creation of a new tool that will direct people towards the best value current account for their needs.
Britain’s biggest current account providers will help to create a tool that can read data from a customer’s existing current account and identify which are the best value accounts for that customer.
Barclays, HSBC, Lloyds Banking Group, Nationwide, the Royal Bank of Scotland, and Santander have all agreed to participate in the new state-backed system.
How will it work?
Under the new system, customers will be able to export a year’s worth of transaction data from their account in a format that can be read by the comparison tool. Once the tool has analysed this data, it will then suggest the most suitable account from a wide range of providers.
So, a customer with high council tax or domestic bills might be recommended the Santander 123 account, which offers cashback on these categories of spending.
A customer with a high average in-credit balance is likely to be recommended an account that offers interest, such as TSB or Nationwide, which both offer 5% for at least the first 12 months.
On the other side of the coin, customers that dip into the red frequently should also be able to discover through the new tool whether there are accounts with cheaper overdraft facilities available.
The new industry standard is the next step in the Government’s relentless drive for greater competition between banks. All considered, it is an impressive one.
The launch of the new current account switch service in 2013 has already boosted competition in the market, with a glut of rewards and incentives for new customers. But the number of switchers has been underwhelming.
That could soon be set to change. The seven-day service complements the new Government plans perfectly, and will facilitate a swift transfer if customers find a match that they are happy with through the new smart tool.
The move could also prove a breakthrough for challenger banks, which to date have struggled to make any major inroads into the iron grip held by major banks.
One of the weaknesses of the loyalty-driven current accounts offered by newer providers such as Tesco and Marks & Spencer is that it’s genuinely difficult to determine whether customers benefit by switching to them over a larger, mainstream provider.
The new Government-sponsored tool may prompt more customers to switch if there’s data to show why customers should switch.
The end for price comparison?
So, is this the beginning of the end for the price comparison industry? The answer to that should be a resounding ‘no’.
The new algorithm would constitute an exciting addition to existing comparison options, and it’s streets beyond what we’re capable of right now. It would be the first tool for something as diverse and complex as current accounts that would use actual data, remove guesswork, and offer results.
But there are still a number of important questions to be answered. Who will host the technology? How will people want to use it? And how accurate will its results be? This is where we – price comparison websites – can help.
If this becomes a tool created by banks, for banks, it won’t have the impact that the Government wants it to have. There’s barely enough incentive for banks to promote it unless they are gaining switchers rather than losing them (and only a very few banks are in that position).
I’d also be concerned that the functionality of the comparison tool gets limited to emphasise the impact of trendy short-term offers rather than the full picture.
Who will be able to use it? A large sector of the population is still just beginning to come to terms with digital technology. Many of these will still prefer to trust their judgement to what a calculator tells them.
And it’s not just silver surfers either. Our behaviour generally relies on far more than just data. Like our politics, we tend to be notoriously loyal to our banks, even when they treat us with contempt. Often, the rationale is that ‘they’re all the same’ or that others are somehow worse.
Of course, there are variations on this, but it’s unlikely that numeric data alone will prompt everyone to switch banks.
It’s tough to overcome issues such as reputation. Take Santander, for example. Though improving, it still carries a reputation for poor service. RBS, despite an impressive mobile app, still has far too many major IT glitches. Barely does the dust settle on one Barclays scandal before the next one emerges.
You can also bet there’ll be a fair share of people who will object to feeding their bank account data through a Government-sponsored system.
This is where we should come in.
But paradigm shifts do occur, and we can be convinced to act. The challenge for lenders is to make their accounts attractive enough to quash the doubters.
That’s precisely what Santander has been doing. The TNS Switch Index shows that Santander has continually attracted the most switchers since the new system launched.
The bank still has an abundance of critics, but the combination of cashback and interest worth up to 3% has encouraged thousands to take a gamble on the 123 account.
Santander knows that those who have switched are not blindly loyal to one provider and will switch elsewhere if they aren’t treated properly.
But that, in a nutshell, is why price comparison sites remain the ideal home for tools like this.
We’ve got everything else in place already: details of what’s out there, reviews, an explanation of how things work, and the ideal incentive to make this kind of feature work.
We’ve also got the independence from banks. If a current account provider is doing well, you’ll know about it. If it’s doing badly, you’ll know about it.
Boosting competition starts with spreading the word. Leave that to us, and we’ll make it happen.