A new report from the Social Market Foundation (SMF), with exclusive consumer polling from Populus, finds that one in five Britons use current accounts at more than one bank. Across the broader market, including mortgages, savings and investments, half of consumers are using more than one bank. And competition from non-banks is also growing – three-quarters of consumers have bought at least one financial product from non-bank providers, like online payments or P2P investments.
In the report, Playing the Field: Consumers and competition in banking, the SMF finds that these ‘multi-bankers’ embody a new form of competition in the British banking sector. These consumers are shopping around, trying out different options and forcing banks to offer them better value to retain their custom:
- Those using more than one current account provider are four times more likely to be taking advantage of a cash bonus on a current account.
- Multi-bankers are more than twice as likely to be using a current account to earn interest, making the most of increasingly generous offers from banks.
Multi-bankers appetite for better value current accounts has forced banks to up their game and compete for these valuable customers. In response, we’ve seen a growing number of banks offering current accounts paying interest, cashback or monthly bonuses.
With the rise of multi-banking consumers, there has been a wave of new banks entering the market, and there are more on the way: 20 would be banks are currently waiting for approval from the regulator. The government promised a new bank unit to help them get up and running more quickly in last week’s Productivity Plan.
The report’s evidence challenges the accepted narrative about competition in banking – that concentration in the market means all consumers are getting a poor deal, and new entrants struggle to establish themselves. Active multi-banking consumers have played an important role in strengthening competition.
But multi-bankers are quite a specific group – they tend to be older, more affluent and more comfortable with finance. While banks are competing fiercely for their custom, other consumer groups, particularly younger, less affluent consumers, are still missing out. Although switching banks is widely perceived as being simpler than switching household utilities, and 56% believe they can have a new account up and running in under 7 days, too many consumers just aren’t interested in moving providers or opening new accounts.
This SMF research suggests that rather than looking at banks to strengthen competition, the Competition and Markets Authority (CMA) should instead encourage these less active consumers to engage with the market and build on the success of the multi-bankers. The report proposes a series of reforms which would make it easier for consumers to work out which bank offers the best deal for them:
- Consumers are already able to share data about their account use with price comparison websites, but the process is clumsy. Streamlining it, so consumers can demand banks share this anonymised data with third parties would allow customers to work out quickly and easily if they can save money by switching banks. Using data in this way could also improve the overdraft market, where competition hasn’t had much effect to date, helping consumers know whether another bank could match their overdraft limit and improve the terms.
- Text messages have already been successful at helping consumers avoid unplanned overdraft fees – the SMF argue that they should be a compulsory condition of an arranged overdraft. Text messages should also be used to tell consumers when they might be getting a bad deal from their bank – for example, consumers who persistently use an overdraft should be prompted to think about other forms of lending. Consumers using current accounts which are no longer offered to new customers should also be moved into new products, to ensure that you don’t have to switch to get the best deals.
Katie Evans, report author and SMF Economist said:
“We’ve seen report after report into the state of competition in retail banking – but to date, most have focused on the same issues – the small number of banks in the market, the difficulties of switching, the poor value offered to consumers. Our research shows that these are no longer the biggest problems in the market. With the divestment of TSB, a wave of new entrants and banks offering very attractive current account deals, there’s little doubt that the nature of the banking market has changed.”
“While multi-bankers and switchers are getting great value from their current accounts, many more vulnerable consumers still aren’t interested in shopping around. The challenge for policy-makers now is to invigorate this side of the market, and make it as easy as possible for every consumer to get a good deal from their bank.”
Notes to Editors:
- Populus interviewed 2048 GB adults (aged 18+) online between 17 –19 April 2015. Results have been weighted to be representative of all GB adults. Populus is a member of the British Polling Council and abides by its rules. For more information see www.populus.co.uk. Copies of full survey results are available on request.
- The report is sponsored by Lloyds Banking Group and the SMF retains absolute editorial control over its outputs.
- The Social Market Foundation (SMF) is a leading independent UK think tank which develops innovative ideas across a broad range of economic and social policy, champions policy ideas which marry markets with social justice and takes a pro-market rather than free-market approach smf.jynk.net.