Switching in banking: when will we get beyond the innovation stalemate?

Last week, the BBC published a piece about the “surprisingly” low numbers of customers switching their bank accounts.

The Beeb reported that in the last year only 3% of current account customers had switched, rising to 8% over three years. More than half of customers had been with their bank for a decade or more, and three-quarters had never switched.

Is it any surprise consumers aren’t switching bank accounts?

The fact that this is newsworthy is the only surprising thing about these statistics.

Personally, I’m shocked that the figures are so high. Customers will only take action when it is fundamentally “worth it” to do so. So why do so many commentators expect a customer to “switch”?

To get to the heart of it, let’s take a high-level look at the UK banking landscape today:

  • The big players share very similar products and rates.
  • Almost every established bank has moved its product set and service options from branch, to web, to app – allowing an almost identical level of functionality.
  • Just a handful of neo-banks are offering a much-improved user experience. However, their product set is not yet comprehensive enough to allow those who hold mortgages, savings, current and joint accounts to “switch”.
  • Only two real territories to occupy: the trusted provider who is with you through life’s journey OR the slick digital provider who makes your daily life easier.

We end up in a situation where moving from one big bank to another offers no real financial or experiential improvement. The majority of the market cannot yet make the jump to a digital-only neo-bank. Even if they are aware of them and have the inclination to do so.

Innovation from the big players and new challengers in the next 2 years will only create a stalemate

Here’s how I see it playing out. The big banks will spend the next 2 years implementing open banking solutions whilst upgrading their own experiences to match those offered today by Monzo, Starling, Atom, etc. Meanwhile, the neo-banks (those not acquired) will roll out the more complex current account setups (joint, mortgages, etc.). We are now back in the same situation of parity.

Let’s be clear. The ability to see spend category data, view real-time spend and transfer data, create spending and savings pots, be notified of bills and given budgeting tips by a smart assistant… are already, or will be, hygiene factors in the next 48 months. Essentially all these features are doing, is taking existing human behaviour and allowing it to be done far easier within a single digital experience. If your organisation is relying on these features as being the future of your offering, you might want to politely ask where the real ambition is.

To drive switching you need more than just incremental innovation

My question is: where are the real disruptive moves that are going to drive double digit switching and exponential market share growth? I’m talking about the fundamental rethinking of the products that banks offer and the relationship that people have with money.

So what might the future hold?

Here’s a prediction: as we reach product and UX parity between the big banks and neo-banks, switching rates will remain “surprisingly” low. The next big shake up will not be the next banking takeover, but a cross sector mash-up. Imagine the bank that is also a telco. Or a telco that is a bank? One single provider that offers simple management of your financial and digital life. Free mobile and home broadband when you sign up for a mortgage? Or an entirely freemium model that uses the enormous behavioural data available from every website you visit, app you open and penny you spend.

Until that point, we have to rely on the existing promotions which, as the figures show, are only driving a low-level of switching. I would be very interested to see, of the 3% of customers that switched in the last year, how many of those are serial switchers; mavens jumping from one deal to another.

If you fancy seeing what ideas, strategies and propositions we can cook up together for the future of your business, drop me an email. Or if you fancy telling me how wrong my prediction is over a beer, I’m always keen for that.

PS 15 minutes after writing this, I read that Starling bank is launching joint accounts and that Monzo is investigating the same.