The government is backing a system that will allow bank customers to switch to other providers more easily, in an effort to increase competition across the sector. The scheme is due to be rolled out in September.
Thirty banks and building societies that are part of the project are conducting tests to ensure it can be launched on time. This follows uncertain noises from the payments council, which is overseeing the scheme, about when it might be ready.
Calls for such a system were introduced by Sir John Vickers, who chaired the independent commission on banking. The subsequent Vickers report claimed, “Consumer satisfaction levels are low and the perceived costs of exercising market choice by switching accounts are ‘remarkably’ low.”
In the aftermath of the report, the government said it recognised a need for “improved competition – easier switching of bank accounts, to be done within seven days by September 2013.“
It is thought that the new system could loosen the grip of the big five banks that currently monopolise the market: Barclays, HSBC, Lloyds TSB, Natwest and the Royal Bank of Scotland (both owned by the RBS Group) and Santander.
Laura Willoughby, chief executive of campaign group Move your Money, said, “At the minute, the big banks have a monopoly on the back-end IT. There won’t be real consumer choice until that changes.”
She added, “Anything that makes switching easier and creates more competition is good, but the real revolution would be changing the whole payments system so it is not so expensive for new banks to set up current accounts.”
Recent scandals within the mainstream banking system, including Libor fixing, payment protection insurance mis-selling and excessive remuneration for bankers, have led to a surge of interest in alternative institutions.
Move your Money research suggests that some 2.4 million people closed accounts with the big banks in 2012 in favour alternatives. Many of banks and building societies they opted for are profiled in Blue & Green Tomorrow’s Guide to Sustainable Banking 2012.
The IT changes, which are expected to take effect from mid-September, will be widely advertised in the media over the coming months.