Posted: 27th February 2014

Regulators and consumer groups have long warned C1 retail financial services firms that customers may vote with their feet and leave. On that thinking, customer service should be excellent, products innovative and useful, and complaints should be low and well managed. Yet, even with record complaints and customer service failings, the foretold landslide to the challenger banks, as a relevant indicator, has not taken place. Why do consumers not leave when they are dissatisfied? Is this now changing?

Apathy and irrationality

A reason often quoted for lack of consumer switching: consumers are apathetic. Behavioural economics shows that consumers – and all people – do not assess all information before making a rational decision. We are affected by cognitive dissonances, group obedience and the halo effect amongst other phenomena. Whilst consumer apathy and irrationality sound like plausible and honest reasons for part of the market failure in financial services, this may be a simplification of the problem, with causes for this apathy actually lying with firms.

Back to basics

The Financial Conduct Authority’s third operational objective is to promote effective competition in the interests of consumers – to make markets work well – as a mechanism for fixing the financial services markets. How do you make a market work well? A-level economics students would tell us that perfect information and no barriers to entry or exit, amongst other features, are required. However, if – as many contend – consumer apathy is a strong force, then improved information and removal of barriers will not have the desired effect.

Undeterred, and killing two birds with one stone in the current accounts market, in September 2013 the Payments Council launched the Current Account Switching Service. This brought consumer barriers to switch – and fear of those barriers – much lower, making switching possible in seven days, with minimum work by the customer.  Vitally, the Payments Council not only made this service available (actually lowering barriers) it also told consumers through national TV campaigns (increasing information in the market).

Barriers lifted

After three months of communication about and access to the service, the Payments Council has surveyed a 2,200 representative consumer audience: 59% of consumers asked are aware of the service and 58% are confident the service will work. Of course, if consumer apathy is as strong a force as is often suggested, this would be unlikely to make a difference to switching. However, compared with Q4 2012, Q4 2013 saw a 17% increase in switches. Whilst still low, overall, the Payments Council’s communications campaign will extend into 2014, hoping to reach 75% awareness amongst the UK consumer market.

Of course, the amount by which customers switch will be dictated by events caused by firms themselves – service, process, brand – and external market events. However, the first step is to enable consumers to switch and raise awareness. With current account customers on the move, firms should avoid controllable problems which they cause for their customers.

Warnings with more weight

A major technological and collaborative achievement, the Payment Council’s account switching service is a service of which consumers are increasingly aware and changing behaviours in the current account market.

In the current accounts market at least, the time has come to heed past warnings because it turns out that consumers are not simply apathetic; lower barriers to switch and higher awareness are resulting in consumers voting with their feet. That means it really is time for firms to make sure telephone staff offer the greatest service, complaints are handled expertly, complaints root cause analysis fixes problems and your conduct risk strategy works in practice allowing you to avoid the highly publicised fines which might alert your customers to use their new route out.


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