Bank account switching accelerates as consumers choose digital services

Surge in UK consumers changing current account providers is a sign that digital banking services are eating into the traditional sector

Nearly a quarter of a million people in the UK switched current account providers in three months from October in a late surge that was driven by consumers seeking advanced digital banking services.

The figures, from Pay.UK, which runs the Current Account Switching Service (Cass), also show that digital banks are beginning to eat into the market dominance of traditional banks.

In the final quarter of last year, Cass recorded almost 250,000 account switches, which was 60,000 more than in the same period the previous year and 36,000 more than the previous month.

Cass was launched in 2013 enabling a seven-day account switch, rather than the 30 days it used to take. The UK government was eager to stimulate competition in the retail banking sector after the financial crisis that began in 2008.

Vocalink built the service’s IT platform, with CGI overseeing the two-year project, which cost £750m.

The surge in take-up is a positive sign of increasing choice for consumers. Despite the arrival of more choice, largely in the form of digital-first, fintech-based banks, take-up of the service had been slow. A total of 7.8 million account switches have been made since the service was first made available.

David Piper, head of service lines at Pay.UK, said: “Performance and usage of Cass remained strong in the final months of 2021, with thousands continuing to benefit even in the face of the growing challenges presented by the emergence of the Covid-19 Omicron variant.”

Piper added that digital-first current account providers continue to attract new customers as “many seek current account providers with high-quality online tools, such as mobile apps”.

Read more about digital challenger banks

Digital-first current account providers, such as Starling Bank and Monzo Bank, are part of the fintech revolution. These banks offer alternatives, often app-based, that use the latest technology to improve and personalise services. In the third quarter of last year, the Cass system reported that more than 15,000 people switched to Starling and 6,500 to Monzo.

Although digital challengers have won millions of customers, there has been a tendency for customers to use them as a second account, often referred to as a “spend account”. But this is changing as these banks mature.

The latest Cass data shows that people are changing for non-financial reasons, with the top reasons cited including better online banking facilities (51%), sophisticated mobile or app-based banking systems (41%) and improved customer service (38%).

The Financial Conduct Authority (FCA) has also noticed this trend, recently reporting that although large traditional UK banks are still strong, they have seen their traditional advantages begin to weaken.

In an update to a review that began in 2018, the regulator said traditional banks saw a reduction in their share of personal and micro business accounts between 2020 and 2021. This weakening was  “driven by digital innovation and changing consumer behaviour”, said the FCA.

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