Gocompare puts banks on the defensive

The UK could be on the cusp of dramatic changes in retail banking following the launch of a current account comparison service

The UK could be on the cusp of dramatic changes in retail banking following the launch of a current account comparison service, which matches people with current account using data about their financial activity.

The current account comparison site from Gocompare.com, which was announced by the government in the Budget, uses Midata. This gives consumers access to the electronic data that businesses hold about them, to help them make informed decisions about which service providers to use. This can be used by the Gocompare comparison site to match people with a current account that suits them.

Gocompare said: “For the first time, customers of the big five banks – Barclays, HSBC, Lloyds, RBS and Santander – and Nationwide building society will be able to use information from their statements to compare all personal bank accounts on the market to see which one is best for them. This innovation is expected to increase switching by empowering people to use the data that companies hold about them to their own advantage.”

With new banks currently being approved by UK regulators in significant numbers and technology companies encroaching on the sector, traditional high-street banks are facing serious competition for the first time.

The British Banking Association (BBA) has been vocal on the digital threat, and says technology companies should fall within the same financial services regulation as traditional banks. “Technology is breaking down the traditional banking model and new entrants are changing our perceptions about what we consider a bank to be," said Anthony Browne, head of the BBA. 

“More choice is good news for all, but it is vital that regulators provide a level playing field, giving customers the same robust protection wherever they choose to bank.”

The BBA warns that customers' ability to switch bank accounts at the touch of a button increases the likelihood of a run on a bank. Browne said regulators are considering a means of preventing this possibility by having a brake-like mechanism that kicks in when withdrawals reach a certain level.

Read more about competition in banking

A recent BBA report, compiled jointly with Accenture, warned that banks need to harness a range of digital technologies or they could lose customers to a new wave of competitors. It said banks could use digital technology to offer better and more personalised services and cut costs.

Full-service retail banks will face agile competitors that focus on fewer products and services, and the Gocompare current account comparison tool could accelerate take-up of these offerings. Consumers are currently reluctant to switch bank accounts, despite there being a new system that can complete the process in seven days, because they see little difference in the current accounts that banks offer.

Research from Gocompare revealed that 40% of banking customers have never switched their current account and 23% have not switched for more than 10 years. The number of people who changed their current account in 2014 was higher than in 2013 but less than the number who switched in 2012, before the seven-day switching service was made available. This is attributed to a lack of choice.

City minister Andrea Leadsom said: "The current account comparison service will put much more control in the hands of customers and could transform the current account market. It will help customers understand how they are spending their money and where they can get the best deal. 

"It is also very important that customers know that their data is protected if they wish to take advantage of this new tool, which is why I am pleased the banking industry has worked closely with the government and the Information Commissioner's Office to make sure safeguards are in place, particularly around anonymising an individual's banking data."

Gocompare.com's banking spokesman, Matt Sanders, said: "It seems that Midata for current accounts couldn't have come at a better time, as our research has found that only 8% of people have switched banks in the past 12 months, and of those, 44% did so to take advantage of the incentives offered by a different bank. 

"Clearly, customers are being swayed by marketing messages, but with access to the tailored comparison we can provide, they can also decide what account is best for them once these incentives or introductory offers have passed."

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