In October the government introduced a scheme designed to help savers get easier access to the best savings rates available by allowing faster switching between banks. This article looks at how contactless payment may be able to help increase the uptake of bank switching. According to figures sourced in a BBC article, 89,000 people switched their accounts in the first month of the service’s creation, showing an 11% increase than at the same time the last year.
Increasing Competition Data collected previously had indicated that customers would stay with the same bank for years without considering switching. Whilst there are a multitude of reasons for this, one was found to be that switching banks could take up to 30 working days to complete the switch.
This obviously raised problems for anyone that considered switching, as there would be unease over ensuring monthly bills were paid from the accounts, as well as waiting for new forms of access to their money being established, for example receiving a new credit or debit card could take several days.
The new measures are designed to increase the amount of competition, making the banks compete against each other to offer customers better savings rates which should basically translate to more money for the people, satisfying the banks and the government and would only leaving the banks that cannot compete as the unhappy ones.
Disappointing Numbers? Some commentators have been slightly disparaging over the increase in the numbers that have decided to switch. Whilst the figure of 89,000 represents an 11% rise – this only translates to 9,000 extra switchers in the same period over the year. Deep-Rooted Problem One of the reasons many people may not be switching is the lack of an actual incentive that represents enough value to the customers to encourage them to switch.
Financial literacy is low in the UK and as a consequence the interest rates mean very little to most savers. So rather than engaging them via savings rates, which matter the least to those with little money to save, one method could be to engage them through new and exciting technologies to allow payments.
Part of the problem, other than the low saving rates, is that switching banks is essentially a boring process. This aspect could be addressed via the move to newer technology to drive better engagement with potential customers. Even with the 7 days switching people may still worry about accessing their savings to pay for essentials such as shopping or fuel for transport.
However, contactless payment could address this issue. Many banks are offering – or planning to offer – the ability to pay via apps installed on the customer’s smartphone. The time it takes to download a smartphone app is tiny, compared to having to wait up to 10 days for a new debit card that allows you access to ATMs.
This means that there would be even less hassle during the 7 day changeover period than there is at present.Conclusion7 day switching is definitely beneficial to customers, however, if the government and the banks want to increase the amount of engagement that people have with their banks there needs to be more done to make customers feel that making the switch actually has any financial benefit for them.