The dramatic increase in switching in the UK reflects that when customers, fed up with lacklustre service, can shift easily they will.
Both RBS and Lloyds have, for example, suffered high profile IT glitches which have meant customers have been unable to access their accounts. Disaffected customers have taken flight, to Santander and Nationwide in particular.
So although each of these ‘winners’ has offered financial incentives (e.g. Nationwide’s refer-a-friend £100 incentive) it is easier switching coupled with disaffection with the current provider that has been the main catalyst for increased UK current account switching.
Implications for Australia
From 1 July 2012 it became easier for current account holders in Australia to switch from one financial institution to another
Under the Australian Payments Clearing Association initiative account holders who want to switch do so through their new financial institution rather than through a request to their existing provider.
This is designed to address the hesitancy of those account holders who may not wish to feel embarrassed in dealing with the exit process at their existing institution and to place the onus for switching on the new financial institution that is gaining a customer.
Surprisingly, however, current account switching in Australia as a result of this APCA initiative was only some 15,500 accounts in the following 11 months.
We think there are several explanations for the dramatically different pattern in Australia compared with the UK which the Murray Financial System Inquiry may well explore.
Does this low rate of switching reflect a lack of customer awareness and trust in the scheme? The continued perception of significant customer effort involved in switching? Or indeed a high level of customer satisfaction in their existing current account provider?
There is a further dimension to this situation though which supports continued effort to ease the effort of switching: the threat of switching promotes innovation.