Switch Incentives and Competition in the Current Accounts Market

The volume of customers switching their current accounts using the Current Account Switch Service increased dramatically over the course of 2022. This was driven, in part, by increased competition between banks to win over customers by offering them cash incentives to switch.

At the start of January 2022, the maximum switch incentive was worth £150 (HSBC) and three banks were offering cash switch incentives.

By the beginning of November 2022, the maximum switch incentive had risen to £200 (HSBC and Nationwide) and seven banks were offering cash incentives to switch.

Customers responded to these more generous incentives by making more switches. In January there were 63,642 switches. By November this had more than doubled to 154,647 switches.

This suggests that cash bonuses for switching work to incentivise customers to move current accounts. The fact that the Current Account Switch Guarantee has taken much of the uncertainty and worry out of switching banks is also an important factor.

Which banks gained the most switchers?

As the graph below shows, between January and September 2022 banks that offered switch incentives (orange) tended to gain more customers through the Current Account Switch Service than banks that did not (blue).

Banks which offered switch incentives continually throughout the year to September - such as First Direct (£130, then £150, then £175) and Nationwide (£100, then £200) - gained the most customers.

Banks which offered intermittent switch incentives - such as Santander (£140, then £175), Lloyds (£125, then £150), Halifax (£125, then £175) and NatWest/RBS (£150, then £175) - gained fewer customers.

Virgin Money’s incentive, which offered vouchers for Virgin Experience Days or cashback on shopping and fuel, seems to have been less successful than the straightforward cash bonuses for switching offered by other banks. This suggests that customers prefer an up-front lump sum to more complex benefits.

Some providers that gained customers through switches still had a net loss of customers between January and September 2022 (this is possible because banks can lose customers through the Current Account Switching Service as well as gain them).

Halifax and RBS both had a net loss of customers, even with their switch incentives. Starling and Monzo, meanwhile, both had a net gain of customers despite offering no cash bonus for switchers. This shows that while cash incentives work to lure customers in, they aren't the only thing that customers looks for - and banks can’t rely on them to keep their customers.

In fact, there is a correlation between customer satisfaction and banks’ net gain/loss of customers in January-September 2022. Providers that polled well for customer happiness in Fairer Finance’s Autumn 2022 survey, such as Starling, Monzo, First Direct and Nationwide, all had net gains of customers. Providers that polled less well, such as TSB and RBS, had a net loss of customers - the latter even with a switch incentive.

The data from 2022 indicates that competition in the current accounts sector - facilitated by the Current Account Switch Service - is good for customers for two reasons. First, because when many banks are trying to win switchers, they will compete to offer the biggest cash bonus, increasing the amount that customers can get by switching. Second, because it means that banks need to provide better customer service and higher quality products or else they risk losing their customers to rivals with better reputations.

Let's hope these trends continue in 2023.

Josh Cleaver and Oliver Crawford

Fairer Finance has a range of tools and services to help firms monitor market trends and meet the requirements of the consumer duty. For more information contact corporate@fairerfinance.com