For some, the thought of switching current accounts could be considered an arduous task. However, this is certainly not the case anymore and people are starting to realise it. In the last three months of 2022, a record-breaking 376,107 people switched their current account to a different bank, according to data from the Current Account Switch Service (CASS). For context, this is the highest volume since the switching service began in 2013 and is 73% higher than the same period of the previous year. 

So what is driving this spike?

For some time, banks have been offering cash incentives to consumers to move their current accounts to them. However, the uptake of these rewards has been exacerbated recently due to the cost of living crisis. What we’re seeing now is a strong correlation between these enticing financial rewards and the huge uplift in the volume of consumers using the Current Account Switch Service. 

Taking a look at who are the winners and losers in the switching game in Q3 2022 can help to shed light on what are the drivers behind this phenomenon. It is no surprise that Santander, who came out top for net account gains (29,105 net account gains), offered one of the largest incentives in the market for switching, with a whopping cash incentive of £175, plus double cashback on consumers’ gas and electricity bills for two months. Similarly, second on the leaderboard was HSBC (with 13,119 net current accounts gains) who offered £200 for switching consumers which could be boosted to £250 if consumers registered via a cashback site. 

The power of cash incentives

The power of these cash incentives is even more apparent if we look at the switching volumes from the previous quarter of last year (Q2 2022), where Santander in fact came bottom of the pack for switching volumes, with 20,220 net losses in the quarter, before the introduction of their tempting cash offer. Clearly, then, the £175 incentive introduced in Q3 2022 hit a soft spot with consumers, taking Santander from the bottom to the top in the net current account gains race.

This makes us think about how banks are viewed by consumers. When push comes to shove and the purse strings are pinched, is a bank ‘just a bank’ at the end of the day, all with similar offerings? It seems that the baseline position may be the same but the cash is the crucial factor to consumers at this time.

So, that begs the question, are cash incentives really the way forward? Of course it is attractive for consumers to take up a short term offer for a couple of hundred quid just to switch your current account (which is now really easy to do using CASS). It is an offer that is undoubtedly hard to refuse – but is this the best way to deliver consumer lifetime value?

Interestingly, third and fourth place for net current account gains are taken by two challenger banks: Starling (9,070 net gains) and Monzo (6,038 net gains). Crucially, Starling is the only bank on the podium not to offer financial incentives for switching, suggesting that neobanks are winning on their product functionality alone, with seamless digital platforms and easy money management tools (which, again, come in handy when faced with a cost of living crisis).

At Manifesto Growth, we decided to do a bit more digging.

We conducted quantitative surveys on consumers in the financial services sector to ask what they thought about their banks. When we asked consumers what were the most important factors setting a bank apart from its competition, the top response was excellent customer support (important to 60% of respondents), followed by convenient day-to-day banking (important to 46% of respondents).

In addition, our survey results showed that not only were customer service and day-to-day convenience important from a competition perspective, they also helped to develop trust in financial institutions. These findings shed light on the importance of an excellent customer experience, delivering against the brand promise in the banking process.

With most customers now conducting their banking digitally, the high expectations of that experience as well as ease of access to human support have become a critical tool for banks. This builds a trusted relationship with their customers over the duration of their lifetime which, in turn, drives additional value for both the end-user and their bank. 

It’s interesting that it is again the neobanks setting the agenda on this, by not tempting customers with cash incentives and instead focusing on the longer term play.

Focusing on communicating the soft benefits associated with their products, such as customer service, will help banks to drive longer term consumer value. Although less tangible than a cash incentive, the value from these features will still have big appeal among consumers.

There is evidence that a lot of switching takes place around product offerings, with 46% citing online banking as a reason for switching, closely followed by customer service (42%). If we’re going to retain customers, then being aware of these factors is critical, particularly with regards to the way we communicate.

So what next?

If we look at the bigger picture, cash incentives have been a great prompt to encourage people to make the move and utilise the switching service. In the past, people only switched if they had an issue with their bank, however switching is now more easy and fluid than ever thanks to the Current Account Switch Service, which undoubtedly enables competitiveness in the market. To capitalise on this phenomenon in the longer term, ensuring the customer remains at the centre of product development and functionality will be crucial.

Keeping up with the customer

At Manifesto Growth, we see time after time how important customer experience is. It is about having a smooth omnichannel experience that is ever evolving and keeping ahead of customer expectations. Our experience across a breadth of clients helps us to apply a cross-industry perspective to the problems facing our clients.

In Financial Services, where disruption continues to intensify, exceptional customer experience is something that can no longer afford to be ignored. Sometimes knowing where to start can be daunting and that’s where our HPX practice comes in. We can work with you for a short sharp period, identifying priority experience points and helping you plot a course to a more customer-centric, value-led approach to the critical business of experience. Read more about our HPX practice here.