Customers can easily switch between bank accounts using the seven-day switching service, said Benny Higgins. But he argued that is of limited use when they cannot compare the relative costs and benefits of different accounts.
“For the market to be properly suited to giving customers choice, then they have to be able to make comparisons, and the shopping trip has to be straightforward,” he said. “Importantly, that is not the case – very few customers know how much their account costs them. It is very very difficult to judge value and price.”
Upstart banks including Tesco’s want to challenge the dominance of the giant lenders in part by taking their current account customers. But the small banks are finding it difficult because customers cannot easily work out if moving to a new bank would leave them better off or not.
Traditionally, customers have stuck with one main bank account for decades, and only shopped around for savings accounts or loans, where interest rates are more easily compared between providers.
Since the seven-day current account switching scheme was introduced in 2013, numbers have picked up, with 1.1m using the service in the 12 months to June 30, according to The Telegraph.
Tesco Bank launched its current account a year ago and gained 30,000 customers by February, when it last published data. While Mr Higgins said he is “very pleased” with the number it compares with a total of 7.4m customers across all Tesco Bank products, indicating how hard it is to get clients to move their main account.
There is an online tool called Midata with which customers can download their bank history and plug it into the GoCompare price comparison website to see which bank is best for them, but Mr Higgins believes it is not adequate for the task.
“In spirit it is a good idea, but it is quite embryonic and it is not clear yet just how readily customers are prepared to do some of that stuff,” he said.
His alternative is to show current account customers the interest they missed out on by keeping their spare cash in that account rather than moving it to an instant access saver.
This chimes with the idea of TSB’s chief Paul Pester, who wants banks to publish a bill at the end of the months as utilities firms do, showing the costs and benefits of the bank account, including interest paid, interest foregone, fees charged, and a list of services provided.
However, Mr Higgins argues Tesco Bank has so far done more than anyone else to promote transparency: “We’re not talking about these things – as far as possible we’re actually doing them.”
Despite his call for more transparency, he does not ask for the Competition and Market Authority for any specific change, but rather to encourage and promote more transparency.
The CMA is investigating the state of the personal current account market, as well as the small business banking sector.
“I’d like the CMA to conclude that the absence of transparency is not good for customers, and then to initiate hopefully what will be a constructive and productive dialogue about how banks can indeed be much more transparent,” said Mr Higgins.
“The ease of switching is a necessary but not sufficient condition for the market to be better for customers. What is required for that is the transparency that you see in other markets which are very competitive for the benefit of customers, where customers can make choices about what products suit them.”
