A FAMILY WILL pay €260 in bank charges to have their account with the traditional high fee banks next year. Our compatriots up North get a different deal. They get the same current account from the same Irish banks, but won’t pay a penny in fees.
Welcome to a basic lesson in competition. If you have two banks dominating the market you get charged high fees, and if you have a highly competitive market, like in Northern Ireland, you get innovative, good value services.
The bankers need our help more than ever today, though. They need us to agree to pay that €260 and not switch to a free banking account. Now, they’ll allow us a mild grumble, a bit of self-muttering upon reading the bank statement, and outraged comments below – just don’t try anything stupid like actually doing something about it please.
An unhealthy banking market? You don’t say…
A big problem here is us. We let the banks walk all over us. What’s strange is the contrast with our excellent behaviour in our other household bills.
Take phone bills for example. We have forced massive improvements in mobile phone services through our extreme disloyalty to providers. Show us the newest shiniest phone and we’ll switch in a second to whatever company is offering that phone. Without even so much as a thought to using our new free calling minutes to say goodbye to the previous provider.
It doesn’t matter how many stupid ads we are shown with people clutching their phones and dancing around the streets such is their apparent Gaiety-School-of-Acting delight with their phone service – we just have no loyalty. Witness the rise firstly of Meteor, then Three, and more recently Tesco Mobile and the multitude of other new entrants.
If you’re a phone company in this market you live in a state of constant terror. There is an absolute fear of losing everything if the company doesn’t innovate and offer a good deal. This is the environment within which better service thrives.
Compare that to the market for bank account switching. Take an average four people you might see this week shivering at an ATM to take out their cash. Three of four of them are still with the same bank they opened as teenagers or with their first pay cheque. One in four of those queuing actively dislikes the bank he or she is with but hasn’t changed. Just one in four has ever changed their bank account.
Hello profit! Hello #banking260! How could you not charge high fees in a market like this? Your customers actively dislike you and yet will continue to stick with you no matter what amount of fees you charge? This is corporate nirvana. Imagine the envy of the phone companies when they see this type of behaviour?
The rise of the Power Switchers
There is a fly in the ointment of banking inertia though. There’s a group of us who are Power Switchers – people who turn switching into an art form. Car insurance firms, electricity, phones, broadband provider executives are sent on corporate retreats to curse, ponder, and tremble at the problem of the Power Switchers.
A recent index on switching, compiled for Permanent TSB, tracks switching behaviour across all the common household bills including banking.
The main findings are not too surprising. People switch the bills that are easiest to switch, so car insurance and mobile are tops. Electricity lags a bit behind presumably because the new, extremely straightforward switching system is not yet widely known. Broadband still irritates people. And banking is bottom of the list.
Most people who switch, including in banking, report being happy with the outcome. Bank switchers in particular actually report it as being almost an empowering experience (well, whatever gets you up in the morning).
The process is also far less hassle than people envisage. There’s a bit of gym-psychology going on here – we tend to view going to the gym as a sacrifice that’s not going to be fun, but once we get there we enjoy the experience a lot more than we thought and are happy we went.
Developing a switching habit
It’s the Power Switchers who are particularly interesting. These are the under-35s, living in Dublin usually, and they have a switching habit. Evidence from other countries suggests they are wealthier and more educated. They switch multiple providers each year and they’ve even *gasp* switched their bank account. Before now the bank account wasn’t even on the radar as there were no charges, but now that it has become a bill it is dispassionately added to the switching habit. And it’s a growing number – one third of all bank account switching occurred in the last year (10 per cent last year vs 29 per cent who have ever switched).
A standard approach of the Power Switcher is to pick a day a year when they sit down and ponder the necessity and amount of each of their bills. Then they threaten their existing providers with desertion unless their bills are lowered, and promptly leave the providers who don’t comply.
These are the people who got us all to switch to their phone network so we could call each other for free. They’re the people who got us to stop using Internet Explorer by laughing at us. Next they’ll be mocking us for paying bank fees when there is free banking available.
These are a dangerous bunch of renegades who threaten the very fabric of #banking260. The banks might have to improve services and reduce fees if this crowd get traction. So, this is a call for action. We all want €260 in bank charges. But the power switchers might ruin all this with their disloyal actions. Please RT #banking260 today to show your appreciation for high fees.
Dr Michael Dowling is Lecturer in Finance in Dublin City University specialising in personal finance and investor psychology. He tweets @MichaelMDowling