Abbey and Halifax set sights on turncoats

It is banking folklore: Britons are more likely to divorce than move their bank account. It is also one tradition Halifax and Abbey National hope to consign to history through a dogged attempt to woo new customers.

The two banks have started 2001 with a bang. Their sights are set on the big four - NatWest, now part of Royal Bank of Scotland; Barclays; HSBC; and Lloyds TSB - which between them have a strangle hold over three-quarters of the country's current accounts.

Through massive advertising campaigns launched in recent days, Abbey and Halifax aim to prove that calling in the divorce lawyers is far more hassle than moving a current account.

They are even promising to save consumers money. Abbey, for instance, reckons it could save overdrawn customers £100 a year. David Fisher, general manager of banking and consumer finance at the Halifax, talks about eroding £1bn of profits made by the big four on their less competitive overdraft and interest rates.

While both Abbey and Halifax have set their sights on the big boys before, this year they mean business. They claim the timing of their campaigns is coincidence. Abbey says the move was planned long before its merger talks with Bank of Scotland were made public and the threat of a hostile bid by Lloyds TSB loomed. They agree that together they can have a greater impact.

Both Abbey and Halifax have promised potential customers they will be responsible for the burden of transferring direct debits and standing orders, traditionally regarded as one of the main deterrents to potential bank account moves. They promise to pick up the cost of any transfers. By this time next year, an industry-wide initiative will be in force, requiring all the financial institutions to agree to exchange information freely.

Andrew Pople, managing director of retail banking at Abbey National, said the bank's hotline has received a huge increase in inquiries about switching accounts, even though the campaign ran over the Christmas period. Mr Pople needs to open just over 300,000 new current accounts a year if he is to meet the bank's target for 4m current account customers by 2003. He says he is on track.

Halifax needs to achieve something similar. Mr Fisher said that applications for current accounts had risen by as much as 40% a month since the drive was announced in October, and before the recent advertising campaign began.

Halifax's campaign makes direct comparisons with the big four. Its television ads feature a singing bank manager who promises to make it easy to switch bank accounts and save money. Abbey National's promise of an interest-free overdraft for a year is plastered over poster boards across the country and boosted by comedian Alan Davies on television.

But despite their claims of savings for customers, some industry sources believe the odds are stacked against the two. Mr Pople of Abbey National admitted yesterday that just 2% of current account hold ers change banks each year, a minute proportion in comparison with the 30% of aspiring home owners who remortgage each year. This highly fluid mortgage market is where Halifax and Abbey have traditionally derived most of their business.

"It will grow," Mr Pople predicted. "But there is a long way to go before we even reach the divorce statistics."

Some industry sources are sceptical that Halifax's pledge to pay 4% interest on current accounts will be attractive, as customers with surplus cash are more likely to put it in a savings account.

Mr Pople believes that one gauge of Abbey's success will be any attempts by the big four to match its lower overdraft fees. Barclays said last night it had no immediate plans to change its tariffs and said it was continuing to attract new current account openings at the same rate as in past. Industry sources believe other major targets such as NatWest and HSBC are yet to feel the impact of the push by the two upstarts.

One leading analyst calculated that if the big four were to match the more attractive rates they could knock 5% off their combined profits of £7bn. He was cautious, however, about the impact of the Halifax and Abbey moves. "We're talking about a couple of pounds a year. Is it really going to be worth the hassle?" the analyst said.

And is the cost of advertising and lower rates worth it for Halifax and Abbey? They clearly think so, and hope that current account holders can be sold more bank products to generate more profit.

While this might be a cynical interpretation of the fight for current account business, the battle means customers can start to expect fewer charges, cheaper overdrafts and better interest rates. By showing customers that they can be better off financially and by doing the difficult part for them, Halifax and Abbey are hoping the big four's customers will start to file for divorce.

How the banks compare

Halifax

Interest: 4% Overdraft: 10%

Abbey National

Dropping charges for services such as banker's drafts.

Overdraft: interest free for one year, moving to 9.9%

Lloyds TSB

Interest: 0.1%

Overdraft: 18.8%

Barclays

Interest: 0.1%

Overdraft: 18.8%

NatWest

Interest: 0.1%

Overdraft: 18.38%

HSBC

Interest: 0.1%

Overdraft: 16.9%

Sources: Halifax, Abbey National