Move bank? That'll be the day

For 30 years Jim Lyons banked with Barclays and tolerated his treatment at the hands of the "big bank for the big world". He stayed, more than anything, because of the difficulty of moving his business - the worry about his salary arriving in the correct account and his direct debits and standing orders being honoured.

Now, aged 71, the retired company director is taking the plunge and moving his precious current account to Halifax. It is a momentous decision for Mr Lyons, who has grown weary of his bank closing branches while making big payments to its senior executives.

"I'd been with Barclays over 30 years - a very long time. They were the only bank I'd ever banked with.

"What started me off about moving my account was I read about this new Halifax account but like most people was put off by the hassle. I pay all my regular bills by direct debit. The thought of moving it all put me off," Mr Lyons says.

He's not alone. Very few customers ever move their bank accounts. Unlike other financial products - particularly mortgages, where one in three homeowners look for a new mortgage each year - just 2% of 30m bank customers move current account in any year. Many keep their account for life while they keep mortgages for an average of just seven years. They even divorce more often.

Halifax and Abbey National - along with a handful of internet banks - want to change all that. Millions are being spent on advertising to tackle this inertia and help them grab a share of this profitable market through which they hope to sell more products.

The big question the industry is asking, however, is whether these millions are being wasted in a market where the inertia will never be broken. Egg - the online bank majority-owned by the Prudential - thinks that is the case. Paul Gratton, chief executive of an operation which shook up the savings market, admitted this week that it was too tough a market for Egg to crack, even with its considerable resources.

The Egg conundrum


In his view the big four - Lloyds TSB, Barclays, NatWest and HSBC - have a stranglehold over 70% of the market which will be difficult to loosen. Mr Lyons, as far as Egg is concerned, is not sufficient evidence to the contrary. Yet Mr Lyons has broken free from one of the big four. He wanted to move his Barclays account earlier, and only decided to do so when Halifax promised to do the difficult part of sorting out direct debits and other payments from and to his account.

He moved to a bank which does not have a branch in his home town of Bridport, Dorset - even though the Barclays branch from which he is defecting survived the closures last year.

The banks insist the hassle factor should no longer deter customers from switching. They can swap direct debit details and other information about accounts - once they have the customer's permission. The process still takes a minimum of six weeks to complete, a factor acknowledged by Abbey National as deterring people who might be thinking about moving.

"It's still proving quite a hard battle to get people to switch," said Andrew Pople, the managing director of retail banking.

Abbey National also claims that the big four are not playing fair, and are holding on to their dominant position by failing to comply with the industry-wide agreement to swap all the information within 10 days. "Small minded," is how one executive described it.

Some industry experts believe that the new entrants are trying to blame the big players because the real reason for the inertia is not the difficulty of transferring accounts. They argue that customers need to be convinced they will be better off if they move, as they do when they remortgage their house or shift their savings to providers offering higher rates.

This means that even Halifax's promise of 4% interest on balances - 40 times more than any of the big four - or Abbey's pledge to stop overdraft charges for a year, could have little impact.

One leading analyst calculated that Halifax's 4% interest rate on balances could leave a higher rate taxpayer with a £1,000 account balance just £2 a month better off. Contrast that with a 1% reduction in the rate achieved by remortgaging a £60,000 loan, where a homeowner could be £50 a month better off.

According to Stuart Cliffe, the chief executive of the National Association of Bank and Insurance Customers, another reason for this inertia is the historically privileged position of banks in this country - as recently as two decades ago having a bank account was only just becoming the norm.

"We keep encouraging people to change banks as they would supermarkets if they see a better price," said Mr Cliffe, a man with plenty of evidence of bank blunders.

Even he holds out little hope that moving will become as common as chasing the highest interest rate for savings or the lowest rate for loans and mortgages.

"There's an underlying belief that financial services is so difficult and banks so socially exclusive that customers feel happy that've got one relationship with one bank," Mr Cliffe said.

The "relationship" often amounts to an overdraft limit and these so-called relationships are one of the reasons which allow the big four to appear relaxed about the new competitive onslaught on their traditional business.

"The big four have the advantage of long term relationships. Hot money will follow the hot rates. People who want relationships will move between the big four," a spokesman for Lloyds TSB said.

Statistics by FRS, a division of pollster NOP, show that 38% of all accounts "switched" move around the big four. The big four also win 21% of those who switch from the new entrants but in turn lose 28% of those who switch to the upstarts. On this basis, the new entrants are making some ground, albeit a relatively modest amount.

Jon Gillman, the head of current accounts at Barclays, also believes long-stranding relationships give the big four an advantage. "We're able, once we know a customer, to make a better judgment about their overdraft. A new customer would have to be with us a while before we can make that judgment," he said.

In his view, any spare money will go into a savings account to gain access to a higher rate of interest, and while he appears to play down the impact of Halifax's 4% rate on balances, he is careful not to rule out matching it. Both Barclays and Lloyds TSB hint at improvements to their current accounts this year - their reaction to the competitive pressures from the Halifax and Abbey.

In turn, the banks aspiring to boost their current account share will be hoping that their marketing extravaganzas will not just result in customers of the big four being given a better deal by their existing bank. Worse still would be attempts by the big four to offer market-beating rates just to attract new customers, as has happened in the mortgage market for the last five years.

The Howard argument


Halifax remains undaunted, pointing to research which shows it could cost the big four a combined £1.5bn to match its 4% rate on balances. The former building society this week was upbeat about efforts to double its share of the current account market, now around 5%. The "Howard account" - as it has become known after the singing bank manager who stars in the TV campaign - attracted 100,000 applicants last month. This is three times more than usual and only a month into theschedule.

"Even at this early stage, customer inertia is on the way out," claims James Crosby, the chief executive of the Halifax.

Many industry experts have yet to be convinced. Richard Coleman, a banking analyst at ABN Amro, admits that he is sceptical.

"Any new entrant has a surge in business," he says - and keeping that momentum going is the big challenge. Mr Coleman says customer behaviour in the next six months will be critical in judging whether the dominance of the big four operators can be broken.