Banks tap youth culture to bag customers for life

By Anna McLauchlin

Date: 16/02/06

Have you ever cringed at those advertisements from banks trying to tap into 'cool' teenage culture, promising 15-year-olds or students tempting free gifts, such as rail discount cards, or cash if they sign up for an account?

While the adverts are often painful to watch, the theory behind them is sound. Research by consumer associations shows that once customers belong to a certain bank, they are likely to stick to it for life.

A study carried out by the Belgian consumer organisation Test-Achats in 2005 showed that eight out of ten bank account holders in Belgium had not changed their bank for more than ten years and that the older the account-holder, the less likely he or she was to switch. Those that had changed account gave three main reasons: costs, staff behaviour and staff competence.

Obstacles to moving bank included the hassles associated with changing bank account numbers and setting up new direct debits as well as the cost involved in closing a bank account. While the nominal charge is often in the region of _20-30, the actual cost can be much higher. The French consumer association UFC Que Choisir in 2004 estimated the total cost of switching banks in France at around _335, taking into account the fees, payment incidents related to changing contracts, the cost of red tape such as sending letters and the time lost in choosing the new bank and the form-filling involved.

Banks in some countries, such as Belgium, have an agreement to manage account switches from bank to bank with minimum fuss for the client, although according to BEUC, the European consumer association, even in Belgium this is often not adhered to.

The European Commission's competition department has already launched an investigation into the retail banking sector. The results of this will be published in several stages throughout 2006.

In its green paper on financial services policy published in July, the executive also pledged to look into other barriers to the portability of bank accounts and regulate to make the sector more competitive.

One suggestion that has enraged the European banking industry is the idea of issuing a 'portable' bank account number so that customers can keep their account number even when they change banks, in much the same way that they can do with their phone numbers.

"We would support measures to help people switch bank account, but issuing the same bank account number would entail a rethink of the entire system at huge cost to banks, when the evidence suggests that hardly anyone changes their bank account," said a spokesman for the European Banking Federation.

Dominique Forest from BEUC said that the portable number was not the main priority for consumers. He welcomed provisions in new rules for EU payment services - currently being considered for a first reading at the European Parliament - which would ban all European banks from charging customers to close their bank account.

But, he said: "Banks also have to tackle market transparency so that they can compare offers and the red tape involved in switching bank accounts."

Article takes a look at the issue of portability of bank accounts and the costs for consumers related to it.
Article is part of a European Voice Special Report, 'European Banking'.