Defaqto launches new Star Rating for current account switching
According to independent financial research company Defaqto, with the number of banking customers that switch current accounts remaining relatively low, there is an opportunity for providers to entice customers by becoming more transparent and enabling customers to compare accounts more easily.
Defaqto's Review of Personal Current Accounts suggests that there are several obstacles that could be preventing a larger number of people switching. The unique nature of current accounts makes it very difficult for customers to fully compare current accounts from different providers. At the same time, there is a perception that the switching process is unreliable and will result in a customer suffering financial loss or being inconvenienced, for example, through unpaid direct debits or missing salary payments.
However, according to Defaqto, there is an opportunity for current account providers to enhance customer trust in their brand by increasing their transparency in this area. Defaqto's review sets out a number of ways in which providers could achieve this, including:
Offering a standardised overdraft charging structure
Showing a comparison of key features and costs with competitor products
Issuing an annual statement summarising interest earned, costs and confirmation of key account features and how cover levels may have changed
Kevin Bray, Defaqto's Insight Analyst for Banking, said: "The main issue, as highlighted in the Independent Banking Commission report published in April 2011, is the lack of transparency when it comes to account switching. Customers must be enabled to simply compare the various elements of an account, from both a cost perspective and also with regards to account features.
"A simpler or consistent approach to overdraft charging would also help. At present some providers charge a daily fee for an agreed overdraft, others a monthly fee, some charge an interest rate and others a mixture of both. If we add in additional fees charged by some providers for renewing an overdraft and consider an interest free overdraft limit the complexity is significant. It is not surprising that a majority of consumers are left confused and unable to determine the most appropriate and cost effective account for them."
Defaqto has recently launched a new Star Rating for current account switching. Star Ratings provide an independent assessment of each current account based on the switching related features it offers - giving each a rating of 1 to 5, depending on the comprehensiveness of the features provided. They provide an independent verification of the quality of a product, and where a product sits in the market, and are an easy way for providers to communicate the quality of their products to customers.
In addition, Defaqto has Star Ratings for standard current accounts, premier accounts and added value current accounts.