How to break up with your bank

We all moan about our banks, but are generally reluctant to take our business elsewhere. However, if you do all that’s required of you and give yourself enough time, switching banks need not be a sweat. Angelique Ardé reports Capitec ‘has been a game cha

All of the banks claim to make switching a hassle-free experience, but a cursory look at consumer website Hellopeter.com shows there are many unhappy customers who left one “bad” bank only to feel like they’ve joined another.

None of the banks will say how many customers they lose to competitors in any given year.

According to FinMark Trust’s FinScope Survey for 2015, only six percent of respondents said they had switched banks in the past year. Although six percent doesn’t seem a lot, it’s equivalent to about 1 808 000 customers.

Young customers have a greater propensity to switch banks, according to a 2013 study by SystemicLogic. These customers are likely to have fewer debt- based products (such as home loans) than older customers, so they don’t feel as if they are tied to their bank.

Customers switch banks for a variety of reasons: poor service, high fees or inadequate online security, to name a few.

Just because customers don’t switch doesn’t mean they are happy with their bank. Many consumers stay put because of the oligopolistic nature of the banking sector. (An oligopoly is a market dominated by a few players, resulting in limited competition.)

The issue of market power in the retail banking sector was addressed by the Competition Commission’s Banking Inquiry in 2008. In a bid to improve competition, the inquiry recommended, among other things, that the industry takes measures to facilitate customer switching. In 2012, the Code of Banking Practice was revised to deal with switching.

It states that the banks have committed themselves “to making it as seamless and easy as possible and reasonable for all personal transaction account customers to switch banks”. The code spells out the responsibilities of all parties: you, the bank you’re leaving and the bank you’re joining.

Unsurprisingly, most of the responsibility falls to you to provide your new bank with all the information it requires to try to make it a seamless switch.

A key aspect of switching is transferring debit orders and regular credit payments, such as salary and pension payments, from your old account to your new account.

The code states that, although the banks are committed to ensuring that the process is smooth, “the cooperation of all parties involved (especially debit-order originators) and salary, income and benefit payers) is required”. (A debit-order originator is a third party that you have authorised to deduct money from your account.)

This is what the code says:

YOUR ROLE

◆ You’re advised to begin the process by opening an account with your new bank.

◆ You need to provide your new bank with the appropriate information (such as account numbers and policy numbers) so that it can transfer your debit orders, arrange new stop orders and load your beneficiaries.

◆ If your new bank informs you that any party, such as a debit-order originator, would not accept instruction from your new bank, you must provide your new bank account details to that party.

◆ You must inform your employer (timeously) of your new bank account details.

◆ You must provide your old bank with a clear instruction to close your account, and when this must be done. You should keep the account open for at least six weeks after you have switched, to ensure that all your transactions have been switched to the new account.

◆ You must make sure there are sufficient funds in your old account to cover any payments that are not switched timeously because of the actions of third parties.

YOUR NEW BANK’S ROLE

◆ Your new bank may advise you on how to transfer debit orders and salary payments, arrange new stop more that can be done.

“New models have to be developed to bring the 25 percent or so of adults who still don’t have access to banking into the fold. Retail banking is still dominated by the bricks-and-mortar, full-service bank with high capital requirements and onerous licensing requirements.”

According to a recent paper coauthored by Makhaya, there is scope to improve the switching process.

The process could be improved if there was a regulated switching process with mandatory timelines, as suggested by the Banking Inquiry orders and, if relevant, load your payment beneficiaries.

◆ Your new bank should remind you to include any annual debit orders (such as a TV licence or an insurance premium) or stop orders in the switching instructions to that entity.

◆ When your new bank receives a signed debit order or salary redirect form or instruction it may inform all relevant existing debit order originators of your new account details for future deductions;

◆ Your new bank will inform you of any party that would not accept these instructions from it. In such instances, it is your responsibility to have the account details changed with that party.

YOUR OLD BANK’S ROLE

◆ You may be required to provide your new bank with information about the transactions you wish it to switch to the new account. Your old bank will help you, if you ask it to, by providing the following basic transaction account information [to your new bank] within 10 business days of receiving your proper instruction to close your account: ❑ Up to three months’ statements; ❑ A list of stop orders loaded; ❑ A list of beneficiaries loaded; and

❑ Any supplementary or linked cards or accounts which may be affected.

◆ Your old bank will ensure that all its internal divisions or subsidiaries act on your instruction to switch your debit orders to your new account, and that no artificial or unreasonable hurdles or demands are raised to prevent you from switching your account to a new bank.