Banks must overcome consumer inertia to carve out their market share, writes Laura Slattery.
It won't make (or cost) you millions. It won't give you "peace of mind" or a sense of pride. But current accounts are the engine of all personal finances - a smooth, well-oiled one will quietly shelter weekly wages and keep direct debits ticking over without ever receiving much acclaim.
But a current account that malfunctions sporadically has the power to create financial havoc, perhaps even a mob of angry creditors and hacked off utility companies, as well as the moments of despair that follow an ATM's refusal to spew forth more cash.
If that's coupled with a lack of appropriate sympathy from the customer service representative on the other side of the glass or end of the line, or seemingly petty charges for every tiny transaction, then an errant current account can assume qualities of an embarrassing affliction that's difficult to shake off.
Some 90 per cent of Irish people over the age of 16 have either a current or savings account and people use their current account more than they do any other financial product.
Traditionally, only a small percentage of people have ever bothered to switch current accounts. The tedium of cancelling and setting up new direct debits and standing orders topped the long list of hassles and inconveniences involved.
The end result was that many consumers were effectively "locked in", as the Competition Authority phrased it, to their current account and often paid over €100 more every year in fees and charges than they strictly had to.
But since last February's introduction of a new industry code of practice on switching accounts, marketing activity from the smaller banks has stepped up.
Ulster Bank has become the latest of the smaller players to try to dent the dominance of AIB and Bank of Ireland.
This week, the bank announced that it is to offer free banking from February 17th. It has written to existing customers to tell them that they must no longer have a balance of €500 in their accounts in order to avoid paying transaction fees, nor will they have to pay for setting up or amending standing orders or direct debits.
Ulster Bank will also become the first bank to officially abolish overdraft set-up and renewal fees, although Permanent TSB currently waives these fees.
Authorised overdraft interest rates at Ulster Bank will drop to 11.3 per cent, the second cheapest rate in the market and the cheapest available in conjunction with free banking.
Meanwhile, Permanent TSB declared last week that it opened 67,000 new current accounts in 2005, almost double the rate it attracted in 2004, thanks to the heavily promoted launch of its free Switch current account.
Around 18,500 of these account holders were existing Permanent TSB customers who, unlike Ulster Bank's existing customers, had to opt to upgrade to the free account.
Attacking its rival for "shutting the bank doors after the customers have bolted", Permanent TSB says that 4,300 of its 48,500 new customers came from Ulster Bank. But most have been snared away from the "big two" banks.
Some 45 per cent came from the Republic's biggest bank, AIB - now the only bank at which it is not possible for customers who are neither students nor pensioners to avoid paying fees.
Some 37 per cent of the switchers transferred to Permanent TSB from Bank of Ireland.
Last November, in a move described as "too little too late" by Permanent TSB, Bank of Ireland, acted to prevent further desertion by announcing it would waive transaction fees for customers who maintain a credit balance of €500 and make three online or telephone payments per quarter.
The bank wrote to its existing customers to inform them of the new option, which they had to actively select. According to a Bank of Ireland spokeswoman, some 13,000 existing customers had done so by mid-December.
However, the spokeswoman said it was still too early to say whether its decision has had any impact on switching rates.
Current accounts are important for financial institutions because consumers looking for profit-generating loans and insurance policies often tend to approach their current account provider first, either out of convenience or loyalty or because they assume they will be offered a better deal. According to Permanent TSB, a third of the people who switched their current account to its books last year also decided to move one or more additional products to the bank.
The switchers most common choice was its Ice credit card, which has the lowest standard annual percentage rate (APR) of interest in the country at 9.9 per cent. Savings and investment products and mortgages were their next port of call.
Consumers' tendency to stick with one institution for a variety of products is also something that Ulster Bank will hope to exploit.
Ulster Bank head of retail marketing Brendan O' Hora said he expected some consumers would decide to switch both their current account and their mortgage at the same time, availing of Ulster Bank's offer to pay the full legal cost of remortgaging.
The bank will be expanding its switching team, who in compliance with the Irish Bankers' Federation (IBF) code of practice will do most of the switching work that used to be done by consumers.
Under this code, the "old" bank must switch all existing direct debits and standing orders to the new bank, informing all direct debit originators - utility firms, insurance companies and others - that are being paid by direct debit of the new account details, and then the new bank must set up the altered direct debit mandates.
The process must be completed within seven days. In addition, the new bank must have the account up and running within 10 working days of approving the application.
"I think it's probably fair to say the 10-day standard wasn't always met at the beginning. There were some problems, particularly with direct debit originators. But it has improved since then," says O'Hora.
Only 14,500 of Permanent TSB's new customers attempted to take advantage of the code. The bank has found that consumers often quite like a longer period of overlap between applying for a new account and closing the old one.
Much of this has to do with trust. They want to see how good the product and service is before abandoning their old bank completely, says Permanent TSB's head of marketing, Niall O'Grady.
"Most people want to keep their old account open for about three to four months until the new account proves itself."
The level of marketing activity aimed at switchers is still put in the shade by the annual campaigns to lure teenagers into their branches.
Bank of Ireland, AIB and Ulster Bank are the three who actively chase the student market.
Permanent TSB has to date not embarked on any specific promotions for students, but that is set to change this summer (the peak student recruiting season), according to O'Grady.
The year is also expected to see new initiatives from National Irish Bank, which describes its Freebank account as its "best kept secret".
Bank of Scotland Ireland, which this week launched a competitive savings account and promised to "shake up" Irish banking, is due to offer a current account from 2007.
But all of the smaller banks must advertise heavily to overcome consumer inertia.
Even if they are convinced by the IBF's claim that switching under the new code is easy, many consumers simply don't care enough about having to pay 20 cent for ATM withdrawals or €4.50 in quarterly maintenance charges to make the move.
Who's offering what in current account banking
Ulster Bank's new current account has removed all charges, except for those relating to unpaid and referral items - when there are insufficient funds in the account to meet a payment - credit transfers and duplicate statements.
At 11.3 per cent, it has a lower overdraft rate than Permanent TSB and is the only bank to have officially abolished overdraft fees.
Ulster Bank also offers a packaged current account called U First, which costs €108 a year and includes various lifestyle benefits, discounts on personal loans, a preferential savings rate, interest of 0.25 per cent on the current account balance and a significant interest rate discount to customers who have their mortgage at the bank.
Permanent TSB launched its Switch Current Account last year, attracting almost 50,000 new customers. Like the Ulster Bank account, there are no transaction fees or set-up charges for direct debits and standing orders. It does have a charge of €20 for setting up and renewing overdrafts, however these fees are currently waived. Its overdraft rate is 13 per cent. The bank claims it has attracted customers due to their latent dissatisfaction with the main banks over fees and charges.
NIB offers a standard current account and a Freebank current account. The latter offers free transactions and standing order/direct debit set-up charges as long as the account is in credit - no overdraft facility is available on this account. Interest is paid on credit balances at a rate of 0.1 per cent. The standard account has a quarterly fee of €5, regular transaction and service charges and the highest overdraft set-up fee at €35. However, the transaction charges are only applied when the account is overdrawn. The bank should prove more aggressive this year following moves by its new owners, Danish financial institution Danske Bank, to revamp its products.
Since last November Bank of Ireland offers free transactions to anyone whose account has a balance of €500 and makes three phone or online transactions per quarter.
It also still operates two charging structures for customers who don't meet these criteria. Under the pay-as-you-go system, each transaction costs 28 cent, while under the flat fee arrangement, customers pay a quarterly sum of €11.40, for which they receive a bundle of 90 transactions.
There are no set-up fees for standing orders or direct debits.
The bank charges the highest interest on authorised overdrafts, at 14.4 per cent.
The largest current account provider in the country with the highest number of branches, AIB is the only one at which it is not possible to avoid paying fees, unless you are a student or over the age of 60. Its quarterly fee is €4.50 and it charges 20c for electronic transactions and 30c for paper ones.
There are no set-up charges for standing orders and direct debits. It does pay interest on balances at a rate of 0.5 per cent on amounts up to €1,000 and also has a competitive online savings account.
