Payment Account Switching

Payment account switching is the process of moving a consumer's or small business's main payment account, usually a current account, from one bank or payment provider to another, together with the payments attached to it. A full switch transfers the balance, moves standing orders and direct debits, redirects incoming salary and other credits, and closes the old account, ideally without missed payments.

Switching is treated by regulators as a test of competition in retail banking, because customers who find switching hard tend to stay with expensive or poor-quality providers. In the European Union, the Payment Accounts Directive requires providers to offer a switching service. The United Kingdom runs a centralised scheme, the Current Account Switch Service (CASS), and other countries rely on industry codes. Full account number transfer is a separate idea, covered under bank account portability.

Moving house is easier when a removal firm handles the boxes and the post office forwards your letters. Without that help, you would have to contact everyone who sends you mail and hope nothing gets lost.

Switching accounts used to be like moving house with no help: telling your employer, your landlord and every company that takes a monthly payment about the new account. A switching service does the forwarding for you. The new bank arranges the move, the old bank passes on the details, and payments sent to the old account are redirected for a period.

The directive sets minimum rules for switches between payment accounts in the same currency within the same EU member state:

1. Authorisation. The consumer signs an authorisation with the new, or receiving, provider, choosing which services to move.
2. Request to the old provider. The receiving provider asks the transferring provider for lists of standing orders, recurring incoming transfers and direct debit mandates.
3. Transfer of services. The transferring provider sends the information and stops accepting debits and incoming payments from the agreed date, and can transfer the remaining balance and close the account if asked.
4. Set-up. The receiving provider sets up the standing orders, accepts the direct debits and gives payers and billers the new account details where the consumer has asked it to.

Each step has a deadline counted in business days, and providers must not charge for the information they pass on. The directive also requires providers to help consumers open an account in another member state, though the full switching service does not apply across borders.

The UK launched CASS in September 2013, run today by Pay.UK, the operator of the Bacs and Faster Payments systems. A customer asks the new bank to switch, chooses a date, and the switch is completed in seven working days. The service is backed by the Current Account Switch Guarantee, under which participating banks and building societies redirect payments sent to the old account for an extended period, notify the senders of those payments of the new details, and refund any interest or charges caused by a failed switch. Partial switches, which move only some payments and keep the old account open, use a different process. Because the customer receives a new sort code and account number, CASS is a form of managed switching rather than true portability.

Other markets use different models. The Netherlands introduced a national switching service in the 2000s, and several EU countries had industry codes before the directive. In the United States there is no regulatory switching scheme; switching relies on customers moving direct deposits and bill payments themselves or using tools offered by banks and payroll providers. Open banking data sharing, described under open banking, can make switching easier by letting a new provider read the customer's existing payments, with consent.

Switching services have reduced the practical risk of moving accounts, but switching rates have stayed modest in many countries. Surveys suggest that inertia, loyalty and doubts about the gains matter more than the process itself. Banks compete through cash incentives for switchers, which mainly attract a group of frequent switchers. For banks, a switched account is valuable mainly if it becomes the customer's main one, which is the idea behind account dominance. Recurring card payments, such as subscriptions charged to the old bank's debit card, are not moved by the switching service, because the new bank issues a different card, so customers must update them with each merchant.

• Current Account Switch Service