Customer Behaviour

The number of customers flocking to Santander using the current account switching service shrank back sharply after it announced fee hikes for its flagship 123 account, figures show.

The data also suggests that Halifax, Nationwide Building Society and TSB have gained ground in the battle to win current account customers’ business.

Santander made a net gain of 3,592 customers using the current account switching service between October 1 and December 31 2015, according to data released by payments body Bacs.

While this was still an overall gain – at a time when many other major providers were making net customer losses – it marks a much smaller increase compared with the previous quarter – when Santander made a net gain of 51,000 customers between July 1 and September 30 2015.

Santander has been considered one of the biggest “winners” of the industry’s current account switching service, which was launched in 2013 to make it easier for customers to ditch their old provider and switch to a new deal.

Santander’s innovative 123 current account pays cashback on household bills as well as 3% interest. But in January 2016, Santander increased the fee on its 123 account, from £2 to £5 a month.

While the fee hike did not come into force until 2016, plans for the increase were confirmed in September 2015.

Santander has also just unveiled a new account called 123 Lite. The account pays also up to 3% cashback on household bills and has a smaller monthly fee of just £1 – although unlike the 123 current account it does not pay in-credit interest.

A spokeswoman for Santander said: “The Santander 123 current account remains one of the most rewarding accounts on the market due to its twin benefits of cashback on household bills and in-credit interest.

“That, coupled with high levels of customer service, has made our account popular with savvy switchers. We continue to be at the forefront of current account innovation, and just this week, we have added a new account to our range, the 123 Lite current account which offers customers all the cashback benefits of the 123 current account for just £1 per month.”

The figures also show that Halifax made a net gain of over 31,000 customers in the fourth quarter of 2015, up from just over 11,000 the previous quarter.

Russell Galley, managing director at Halifax, highlighted the success of its reward current account, which gives eligible customers £5 a month, as well as a £100 bonus to switch.

Nationwide Building Society made a net gain of 26,000 customers, up from 15,000 in the previous quarter, while TSB piled on more than 9,000 customers net, up from just over 3,000 the previous quarter.

Both Nationwide and TSB have current accounts paying 5% interest.

The switching figures are provided on a voluntary basis by banks and building societies. The figures cover people, small businesses and small charities using the current account switching service – which has cut the length of time it takes to switch to seven working days, from up to 30 previously and automatically moves outgoing and income payments over to the new account.

The figures do not cover customers who switched without using the service, perhaps because they kept their old account open and moved their payments over themselves to their new account.

Barclays, Bank of Scotland, the Co-operative, HSBC, Lloyds Bank, NatWest and RBS all made net customer losses in the fourth quarter of 2015. Barclays had the biggest net loss of the providers included, with a net fall of over 27,000 customers.

A Barclays spokeswoman said: “The switching service works well for customers, however there is still significant account opening and closing outside of the service. In fact, we continue to open more current accounts each month than we close.”

Bacs also released industry-wide figures showing how many customers are using the service to ditch and switch providers. During the first six months of this year 567,677 switches took place – a 4% increase compared to the first half of 2015.

Bacs said three-quarters (75%) of people are now aware of the current account switching service – up by 17 percentage points since launch.

Andrew Hagger, founder of, said Santander’s confirmation last year that it intended to hike its fees “appears to have had a dramatic impact on the net number of new accounts opened”.

He said the launch of the new 123 Lite account “makes me wonder whether the bank realised that it needed an alternative product for those with a smaller credit balance where the credit interest is currently being severely eroded by the higher £5 monthly fee”.

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