A government scheme designed to make the task of switching between banks easier for individuals has proven largely unsuccessful, with an estimated number of just 320 people utilizing the scheme per week.
For the 11 months from July last year, the take-up rate for the scheme was described as "underwhelming" with just 15,500 using it. Even more disappointing, only around 30% of customers who applied actually followed through with the transfer which, according to Steve James, chief executive of Teachers Mutual Bank, is due to the system still remaining "a little complicated for most customers."
The scheme was originally setup in 2010 by the Labor Party to help promote the level of competition in the banking sector (with the big four banks currently holding around 90% of the mortgage market) whereby a single form was developed for individuals to fill in to switch banks. However, it seems that the scheme has done little to simplify the process.
Because the service only applies to transaction accounts and does not automatically transfer direct debits and credits, customers must request a complete list of debits and credits from their current bank to pass onto their proposed bank to finalise the transfer. However, roughly 10% of these applications are being rejected by the bank losing the customer due to the signature being different to the one on file.
According to Mark Degotardi, the acting chief executive of the Customer Owned Banking Association, the difficult process involved in switching banks highlights the need for a 'sweeping review' of the financial sector.
Foolish takeaway
Since the global financial crisis, the big banks have acquired numerous smaller banks to gain market share. Westpac (ASX: WBC), for instance, owns Bank of Melbourne and St George, whilst NAB (ASX: NAB) owns UBank and Commonwealth Bank (ASX: CBA) owns Bankwest. Despite the banks' high yields, they still present as very expensive options for your portfolio.
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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.
