In the context of a potential Competition and Markets Authority investigation into personal current accounts, the FCA wanted to understand the impact of previous initiatives that were intended to help consumers manage their current account.
Using rigorous statistical analysis of data from two large banks, including granular data on 500,000 customers from one bank, we show that annual summaries have no effect on consumer behaviour in terms of incurring overdraft charges, altering balance levels or switching to other current account providers. In contrast, signing up to text alerts or mobile banking apps reduces the amount of unarranged overdraft charges incurred by 5% to 8%, and signing up to both services has an additional effect, resulting in a total reduction of 24%. The additional impact of the combination of both services shows the benefit of receiving information upon automatic triggers, without having to actively acquire it, as well as having the facility to act quickly upon receiving information. Text alerts and mobile banking apps also reduce current account balances by 17% to 24%, which is beneficial for consumers as they reduce the cost of holding funds in accounts with low credit interest rates. These services also appear to encourage consumers to switch without closing their original account.
This research reinforces the importance of testing disclosures beforehand to help ensure that they effectively achieve their intended outcomes. The paper discusses wider implications for the role of regulation, how to design effective disclosure rules, and incentives for innovation.
Stefan Hunt, Darragh Kelly and Fabian Garavito
The authors work in the Chief Economist’s Department of the Financial Conduct Authority.