Central Bank of Ireland publishes Financial Stability Note on Account Migration

26 October 2022 Press Release

Central Bank of Ireland

  • Central Bank using insights from behavioural economics to inform ongoing work on account migration.
  • The forced migration of such a large volume of customer accounts is unprecedented and could create a significant challenge for consumers if not managed properly by banks and other parties affected by the migration.
  • Central Bank has provided supervisory feedback on planned communications by the exiting banks, including specific insights from behavioural economics. 

The Central Bank of Ireland has today (26 October 2022) published a Financial Stability Note looking at consumer switching, and specifically the potential barriers to consumer engagement, through the lens of behavioural economics. In this Note, the Central Bank is publishing the behavioural insights that have informed its engagements with the retail banks and other regulated firms over the course of the migration so far.  Throughout these engagements we have made our expectations clear, including that the banks and other regulated firms prioritise their customers’ best interests and take every reasonable measure to ensure that customers are enabled to switch. Drawing on the analysis set out in this Financial Stability Note, we have emphasised to retail banks and other regulated firms the importance of having clear communication strategies, processes and supports in place for their customers. 

The forced migration of such a large volume of customer accounts is unprecedented in the Irish market. Critically, consumers are not choosing to switch, they are being forced to do so. This could create a significant challenge for consumers if not managed properly by the exiting and remaining banks, as well as the other commercial entities affected by the account migration exercise. By publishing this Note, the Central Bank is sharing the benefit of these insights developed over the course of our work on this matter with all parties involved in or affected by the migration.

The Note studies relevant international evidence on financial product switching and  the types of consumers most at risk of any harms or penalties resulting from inaction. It also highlights the common behavioural frictions that can inhibit switching and the types of interventions that may help to mitigate such frictions. 

The Note highlights: 

  • Consumers tend to stick with the status quo, even where the incentive to take action appears overwhelming. Some groups are more likely to switch financial services than others, with some evidence pointing to a lower prevalence of switching among the unemployed and less educated.

  • The most common barriers that explain sluggish switching and engagement rates relate to the actual or perceived costs consumers face in doing so, and how these costs compare to the benefits achieved by taking action. The costs can include financial and time costs as well as perceived hassle costs and risks with unfamiliar providers. Behavioural factors include limited attention, procrastination and choice overload.

  • To prompt better engagement, a variety of ‘nudges’ and methods from behavioural economics  can be used by financial providers, including framing customer communications to promote urgency, displaying the costs of inaction upfront, simplifying language and providing timely reminders. 

  • Careful consideration must be given to the content, presentation and timing of communications, such that they are well adjusted to the behavioural realities of consumers who receive them. Financial providers should consider how the communications schedule can be optimised to catch customer attention at relevant milestones ahead of the ultimate deadline. 

  • If consumers encounter obstacles, there is a risk that some will defer and may ultimately abandon switching. This could include obstacles such as long call waiting times or waiting times for appointments at remaining banks , confusion around switching direct debits or standing orders, or a more complicated process to be followed if switching multiple types of accounts (e.g. for small businesses). Financial institutions, including banks and direct debit originators, therefore need to take all necessary action to ensure they can support their customers switching bank accounts and moving payment arrangements in a smooth and timely manner, including monitoring and learning from customer experiences. 

The Central Bank will continue to engage closely with all of the banks in the weeks and months ahead to ensure that customers continue to be properly supported through this process. This will include continuing to have regard to the findings in the analysis we are publishing today. 

Notes to Editor 

The Central Bank of Ireland is publishing monthly statistics on account migration in the banking sector, based on data from the two exiting banks, and the three largest remaining retail banks; Allied Irish Banks, Bank of Ireland, and Permanent TSB.