Message Received? The Impact of Annual Summaries, Text Alerts and Mobile Apps on Consumer Banking Behaviour

63 Pages Posted: 9 Mar 2017 Last revised: 5 Apr 2017

See all articles by Fabian Garavito

Fabian Garavito

Financial Conduct Authority

Stefan Hunt

Financial Conduct Authority

Darragh Kelly

Financial Conduct Authority

Date Written: March 24, 2015

Abstract

The UK personal current account market generated £8.1 billion revenue in 2013. 94% of adults have at least one account and 40% have more than one (CMA, 2014a). Despite the market’s importance and penetration, there have been ongoing public concerns about how well it functions. Two key concerns are the low transparency of overdraft charges and the low levels of switching personal current accounts.

The Office of Fair Trading (OFT) recommended that personal current account providers issue annual summaries to consumers following the OFT market study in 2008. Major banks voluntarily agreed to issue these summaries and rolled them out several years later. The government ensured that text alert services were available at major banks by March 2012 (HM, Treasury). These market initiatives were intended to help consumers understand and reduce the costs of their current account or switch to an account that better meets their needs (OFT, 2008). Over the same period, major banks also rolled out commercial services, such as mobile banking apps for smart phones.

In the context of a potential market investigation into the retail banking sector, the Financial Conduct Authority (FCA), in collaboration with the OFT, wanted to understand the impact of annual summaries, text alerts and mobile banking apps on consumers. We pin down the causal effects of these initiatives by applying econometric techniques to granular data, with over 300 million observations, from one bank and aggregated data from another bank. The current CMA market investigation makes this research even more relevant.

We show that annual summaries, as designed by the banks we looked at, 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 the facility to act quickly upon receiving information. Text alerts and mobile banking apps also decrease average current account balances by 17% to 24%, which is beneficial for consumers as they reduce the cost of holding balances in accounts with no (or low) credit interest. Consumers who sign up to these services are also more likely to become inactive at their bank, which we measure using the number and value of consumers’ credits and debits per month. This suggests that these services facilitate banking with multiple providers.

We discuss a range of implications and questions brought forth by our findings in the conclusion of our paper, including those in relation to incentives for innovation, the role of regulation, how to design effective disclosure rules and issues to address in the regulation of personal current accounts.

JEL Classification: C21, C20, C54, C83

Suggested Citation

Garavito, Fabian and Hunt, Stefan and Kelly, Darragh, Message Received? The Impact of Annual Summaries, Text Alerts and Mobile Apps on Consumer Banking Behaviour (March 24, 2015). FCA Occasional Paper No. 10. Available at SSRN: https://ssrn.com/abstract=2858198

Fabian Garavito

Financial Conduct Authority ( email )

25 The North Colonnade
Canary Wharf
London, E14 5HS
United Kingdom

Stefan Hunt (Contact Author)

Financial Conduct Authority ( email )

25 The North Colonnade
Canary Wharf
London, E14 5HS
United Kingdom

Darragh Kelly

Financial Conduct Authority ( email )

25 The North Colonnade
Canary Wharf
London, E14 5HS
United Kingdom

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