The Bankwatch

Tracking the consumer evolution of financial services

Detailed look – UK Independent Commission on Banking proposal on account switching requires much deeper thought

Digging a little deeper into the Commission report over lunch, and I am now coming to the funny bits. 

The laudable objective on pages 123 – 124 is that one way to promote competitiveness is to smooth the account switching process between banks.  They note that very few people switch banks each year and speculate that future improvements would speed the process and encourage more people to switch banks.

To encourage this, the tactics they suggest are as follows.  They are listed in increased ascendancy of humour factor:

  1. Greater transparency of each banks benefits over the other
  2. Mandate switch must occur within 7 days
  3. A “redirection system to transfer debits and credits from the old (closed) account automatically to the new account without inconveniencing the customer”
  4. Full account number portability

Independent Commission of Banking or here on my blog

Beyond improvements to the existing system, full account number portability would enable customers to change banking service providers without changing their bank account number. This would remove the need to transfer direct debits and standing orders, which remains the main area where problems may arise. In the past, portability has been rejected as overly costly, but if no other solutions appear effective and practicable, it should be reconsidered to see if this remains the case given improvements in IT and the payments system infrastructure.

Where do I begin.  One of the beauties of internet is that everyone assumes when they see all their accounts, investments, and loans in one place that the flick of a switch here or there will permit anything to be accomplished.  At least the Commission recognised that these things might take a couple of years.

Ask anyone involved in SEPA what the real time frames are involved!

Banks’ systems are horribily un-integrated within each bank, because while internet allowed a pretty face to be placed on top, the reality is underneath are disparate systems of different vintage, type, connectivity, and capability.  There is also the reality that those systems were created at different times, so each, generally speaking, contains all the customer information including name, address etc.  The result  each system each customer looks unique to each system. 

I am very aware of a large bank in Canada who were unable to provide account number portability between their own branches in Canada.  The notion of such a thing across banks, given different account number lengths, different ways of handling Sorting Codes etc … words fail.

Relevance to Bankwatch:

With my serious hat back on, the only way true competitiveness will arise is by allowing new competitors.  The solution for that cannot be from within Lloyds and RBS, yet one almost senses this part of the report was written mostly for them. 

New entrants can develop technology solutions that will allow modern information architecture and produce extensible frameworks which will make the Commission objectives seem pedestrian.  Account switching on the same day should be one objective for example;  another is that account number portability is a given.

On the Direct Debit and Credit ‘redirection’ facility that almost sounds like it needs a utility which resides outside each bank.  That could be accomplished by using perhaps the Central Exchange near Milton Keynes which handle cheque clearing, but with less and less cheques, this could be a place to house such a capability.

Good luck with this one.  Those are laudable objectives but will require something beyond technology solutions from within the banks.  What will be required are encouragements to new entrants, and independent review of which things should stay inside banks and which could to be centralised to maintain a competitive environment in the future.

Written by Colin Henderson

April 11, 2011 at 12:00

Posted in Uncategorized

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