For roughly ten years you have been able to take your telephone number with you when you change phone provider – imagine if you could take your bank account number with you if you decide to change your banker?
Oftel, under the leadership of Sir Don Cruickshank from 1993-98, saw through legislation that forced telephone companies to allow customers to transfer their telephone number from one company to another with ease. Now the Treasury Select Committee, of which I am a member, has discussed the possibility of requiring banks to do the same.
The Committee is in the middle of an inquiry into competition and choice in banking and it seems to me that such a change could spark a revolution in retail banking in the UK.
The evidence given to the Committee suggests customer inertia is a huge feature of retail banking – as anyone with a mortgage, utility bills and a few charitable donations will know, the thought of having to cancel all those standing orders and direct debits leaves you unlikely to ever change banks.
My own office manager told me how speechless with rage she is with the inefficiencies of the bank she has been with for twelve years, but still the prospect of moving banks is too much bother…
For SMEs the position is even worse. They become ‘trapped’ by a bank because they deposit the day’s takings with them, have overdrafts and other banking arrangements that are complicated and expensive to move.
Imagine how much easier it would be to transfer your bank accounts if you could take your account number with you, just changing the sort code, so all your banking arrangements moved with you.
The way to do it would be to introduce a new licensing regime for domestic money transmission systems such as BACS and CHAPS. The licensing body could be the new Consumer Protection and Markets Authority (CPMA). Banks could continue to own and manage the money transmission systems, but licenses would enable the CPMA to make certain demands of banks. As well as account number portability, the CPMA might require the provision of basic bank accounts for the well over 1 million people in the UK who currently have no access to banking.
Sir Don, who also carried out a review of the UK banking sector in 2000, raised the issue of licensing of money transmission systems all those years ago, but nothing so far has happened. It could be an idea whose time has come. It would be a first in the developed world and there would be enormous advantages for individual customers and for SMEs:
- Customers – both individual and business – could move easily between banks so could become far more discerning about terms and quality of service;
- Banks would need to dramatically improve the customer experience in order to retain access to our £billions of largely ‘free’ balances;
- The likes of the big UK retail brands could enter the market for banking services in the knowledge that barriers to entry were now dramatically lowered;
Having talked to other MPs about this in recent days, I’ve heard nothing but enthusiasm for the idea. The big challenges will of course be issues like:
- Redesigning long-standing payments systems – meeting the technological requirements of account number portability;
- Who should license money transmission systems? Should it become part of the remit of the Consumer Protection and Markets Authority;
- Could it work in the UK alone or would international payments present problems?
- How can the issues around money laundering be dealt with?
In my opinion, increasing competition in banking is critical to getting our financial services sector back on an even keel. The Vickers Commission should be considering all means possible to achieve that. This particular idea only addresses competition in retail banking but it could be an important start to a revolution that will create a more competitive and balanced banking sector.