Well, it's Switch Day today, and millions of people will be heading off move their current accounts from one bank to another.
The Payments Council today (16th August) announces the official launch date for the new Current Account Switch Service, designed to make switching current account from one provider to another simpler, reliable and hassle-free.
From Monday 16th September 2013, 33 bank and building societies brands – accounting for virtually 100% of the current account marketplace – will deliver the new switching service for consumers, small charities and small businesses.
[From Payments Council – One month to go until launch of new Current Account Switch Service]
I probably sound a bit of a curmudgeon on this one, but I've never understood why the banks were bullied into wasting the best part of a billion quid on this. It's not as if there was much of a problem to deal with in the first place.
In a Which? survey, 74% of people who had switched account said the process was easy, with 32% finding it very easy.
[From Bank account switching tips – Switching your bank account – Bank accounts – Which? Money]
So three-quarters of the populace were satisfied with the current system? It currently takes two to three weeks to switch bank accounts in the UK, but later this month it will take only a week. Who cares?
Why are we doing this? I have a suspicion that it is because the politicians didn't really understand what is involved. If they did, they might have gone for better solutions. One way to make switching easier, for example, would be to allow people keep their account numbers but simply move them to another bank, much as we do with mobile phone numbers that we shift across networks. Unfortunately, this won't work, now matter how much people would like it to, because
phone numbers and account numbers aren’t quite the same thing
[From Could bank account numbers be portable like mobile numbers?]
Consumer surveys seem to indicate that around half of the British public would switch bank accounts if it could be done within a week. Given the Which? survey and my own anecdotal experiences, I simply don't believe this – this is just what people tell the guy with the clipboard in the street – and I'm certain that no-one will bother any more than they do now. There just isn't enough difference between the main competitors and so the only way to get them to do it will by offering expensive gifts, which won't last. Allowing people to switch from banks to non-banks would be more likely to have an impact on the competition in the sector.
We need more new banks to increase competition and consumer choice, and to fund businesses to stimulate the economy.
[From Time to open banking to new entrants – FT.com]
But do we need more banks, or more bank-like institutions? Non-banks and near-banks might be a better alternative, institutions that can serve transaction-centric niches. One category of organisation that might well step in to provide these kinds of services, given the appropriate regulatory environment, is mobile operators. It's the regulatory environment that is key. In Europe mobile operators can obtain a Payment Institution (PI) licence and an Electronic Money Institution (ELMI) licence. In Canada, Rogers had to go and get a banking licence, but in the U.S. a mobile operator couldn't even go down that route.
In the United States, however, the current laws are designed prevent a Verizon or AT&T from doing what Rogers did in Canada. The Bank Holding Company Act, enacted in the 1950s, prohibits the mingling of banking and commerce and generally limits non-banking institutions from controlling banks.
[From Regulatory Uncertainty Casts Doubts On Legal Status of Mobile Payment Services | BNA]
Not only will this prevent American carriers from acting Canadian, it will also stop them from acting Japanese (where DoCoMo took over Sumitomo Mitsui to offer a credit product) or European (where some carriers have already obtained PI licences).
In conclusion, Summers recommends… the development of a special-purpose bank charter for non-bank providers of specialised payment services.
[From Finextra: US payments system failing to meet the needs of the digital economy]
This would, I imagine, be something like Europe's PI licence. In San Francisco last year at Brian Zisk's "Future of Money & Technology Summit", there was a panel session on "The New Value Movement" that I remember being very good. The panel, led by Amy Vanderbilt with Daniel Robles (Ingenisist), Joe Johnston (Connect.me) and Patrick Murck (Engage), was looking at (very broadly speaking) alternative monetary systems. Patrick, the lawyer (who said it was OK to abuse him because he was well paid!) did point toward the PI and ELMI approach as better than the US' stultifying combination of national and state licensing, which I obviously agree with, and observed that the result is limited, closed-loop systems that do not generate as much value as they should.
The financial system is broken. Regulators want change, businesses want new means of financing and consumers want alternatives. The "banks”"of the future will include state-owned entities, and firms that simply don’t use cash: think bartering and community currencies. Digital wallets and mobile banking are opening the door for telcos and software players, while trust is the entry point for retailers and crowdfunding communities.
[From Global trends for 2013: A top ten for business leaders | The Economist]
I think the quotation marks are telling. The Economist is surely right to link the near-banks of the coming generation with the innovative use of new technology to deliver these new services that are distinct from the taking of deposits and the provision of credit, the core banking functions that need to kept within the more tightly-regulated, well, banks. This is the sort of thing the CASS money should have gone on. At a cost heading towards a billion quid, you have to wonder if it wouldn't make more sense, then, to spend the money on helping (for example) credit unions or other community-based providers.
It seems to me to be one of those cases where the government could really think of anything useful to do but wanted to appear to be doing something, and this qualified as something that could be explained in a soundbite.
I've written before about what the industry should have done, which is to create a virtual sort code and account number that customers can switch to wherever they like: that way, they give their employers and whoever else a single sort code and account number which never, ever changes, Then, if they want to switch bank, they re-route the virtual account and there's no need to notify billers, counter parties etc to update their databases. Much simpler. But whatever.
[From E-ASS about face]
I will be genuinely surprised if CASS makes much difference over the long term. There might be a spurt in account switching as people try it out, but I'm sure things will settle down again before too long.