OK. I know this is going to annoy some people that I like and respect. But I do firmly believe you can disagree with integrity without dissing those on the other side of the argument. So. Let’s talk about something that I was against from the beginning but I understand why other people were in favour of it. You may remember that I have said one or two mildly critical things about the Current Account Switching Service (CASS) now and then. In fact, when it was launched, I said that it wouldn’t make “the slightest difference” to the number of people switching accounts.
“This will make not the slightest difference,” said David Birch, global ambassador at IT consultancy Consult Hyperion. “…True competitiveness means new competitors. Even if we reduce the process from 12 days to seven, who cares? We still haven’t taken out any cost. There are far better ways the money could have been spent.
As it turns out, I was wrong. It did make a difference. The number of people switching accounts went down after the introduction of CASS. This year it went down by another 5%.
“With 65 million current account holders in the UK, movement is minimal,” said Hannah Maundrell, editor of money.co.uk. “Even with big cash incentives on the table, people just aren’t switching.”
This is a well-established trend and one that has been noted by the regulator, which has been casting around for new ideas in response to the failure of CASS to stimulate migration in the mass market and therefore induce the banks to introduce more competitive products.
Just over one million switched their bank accounts last year, 11% down on the 1.15 million recorded in 2014 and the Financial Conduct Authority (FCA) has floated the possibility of full account portability, identifying two potential models: building it within the existing market structure and then running the additional infrastructure centrally, as is the case with Cass; or a new central utility model based on a shared platform.
CASS cost £750m to launch and it’s probably cost in total around a billion quid by now, so I don’t think tinkering about with it any further is really a good use of money.
The UK Payments Council-backed current account switch service (CASS) has gone live, promising to enable customers to move between banks in seven days or less.
By the way, I never understood what this has to do with the UK Payments Council or why it was in their (generally excellent) world-class payments strategy. But I digress. I just wanted to begin by saying that I wasn’t sniping at CASS out of snark, but because I genuinely thought that it was a bad idea that there were other ideas (e.g., mine) that were much better.
If the government genuinely wanted to increase the amount of account switching as part of their competition agenda, then as noted in the clip above, a much better way to do it would be through the use of portable bank account numbers or, as I have previously called them, Virtual Account Numbers (VANs). I did explain to the government how to solve this problem before, but no-one seems to have paid any attention. Once again, let me stress that I was not the only one who thought that account number portability (ANP) might be a better use of money (although I may have been the only one who thought that VANs were the best options). More than a year ago, in March 2015, the FCA published a report on “Making current account switching easier” detailing “the effectiveness of [CASS] and evidence on account number portability”. It said that:
Consumer organisations, while appreciating the benefits that such a system would give consumers, were also cautious about ANP, arguing that the real barriers to switching do not lie in the infrastructure but in the choice and differentiation of the current accounts available.
This is a fair point (note that it also explains the failure of CASS in a nutshell) but I think it misses the advantages to other stakeholders, not of ANP in general but of VANs in particular. I told the previous Economic Secretary to the Treasury about VANs and “paynames” ages ago.
I was the nutter at back who kept going on about “7-0” solutions, Angela.
Angela Leadsom ignored my suggestion. I’m not saying that this directly led to her defeat by payments gal Theresa May (The Prime Minister and First Lord of the Treasury worked for Payments UK’s precursor, the Association of Payment and Clearing Services, APACS, for many years) but it would certainly have given her an inspiring idea forged in the white heat of new technology and capable of delivering immediate benefit to consumers and businesses alike. Just to remind you, my particular version of the VANs option was…
Now, you know how all mobile phone numbers in the UK begin with a “7”. Well, what if all virtual account numbers in the UK began with “7” as well? It turns out that the “7” sort codes in the UK have an unusual history…
The solution is straightforward. When someone opens a bank account, give them a virtual sort code that begins with 7 and then an account number. They keep this number for as long as they like. When they change bank accounts, they keep the 7X-XX-XX XXXXXXXX number but it now points to their new account. Employers, utility companies, P2P services and everyone else carries on using the that virtual number. No-one needs to update anything or notify anyone. Consumers could log in and map their VANs to any “reachable” UK payment account whenever they want to and it wouldn’t cause the slightest hiccough in the payments infrastructure, because all push payments to 7X codes would go through the directory service.
(Incidentally, I see the Bank of England is closing the “10-“ accounts for staff so that will free up another VAN sort code range for (e.g.) government services.)
ANP isn’t a good thing because CASS is a bad thing. We should have opted for ANP instead of CASS not because they are substitutes but because CASS didn’t solve a pressing problem whereas ANP means cost savings and convenience throughout the economy even if it doesn’t change account switching at all.