Bank account switching reforms in Australia

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One report I missed during  my holiday was the Fraser report into reducing account switching costs for Australian bank customers. However, better late then never – here is my opinion.

The report is formally known as Banking services: cost-effective switching arrangements.  Like the Vickers report, discussed here, the Fraser report does not support full account of portability. At paragraph 2.4, the report notes that:

Implementation of full account portability, however, would be far from simple, and not at all analogous to telephone number portability as sometimes suggested. It would involve the replacement of the bank, state, branch (BSB) system of numbering, and wholesale revamping of the existing payments infrastructure and the systems of all the financial institutions which interface with it. It would be a major and costly undertaking.

Because the Australian banking system involves a wide range of bilateral arrangements, full account number portability would require that these arrangements are reorganised to enable the interrogation of a central account number database. Apparently this is costly, and the report concludes that full account number portability “would involve major costs, which would ultimately be borne by payments system users, for relatively minor benefits” (paragraph 2.19).

The Fraser report recommends a form of moderated switching for customers where the customer’s new bank, at the request of the customer, contacts the old bank and organises for relevant transaction details to be changed on the customer’s behalf. The customer would only need to sign a single form and the process would be moderated through the Australian Payments Clearing Association (APCA).

The APCA proposal envisages the development of a switching ‘mailbox’, a convenient and secure electronic means through which a customer’s new institution could request details of direct debits and credits and the customer’s existing institution could similarly provide that material quickly and efficiently. In other words, the mailbox would allow financial institutions to both make and respond to requests for relevant details of direct debit and credit arrangements of customers switching their transaction accounts. APCA estimates that its work on the project would take about six months to complete and cost it about $250,000; some additional spending — unquantifiable at this time but likely to be modest — would be required by participating financial institutions on changes to their back‐office and processing arrangements (paragraph 3.14).

The Fraser report recommendation seems like a good idea. It provides a longer lasting solution from the customer’s perspective than the temporary redirection process suggested by the Vickers report. And it avoids the major reorganisation of IT systems required for full portability. Further it builds upon an existing, under used, system.

The federal government is aiming to introduce the recommended switching process on 1 July 2012. Maybe this win for consumers received some publicity while I was out of the country. But I get the impression that this reform to the banking system is a win for consumers that has flown under the radar.

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