All this Banking Royal Commission stuff is interesting. One might argue that the Big Four banks didn’t get their fair share of the remedial work to follow. It also cost millions to reveal information that wise and motivated regulators, investors or laypersons already knew or could find for themselves with a bit of effort and shoe leather. But I view it as money well spent. It was important to air the industry’s dirty laundry and make more Australians aware of the nefarious corners of our oligopolistic financial system. To let future bank bosses, board members, governments and regulators know what we won’t stand for.
Flicking through the report, some of the suggestions are useful and some of the omissions telling. Lower hanging fruit has been left unpicked.
I’ve long pushed for an idea that would revolutionise the competitive dynamic between our banks. Customers would be able to get a better deal with ease. By amping up competition and arbitraging monopoly profits out of the system, I also suspect it would go at least half way towards solving the incentive and behavioural issues that dominated the Royal Commission headlines. A new law, which could be drafted in a single sentence, could spawn such change. Here’s my first attempt:
By 1 January 2022, the account numbers of all at call transaction and savings accounts, credit cards and variable rate loans of all types offered in Australia must be fully portable between Australian financial institutions, to be executed on request of the customer.
Account number portability would shift consumer behaviour and competitive response as surely as phone number portability did in telecommunications. This wasn’t a topic at the Royal Commission, nor is it one on the national agenda. It should be.
8 thoughts on “A One-Sentence Law to Revolutionise Banking”
So simple and likely so effective.
Have they tried this simple solution elsewhere (in banking)?
This has effectively been implemented via PayID’s on the New Payments Platform:
Another aspect of the NPP that may help small businesses is the way it provides a mechanism (PayID) for linking identifiers such as email addresses, mobile phone numbers and ABNs to bank accounts. People are more used to entering email addresses and phone numbers than bank account details, so this may reduce errors.
More importantly, it makes it easier to move your account from one bank to another – open the new account and associate it with your chosen identifier(s), then subsequent NPP transactions will flow to the new account. This means it will be possible to move your bank account without having to notify anyone that pays you or that takes money from you.
“Where are the customers’ yachts?”, was written about 70 years ago. It was a best seller. The lessons learned back then are just as valuable today. Warren Buffett cemented this with a winning a bet against investment managers.
I don’t think the Bank Royal Commissions’ findings will make much difference in the long term. Nor will the ability to port your banking accounts. Seriously, how will this have helped customers at Storm, CFP and CommInsure etc?
Marcus Padley has put forward a controversial solution.
Finance and investing has a lot of moving parts – externally and internally – since no one person/family is the same. It’s not as simple as changing a tyre or fixing a tap or popping a pill.
I’m not sure porting will be a game changer (wouldn’t make a difference to me anyway)… Enforcement and criminal punishments where available, obviously, is needed to change behaviours. Hopefully we will see some. Commercial forces and tech disruption is going to shakeup the banks into the future. I expect they will not have it all their own way as they have in the past, but this maybe wishful thinking.
Good idea and as an aside there are two new startup banks that readers may like to check out and will be good for competition too, Xinja and Volt.
It’s interesting you mentioned phone number portability. I have a 40 something work colleague who did not want to change her mobile supplier even though there are better deals on the market, because she would lose her mobile number. This was in 2018, so even today not all customers know about phone number portability. I suspect, if we ever get full bank account number portability it may need to be accompanied by a Govt advertising campaign, because the big four banks certainly won’t be advertising it.
Then of course there is the problem of human inertia.
Have you looked into the OpenBanking (aka consumer data rights)?
While it may not be quite as targeted at switching banks as your example, it will both allow for that to be implemented (or make it much easier), and (currently) in a faster timeframe. It will probably also extend to other industries (telco, insurance, energy). This also started before the banking royal commission.
While it currently only mandates that banks provide the ability to access the data, I am sure small (and big) players will take advantage of it making switching banks easier. If not they will be doing a lot of work without realising any benefit that others will take advantage of.