If you could 'port' your bank account number like you do your phone number, would you be more likely to switch? Find out why this isn't possible… yet.
With the possibility of finding interest-free overdrafts, cash switching bonuses and in-credit interest rates that trounce savings, it’s always worth investigating whether you could get a better deal by switching your current account.
Since the advent of the Current Account Switching Service (CASS) in September 2013, the process of switching bank accounts has been simpler, faster and backed by a guarantee that the banks will pick up the tab if there’s a problem.
Plus, with the arrival of midata, it’s also never been easier to find the right account to save you money
Yet a survey by Gocompare.com in February 2015 showed that 40% of UK adults had never switched bank accounts and the fear of having to change account number and get to grips with a whole new set of bank details could be one reason for this inertia.
In March 2015, the Financial Conduct Authority (FCA) published a review of bank switching trends which included a study of account number portability (ANP).† This identified three different models of how ANP might work.
This model has parallels with the telecoms industry as it involves bank customers retaining a single account number – known as an identifier – which would move with them when they change bank providers.
The identifier would be a unique 14-digit number made up of the customer’s existing account number and sort code, so there’d be no new information to remember.
The advantage to customers is that they wouldn’t need to redirect any incoming or outgoing payments upon switching – a central redirection system common to all banks would reroute the payments.
The previous bank wouldn’t be able to reallocate customer account numbers, but consideration is needed about how to make this work in practice and develop the centrally managed services needed to avoid duplication.
The FCA says this could be implemented in less than two years – significantly faster than other options.
This involves customers being issued a new identifier that moves with them when they switch banks, rather than keeping their account number and sort code.
This model will also need a number of centrally managed services to administer a whole new set of identifiers and to reroute payments.
The new identifier model mirrors how the Paym system works, where mobile phone numbers are used as the identifier for bank accounts. However, it widens out its capability to encompass current account switching, rather than just receiving payments.
Mobile phone numbers, national insurance numbers and an entirely new bank-generated number have all been mooted as possibilities for unique identifiers, but there are pros and cons with each.
A major argument for the new identifier model over the retain identifier model is that it could be integrated with international payments.
It’s estimated that the cost of the new identifier model would be £3-4bn and the timescale would be longer than the retain identifier model, but shorter than the central utility model.
This is the most ambitious model and accordingly is the most expensive, complex and risky.
It involves all banks sharing a single, core platform where all account information, account identifiers and customer history are held.
Banks would also retain their own competitive platforms offering different products and services to customers.
An analogy would be the gas and electricity network – where the same product is all supplied down the same pipes, but providers sell the product with different advertising, tariff structures and prices.
With the central utility model, the customer’s bank account would exist permanently on the central core platform and when they switch accounts the account wouldn’t actually ‘move’.
Instead access to their account would be transferred to the new bank so they could provide banking services to the customer.
A big advantage for customers is that this model could retain and transfer their account history and statements.
ANP could potentially make switching simpler and easier for customers
A major drawback – and it’s a biggie – is that this would mean that if a technical problem were to affect the centrally managed core platform, it would affect all banking customers.
The central utility model could be developed with an existing identifier or a new identifier and the level of disruption to customers would depend on which is chosen.
There are huge cost barriers to existing banking providers with this model – £5-10bn, with annual running costs of 1bn.
There are several advantages of ANP, the chief of which is encouraging confidence to switch among consumers.
In its March 2015 report, the FCA concluded that: "ANP could potentially make switching simpler and easier for customers by allowing them to change banking service providers without changing their bank account number.
"It could also remove the need to amend certain outgoing payments such as direct debits, which is a key area where perceived or actual problems with switching, such as missed mortgage payments, can arise."
If customers felt more confident in switching their accounts without a risk of payments going awry, this would most likely increase competition between providers, leading to better banking deals for customers.
In evidence presented to the House of Commons in 2012, Andrea Leadsom pointed to fraud prevention as one of the most compelling arguments for ANP
What’s more, the FCA’s report says that one particular model for ANP – the central utility model – could improve competition by making it easier for challenger banks to enter the market.
"The key reason for this is that entrants ‘plug’ directly into a core banking platform that provides standard banking operations in a single shared utility among all subscribing banks," said the FCA.
In evidence presented to the House of Commons in 2012, Andrea Leadsom pointed to fraud prevention as one of the most compelling arguments for ANP, particularly in terms of the money it could save the banking industry.
She highlighted research by UK technology association Intellect which suggests that a central account portability system could mean a 40% reduction in fraud. This could equate to savings of £68m over six months.
Intellect points out that such savings could cushion the cost impact of establishing ANP via the central utility model.
Despite the many potential benefits of ANP, there are a few reasons why it's not on the cards just yet.
One of the major reasons for the banking industry’s reluctance to embrace any of the ANP models is the potential cost. Whichever model is chosen, there would need to be huge initial investment.
None of the models of ANP are quick fixes, with even the retain identifier model some years off if it's chosen.
All major players in the industry need to commit to one of the models before work can even begin on implementing it.
If the banking industry and government decide that the central utility model is the way forward, a decade of development could follow before it’s rolled out to customers.
Even though all three models provide an unchanging account number, none allow the customer to retain their debit card number.
This means customers would need to remember to set up any recurring debit card payments with their new bank, which might deter some from switching.
If the implementation of ANP means customers are assigned a new account number, some customers might be confused over whether they should use the new or old account.
This is one argument for why a retained identifier system might make ANP more palatable to customers.
The FCA released its findings on the feasibility of ANP and some possible models in April 2015.
There’s still a great deal of work to be done, not just technologically but also in terms of reaching an agreement between the banking industry and government on how best to proceed.
In addition to the possible ANP models, the FCA has proffered ideas that will improve the existing switching service.
The first is the CASS perpetual model, whereby payments would be permanently rerouted, rather than rerouted for the 12 months currently offered under CASS.
The second is the development of a 'know your customer' database, a central database of customer information such as statement information which would still be accessible when a customer switched banks. This could work alongside ANP or instead of it.
If these are seen as acceptable alternative ways to improve competition in the banking industry, it’s possible we might never see account number portability.
If, however, one of the models is selected for development, ANP could be on the horizon, albeit with a two-to-10-year development period.