In a move to improve customer service and increase competition between current account providers, the UK Banking Industry agreed to introduce a service that speeds up and simplifies the movement of customers between providers. The Financial Conduct Authority has observed that, following an initial peak, the volume of customers switching has fallen back to their original levels and they continue to be weary of changing their current account provider.
In 2011 the Independent Commission on Banking recommended the introduction of a redirection service to enable the seamless switching between current account providers as part of a set of reforms to improve financial stability and competition. In response the UK banking industry, via the Payments Council, introduced the Current Account Switch Service (CASS) in 2013. The purpose of CASS is to make switching current account providers simpler and quicker for consumers and small businesses and small foundations. The service covers 40 bank and building society brands, accounting for over 99% of the current account market. The service removes a number of barriers, by redirecting payments such as direct-debits (for 36 months) and a speedy transfer (7 days) of current account balance, underpinned by a guarantee should things go wrong with the switch.
In 2014 the Treasury asked the FCA to review the effectiveness of CASS and start a study on the costs and benefits of Account Number Portability (ANP) as a way of increasing competition in banking. The FCA’s findings were issued in a recent report titled ‘Making current account switching easier’. The report noted that CASS has made the switching process easier, however, following an initial peak in volumes the number of customers has fallen back to the levels using the previous mechanism.
To increase uptake of the service and competitive pressure – besides increasing consciousness among consumers (with only 41% knowing the service exists) – the FCA considered further functionality to decrease perceived barriers, such as consumer confidence about switching, and to reduce transfer errors. One option is to introduce Account Number Portability (ANP) which allows account holders to keep their bank account number when they switch service provider. The advantage of such a service, among others, would be that the redirecting function is no longer required and that ANP may further reduce the perceived and actual risk of error.
To explore a number of possibilities to provide portability of account details or to enhance CASS, the FCA commissioned Moorhouse, a business transformation consulting firm, to identify a number of technically feasible options to inform a wider debate on the strategic priorities for the banking industry and associated infrastructure. The report, titled ‘Account Number Portability’, explores five theoretically feasible solutions. The solutions explored include three with ANP functionality and two that provide further enhancement to CASS. The solutions were compared against the current CASS capabilities, assessed against the wider capabilities they could provide, the customer experience of using the option and impact on competition and innovation.
Profiles of the options considered
The first option considered by Moorhouse would be similar in form to the transfer and retaining of a phone number between Telco’s. The service would require a centrally managed services that mediates between institutions to keep track of unique account numbers, such as a repository for identifiers, a payments mandates database and a payments redirection database that are integrated with the existing payments infrastructure. The benefit to the customer is that they should not need to take further action to enable the redirection of incoming and outgoing direct debits or standing order payments linked to their identifier upon switching to a new bank.
A second option considered would see ANP provided by using an alternative identifier as a proxy to a sort-code and account number. With the benefit being that a customer is that a customer can use the single identifier to retain continuity of incoming and outgoing direct debit between account providers. With the account number being de-coupled from the identifier. It would require a similar centrally managed service as that of option one.
The third option would require a wider overhaul of the banking payment system. It would require a central shared operations platform, redirection database, payments mandates database and would be enhanced by a Know Your Customer (KYC) database. This platform would provide a host of opportunities, including lowering the entry for new competitors, however, implementation of a new system would be complex and expensive and would itself create a monopoly in the payment system that may stifle further innovation.
Option four would see the CASS system redirect payments indefinitely, thus reducing the risk that consumers fail to change their banking details with third parties after the 36 month redirection window and have payments fail.
Option five would see the integration of the KYC data base through which the transfer of current accounts may be further speeded up. However, the FCA report itself notes that decreasing handover time will do little to induce customers to make a switch.
As part of the feasibility study of the various options, Moorhouse considered the costs and benefits provided for each of the five options. Moorhouse finds that while option one does not provide a great deal of new capabilities outside of ANP, customer experience would likely be positive while competition would be improved. Option three adds the most new capabilities but offers only meagre improvements in competition. With option two, both adds new functionality and the largest increase in competitive pressure but would be dependent on uptake of a new identifier. Option four and five are each only marginally successful in improving on CASS.
In terms of cost, risk and complexity, option three is the most difficult and expensive to implement. While option four and five are both relatively cheap, safe and straight forward to implement. Option two is the least expensive, risky and complex of the ANP options for implementation.
According to John Lunn, Partner at Moorhouse one of the authors of the report, the analysis shows that the overall customer experience can be improved when switching banks. “It is not surprising that there is a direct relationship as detailed in the report between the potential value to be gained, versus the cost and complexity to implement a solution. Ultimately, the overall cost, complexity, timing and risk profile of each solution will determine what is feasible and which option provides the most value to customers whilst driving innovation and competition,” he comments, adding: “Whilst this is a complex challenge for the financial services industry, we hope our findings provide a basis for further conversations between the government, regulators and the banking industry.”