DESIGNING a system to make switching accounts easier would cost the banking industry £2bn and take two years, according to a confidential report given by Lloyds to the Independent Commission on Banking (ICB).
The eight-page document and 21-page appendix, seen by City A.M., lays out several options for introducing a new account switching service, with the bank favouring a seven-day redirect service that would enable all direct debits and other payments to be automatically re-routed.
Notably, the bank suggests that such a system could also be introduced as part of a resolution process for failing banks: “In the event of bank failure, one of the imperatives may be to migrate substantial numbers of accounts quickly to another provider,” it says. “The switching remedy which we propose could be developed and/or used to reduce the risk of payments going to the wrong accounts following migration.”
This suggests that a portable switching service for retail deposits could be part of the infrastructure that banks are required to include in the ring-fenced retail subsidiaries that the ICB has suggested .
If the ring-fenced subsidiary were to consist solely of retail deposits and a payments system, it would in fact be closer to “operational” subsidiarisation (ring-fencing of essential infrastructure) rather than a full-scale division of banks along business lines.
However, this is unlikely to consist of “full account number portability” of the kind available to mobile phone users. The Lloyds paper concludes that such a system would cost £2bn-£5bn and take five to ten years to implement as it would require a redesign of the entire payments system.
The introduction of a switching service that could improve competition in retail banking was one of the ICB’s proposals in its interim report released on Monday. In line with the Lloyds recommendations, the report suggests that “a radically improved system for switching accounts could and should be introduced at a reasonable cost within a short timescale” and that this would be “less costly” than full account number portability.
Lloyds declined to comment.