THIS week saw the biggest step forward yet in the campaign to allow bank customers to move current accounts as easily as they switch mobile phone providers. Under account number portability (ANP), customers could keep their account number and sort code when switching, and standing orders or direct debits would not need to be moved. Switching would be hassle-free and almost instantaneous.
There is already a plan to introduce seven day account switching this September. This is positive, but it won’t deal with the administrative burden of moving accounts, remove barriers to entry, or tackle the oligopoly of the big banks and their crumbling legacy systems. Only ANP will be a game-changer for standards of customer service.
This week, the government signalled its intent to commission a full, independent analysis of instant ANP, and to give the new payments regulator the power to introduce it. I welcome this backing, and am sure that the resulting momentum behind the initiative will make it unstoppable.
Why is it important? Full and instant bank ANP will transform banking on a number of levels. It will increase competition by removing a significant barrier to entry now preventing new entrants from coming to market. New entrants currently have to contract one of the Big Five banks to provide clearing services. They are charged up to 10 times the going rate and, when the systems of a clearing bank fail, they fail for the new entrant. Under ANP, they will no longer need to go cap-in-hand to the Big Five, but could access the payments infrastructure directly.
More freedom to move accounts will also force banks to compete more effectively for the retention of customers, giving new entrants a better chance to attract business. And new entrants typically bring with them innovative new ideas and improved services, which should ultimately drive up standards of customer service across the industry.
Of equal importance, ANP would help facilitate orderly exit from the market in the event of bank failure. The accounts held within a failing bank could simply be transferred, by the Bank of England or the regulator, to a survivor bank. In turn, this will play a role in eliminating the problem of “too big to fail” and the associated need for taxpayer-funded bailouts.
I have little doubt that there will be resistance to this proposal from the Big Five banks. They operate close to an oligopoly, and want to protect their privileged positions. That’s why a full and independent assessment of the proposal is vital, and why big banks must be prevented from compromising the independence of this assessment.
Crucially, the regulator should be able to force banks to implement ANP if the case is proven. In the same way that mobile phone operators were required to allow customers to take their phone numbers with them when they changed provider, the banks should be encouraged, and compelled if necessary, to introduce full ANP.
Support is now building for the idea. I look forward to the outcome of the rigorous analysis of the proposal as the critical next step. This is a game changer for the British banking sector – and it can’t come soon enough.
Andrea Leadsom is Conservative MP for South Northamptonshire.