The government has unveiled new plans for bank account portability, which will see acquiring banks handle the migration of direct debit information when a customer switches banks in a process that doesn't require the customer to go into a bank branch.
The system, proposed to the government by former Reserve Bank governor Bernie Fraser and the Australian Payments Clearing Association (APCA), is a modification on the current system established in 2008 where customers would need to inform their old bank that they were leaving. The old bank would then have to provide a list of direct debits and scheduled transactions to the customer within five business days. That customer would then take the list to the acquiring bank, and the transfer process could begin.
Fraser's system aims to streamline the process using electronic transfer.
Customers now won't need to inform their old bank of their intention to leave; rather, the customer will approach the acquiring bank with their intention to switch and sign one form. The acquiring bank handles all of the heavy lifting, carrying out a process that includes acquiring a list of upcoming transactions and existing direct debits and the transfer of customer details and funds, as well as informing third parties of the switch. Banks would transfer details electronically via a "secure mailbox system" managed by the APCA, which assured Fraser and the government that it has appropriate security protections in place to maintain data privacy.
Fraser said that the form that customers would need to sign to initiate an account transfer could also be handled online, meaning that customers need never go into a branch again — a move that is sure to benefit smaller players or online-only banks, like ING Direct.
"This will enable customers and financial institutions to undertake more of their interactions online, and assist particularly smaller institutions — and those without extensive branch networks — to compete more actively," Fraser said in his report.
The APCA said that the new system is likely to take six months to build at a cost of roughly $250,000, to be paid by member organisations of the association. Fraser recommended the plan to government, and suggested that the new system be in place no later than 1 July 2012.
Treasurer Wayne Swan accepted Fraser's recommendations today and said that a Treasury working group will be established to iron out the finer details for the system's go-live date mid next year.
Swan also announced the formation of a new National e-Conveyancing System to act as a single online portal for property transactions in Australia to make refinancing a home loan cheaper and easier.
"This will help reduce the costs associated with loan applications, property valuations, settlements, property title searches and registering mortgages. These costs can add up to as much as $6500 every time a borrower switches mortgages," the treasurer said in a statement today.
The release of Fraser's report and the adoption of his recommendations by the government have come just over 24 hours after Greens MP Adam Bandt outed a plan for a Bill that would require a customer's old bank to forward direct debits and payments for a period of 13 months after the customer moved to an acquiring bank.
Taking your account number with you
The full scope of Fraser's investigations into bank competition saw him conduct an assessment into the feasibility of account number portability between Australian institutions, where a customer would port their existing numbers over to another institution, much like they would with a telecommunications carrier.
Major banks, including the National Australia Bank and Westpac, have panned the idea, with Westpac's group executive of Technology Bob McKinnon saying recently that it would require the unravelling of the entire retail payment structure of the country.
"An account number is unique because it is preceded by a BSB number. In order to have portable accounts, we need unique account numbers, and in order to do that, we need to dismantle the current basis by which [we] number accounts, being the BSB system. That system is built into the DNA of the technology of every bank," McKinnon said.
"You could certainly solve the problem [of account number portability] but at an horrific cost."
After a thorough investigation into the prospect of full account number portability, Fraser agreed with McKinnon.
"Implementation of full account portability ... would be far from simple, and not at all analogous to telephone number portability as sometimes suggested. It would involve the replacement of the bank, state, branch (BSB) system of numbering and wholesale revamping of the existing payments infrastructure and the systems of all the financial institutions which interface with it," he said in his report.
"It would be a major and costly undertaking."
He added that any attempt at full account number portability would require the creation of a central account number registry that would need to be updated constantly on the movements of customers to ensure that transactions and accounts were kept straight.
Fraser also said that additional IT systems would be required to sit over existing infrastructure and manage account movements, which he estimated would cost several million dollars.
"It seems clear that account number portability ... would be a massively expensive undertaking in Australia. It would be akin to taking a gold sledgehammer to crack what is really quite a small nut in the broader scheme of competition and account switching in banking services in Australia. The experience with major, new infrastructure and IT system projects in the financial sector in Australia often has been an unhappy one, with spectacular cost over-runs and benefit shortfalls.
"Smaller players in the banking services market — who are often viewed as potentially significant drivers of increased competition — are inevitably the ones least able to participate in costly major new developments of this kind," Fraser said.
The problem with MAMBO
Fraser also examined in his report alternatives to an account number portability scheme. He mentioned some overseas examples, as well as BPAY's Me and My Bank Online (MAMBO) project, which he labelled as costly and complicated.
The MAMBO project aims to issue individuals with BPAY biller numbers to facilitate the creation of a single identity for online payments, meaning that it wouldn't matter if a customer moved banks or changed account numbers in the future.
The project kicked off in 2007, and has navigated a rocky road since then. Ongoing delays and spiralling costs have seen two key stakeholders — NAB and ANZ Bank — bow out of the project, with cracks in the commitment of other stakeholders also starting to show.
In his review, Fraser drew comparisons between MAMBO and a similar system in Sweden where a "bankgiro" number is issued to a customer and is used as their single point of contact for direct debits and payments. Fraser said that such a system, modified for Australia, would require additional IT infrastructure to sit over the top of core banking systems and facilitate payments, which, given his comments on the limited success and high cost of Australian banking IT projects, would render the solution unfeasible.
"The other reason for mentioning the MAMBO project is to again illustrate the very hefty price tags attached to major IT undertakings in the banking services sector: current estimates of the likely cost of MAMBO are understood to be upwards of half a billion dollars," Fraser revealed.
BPAY is currently meeting with other project stakeholders to determine the way forwards for the project.