Switching bank accounts to be easier

05 NOVEMBER, 2011 22:11
THEKISO ANTHONY LEFIFI
BUSINESS TIMES


The Banking Association of SA (Basa) will soon announce details of a new policy that will make it easier for customers to switch their accounts between banks.

The new method is known as bank account "porting", and is similar to that used by cellphone companies that enables users to retain numbers when changing service provider.

The association has been working on a switching code and has included it in the 2011 Code of Banking Practice (COBP) update.

Anton de Wet, Nedbank's executive for personal banking and client value management, said standardised processes will apply to the exchange of information between banks when a consumer wishes to switch banks. This will, in addition to the guidelines in the COBP, make switching easier.

Mathew Warren, a banking analyst with First Avenue Investment Management, views it as a pro-consumer move that would increase costs for banks as well as sharpen the level of competition.

Capitec Bank's executive for marketing and corporate affairs, Carl Fischer, said bank account porting was more complex than cellphones as transactions would have to be processed individually rather than in batches - which may increase banks' costs.

"This cost might be passed on to consumers," Fischer said.

Bank account portability would allow customers to move debit orders and mortgage accounts to a new bank with minimal fuss. Whereas banks may face additional costs, consumers could win at the banks' expense, said Fischer.

The only potential negative consequence for customers would be that, because of the increased cost and higher level of competition, banks might more closely scrutinise the profitability of marginally profitable customers.

Warren said porting was "not good for banks" as a whole. "If it were to happen though, the bank that would be best positioned would be Absa, due to its large branch and ATM network, while Nedbank would be the least well positioned as it has a smaller distribution footprint for retail customers."

Harriet Heymans, head of products, pricing and rewards at Absa, said that in the past three months Absa had an average of 34% new customers who switched their primary accounts from other banks.

Emilio Pera, lead financial services director at Ernst & Young, said the cost of conversion of IT systems, together with the administrative cost of managing the transfer of accounts, could be "significant".

"In an environment where banks already have to spend significant amounts to enhance systems to comply with proposed regulatory changes, these costs will have an impact on the cost base of the banks and ultimately on the consumer," Pera warned.

Simon Russell, MD of financial services at Accenture SA, said his company's research indicated that a fundamental power shift from banks to their customers had occurred since the financial crisis.

Consumers were more confident in making financial decisions on their own, more sceptical of their bank brands, more price-conscious and more willing to move away from institutions that provided poor service. This trend would be the key driver of account switching, said Russell.