This report leapt of the screen at me!

First their mandate:

The Group was asked by the Commission to cover three scenarios of customer mobility:

(1) “national switching”: switching from one bank to another within the same Member State;
(2) “cross-border switching”: switching from a bank in one Member State to a bank in another
Member State;
(3) “cross-border opening”: opening of a bank account in another Member State, with or
without physical presence.

The comments start to read very much as regulations for the telecommunications companies.

The consultation follows the publication of a report compiled by an ‘expert group on customer mobility’ that identifies obstacles that customers face when switching bank accounts, both domestically and across borders.

The group found that customers face four main obstacles when switching accounts – lack of consistent information and non-transparency of prices, “bundling and tying” practices by banks, large amounts of administration and high closing charges.

Source: Finextra

One of the items up for discussion is ‘number portability’.

Knight (British Bankers Association) claims that account number portability across the whole of the EU wouldn’t work and could lead to reduced customer choice.

My immediate reaction was to write this concept off as insane because the costs would be prohibitive, and be passed on to consumers. But on reading the BBA response, which sounds defensive,I calmly held off from the keyboard, and read the report. [Download the document now – 231.9 kb (PDF File)]

According to the Group, consumer behaviour essentially depends on whether: consumers are satisfied with their current bank; they are acting under inertia; they believe that all banks are the same; they are interested in and understand what services they receive and what services and prices are offered elsewhere; and on various factors that are important to them when choosing a bank (product quality, service or product features, price, trust, geography etc.) or deciding to switch to another one (dissatisfaction with the current bank, better prices or service or personal reasons, such as changing jobs, moving houses, marrying etc.).

The greatest reason customers stay with you is inertia! This is known inside the Banks, and high switching costs are relied to to help maintain share. Its complicated to switch banks, and pre-authorised debits for monthly utilities, Internet charges, etc, are big impediments to move Banks.

A key driver in Europe is the Single Euro Payments Area (SEPA), and the working group acknowledges that, in order to maximise the potential benefits of SEPA, it is necessary to address obstacles to cross-border opening and switching of bank accounts. That initiative is intended to standardise and simplify cross border payments.

Staying focussed on account number portability for a moment; the obvious advantage for consumers would be they would only remain with the Bank that kept them happy and satisfied. What a concept. While my first reaction was to resist any government involvement in Banks, that are businesses, but the notion of ensuring competition is not a bad one. One could argue that it has been government regulation which has created the banking systems we have. This has resulted in sets of Banks that look much alike to consumers. The regulatory environment, means Banks have more incentive to ensure confidentiality, privacy, security and fiscal responsibility (Basle 2, investor community needs) than they do to be socially responsible.

Perhaps social responsibility, driven off something like number portability would be just the antidote to drive competitiveness. Curious to hear what people think about that.

The other threads in the report take this concept further, speaking to the social responsibility side of financial services. This really starts to get into the capitalist vs socialist model.

That is why the provision of a basic bank account could be installed by means of a universal service obligation. Banking industry experts point out that the issue of social exclusion falls outside of the scope of this report and that the Group did not discuss universal service obligations in depth as such.

This is a much broader topic. In some respects this kind of concept, comes close to nationalisation of Banks; bringing government regulation right into the definition of to whom Banks must provide services.

This little gem is included in the recommendation:

According to consumer experts and academics, if there are Member States where banks are not offering bank accounts to non-residents, an investigation into the causes of this in that Member State should be considered.

This is a slippery slope. How little or how far one lets this kind of thing go has enormous consequences. Once an industry is regulated, its easy to increase and broaden regulation, but at what point has the regulation actually destroyed the consumer benefits which presumably were the intended consequence.

Relevance to Bankwatch:
I don’t sense this kind of initiative in North America …. but what if Banks acted as if their customers had account number portability. How would that alter their view, and participation in Social Personal Finance for example? How would they approach reputation management differently than they do today?

Number portability is interesting as a catalyst for change.

Technorati tags: Banking Strategy