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Connexus : Issue 36
The federal government has started its review of barriers to full account portability. Abacus met with the review's head, former Reserve Bank governor Bernie Fraser, and Treasury officials in February. Treasurer Wayne Swan quickly moved to establish the review after the government's December announcement of reforms to increase competition in banking. In his letter to Fraser, he said there was "strong evidence that the difficulty of switching accounts between banks acts as a significant barrier for customers both in relation to deposit accounts and mortgages". Fixing the problem is a big challenge for both government and industry. The focus so far has been on technology- driven solutions to account switching -- specifically account number portability. However, it is generally recognised that this will come at a significant cost to industry and it is virtually impossible to achieve full account number portability in the short term. In the discussions with Fraser and Treasury, Abacus supported finding a means by which a customer could switch accounts with little or no interaction with the previous financial institution and with minimal administrative work. The United Kingdom system, while imperfect, applies an obligation on the new and old institutions to exchange information on the customer's behalf within agreed service standards. In Australia there is no such explicit obligation other than that an institution must supply information to the customer on direct debit and standing arrangements. In its recently released Better Banking report, consumer advocate Choice floated the Dutch switching system as an ideal model for Australia. Introduced in 2004, it operates as a redirect service, with all direct debits and credits re-routed for 13 months after a customer switches banks. The system is reportedly popular, but it still relies on a customer to eventually re- establish their new arrangements within 13 months, which may not always happen. Such a system was considered in Australia as part of the Australian Payments and Clearing Association's review of account portability in 2008-09. The option was rejected, but the current inquiry may see it tabled again. Bpay's forthcoming Mambo system, which effectively codes direct debit arrangements to a generic customer- linked Bpay number, has also been mooted as a potential account portability solution. The Bpay code would simply be transferred to a new institution, and the attaching arrangements with it. It's innovative, but Mambo will not necessarily cover all arrangements and all customers. An approach similar to the UK's is likely to be adopted in the short term while the industry explores its own measures to facilitate better account portability over the longer term. This could involve creating a system where a switching customer issues an instruction to their old institution to supply details of any direct debit or standing arrangements directly to the new institution, then closes the account on completion of the process. This would be backed by an industry-agreed set of minimum service standards and would need to involve minimal impact on institutions and no cost to the customer. Achieving even this apparently simple solution is no fait accompli. Australia's third-party merchant system will inevitably create myriad challenges that could stymie any well-intended initiative that government or industry develops. -- Daniel Newlan is senior adviser, policy and public affairs, Abacus. Removing the barriers Solving the tricky problem of account portability is likely to involve interim measures. By Daniel Newlan REGULATION connexus www.abacus.org.au 20 The focus so far has been on technology- driven solutions...