Showing posts with label 7 day switching. Show all posts
Showing posts with label 7 day switching. Show all posts

Friday, 3 October 2014

The FCA is wrong to focus on account portability

The news that the FCA is to explore the move to full account portability as part of a review of current/checking account switching is disappointing as the FCA appears to be rushing to a solution without having really understood why customers are not switching their account providers at the levels that politicians and consumer lobbyists would like to see. The reason that these parties wish to see higher levels of switching is that they see this as an indicator of competition in the current account market which is dominated by the big five banks – Lloyds, Barclays, RBS, HSBC and Santander.

Customer switching has gone up by only 19% since 7 day switching was introduced

The FCA have been triggered into action by their disappointment at the low increase in the level of switching following the introduction of seven business day current account switching service introduced in October 2013. Despite the investment of $750m by the large banks in creating this guaranteed switching service levels of customer switching has gone up by only 19%.

The large banks have been the beneficiaries of switching

The irony is that the biggest beneficiaries of the account switching services have been Halifax (part of Lloyds Banking Group), Santander (one of the world’s largest banks), Nationwide Building Society and TSB (a Lloyds clone and still partially owned by the bank). With the exception of Nationwide, the account switching service has done little to change the market share of the major banks and even Nationwide has hardly changed the percentage.

The parallels between mobile phone numbers and account numbers are not valid

However for the FCA to jump to the conclusion that this is down to customers being reluctant to change their bank account number and therefore account portability will change this is both bizarre and illogical. Parallels are often made with the mobile phone industry where phone number portability has encouraged customers to switch between providers. However the use of phone numbers and bank account numbers are quite different. Whereas in order for telephone customers to be able to keep in contact with the hundreds and even thousands of people who have their number programmed into their phones keeping their mobile number when changing suppliers is essential the same cannot be said for bank account numbers.

Most bank customers have not memorised their bank account numbers. Once access to internet and mobile banking is set up a customer very rarely needs to know that number. When paying bills, transferring money, checking their balances, setting up or changing direct debits or standing orders there is no need for customers to know their bank account number. With the seven day switching services direct debits are transferred and guaranteed that if a problem occurs that the customer will be refunded for any charges occurred during the transfer process. With the increasing availability of P2P (Person to Person) mobile banking applications such as Pingit customers only need to know the mobile phone number of the person that they are transferring the money to (which is very likely to be stored in their phone) and don’t need to know the bank account details of the person that they are wanting to transfer money to. It is a fallacy to say that the reason people are not changing their bank accounts is because they don’t want to change their bank account number.

Customer interest in switching accounts is far lower than politicians and lobbyists

One of the primary reasons that is quoted despite the Seven Day Switching Service making it far easier for customers to switch current accounts is what politicians refer to as ‘customer apathy or inertia’. The reason that customers aren’t bothered is because for most customers banking really isn’t that interesting (until it goes wrong or they have a financial crisis), that the actual amount that they would save by switching from one bank to another is so minimal that it isn’t worth the effort and that they see one bank account much the same as another. To most customers banking services are a commodity and a largely undifferentiated one. They have better things to do with their lives than monitor whether one bank account is better than another.

There are significant numbers of providers of current accounts

The fact that the main beneficiaries of account switching have been the larger players is not because there is not a lot of choice in the market. Examples of organisations offering personal bank accounts include Nationwide Building Society, Tesco Bank, Marks & Spencer Bank, Metro Bank, Co-op Bank, Yorkshire Bank, Clydesdale Bank, Bank of Ireland (via the Post Office) and Handelsbanken.

The reason that Halifax, Santander, Nationwide, TSB and Metro Bank (though on a lot lower scale than the other four) have been successful in getting current account customers to switch to them is because of their attractive propositions whether it be paying interest on current account balances, discounts on utilities and other bills, convenience of branches or even offering dog biscuits. The fact that some of the most attractive propositions have come from the larger banks is because for most banks most personal current accounts are either loss leaders or have very low margins and therefore to be profitable in the current account market you need scale. That is very difficult and takes a lot of time to build from scratch as Metro Bank is finding.

Many of the so-called challenger banks e.g. Aldermore, Shawbrook, OneSavings Bank and Handelsbanken are not even attempting to engage in the personal current account market because of how unattractive it is financially. They would rather focus on the mortgage market or SME banking where the margins are higher and the cost to enter the market are far lower. As Virgin Money comes to the market it is based on the profits from mortgages and credit cards that the value will be attributed not current accounts.

The FCA is not focusing on the real issue

If the FCA is really interested in seeing greater competition in the current account market then rather than investigating a solution to a problem that doesn’t exist (customer only don’t switch because they don’t want to change their bank account number) then they should look at how to make it more attractive for the existing sub Big Five and new players to engage in the market with customer friendly banking propositions. It is only when there is significant differentiation between bank accounts in customers’ minds that switching volumes will become significant.

Wednesday, 6 August 2014

Creating competition in retail banking

With the recommendation by the UK CMA (Competition and Markets Authority) to conduct a review of competitiveness in the current account banking market, what are some of the areas that they may consider to increase competitiveness?

Breaking up the banks. This is the Labour party’s big idea - creating a set of competitor banks by splitting the big banks. The primary focus for this would be the Royal Bank of Scotland and Lloyds Banking Group. However this isn’t a new idea and is already being tested with the creation of TSB from Lloyds Banking Group and Williams & Glyn’s from RBS. However already there are lessons to be learnt from this process.

While there was initial interest from a number of players the list of serious bidders rapidly shortened when the complexity, the capital required and the price being sought became clear. The initial two successful bidders the Co-op (Lloyds) and Santander (RBS) after lengthy negotiations and detailed planning withdrew their bids.

Separating the bank’s technology whether cloning (TSB) or migrating to a new platform is proving to be enormously complex and very expensive.

The payback period is very long and without the subsidy and support of the selling bank would be even longer. TSB for instance does not expect to break even for many years and that is despite being helped by Lloyds lending the new bank a book of loans.

While breaking up the banks will mean that there are more places to have a current account there is no guarantee that this will ensure better deals for customers, particularly given that the easiest option for the broken up banks is to be clones of the original banks just simply without the scale advantages. With little to differentiate them having more players in the market doesn’t result in real consumer benefit.

Creating a payments utility separate from the big banks. One of the often heard complaints from new entrants is that the big banks have an advantage because they own the payments infrastructure and the cost for new entrants to use that infrastructure is a barrier to entry. One option would be to create a separate payments utility not owned by the banks. However that does not mean that it will necessarily be cheaper for new entrants. For a start there is the cost of acquiring and separating the infrastructure from that of the banks that currently own it which would need to be paid by customers of the utility. There is also the question of how to charge for the use of this utility. The charge would need to reflect the significant cost of running, maintaining and investing in modernising the infrastructure – it is not simply the cost of using the infrastructure because otherwise what is the incentive for whoever ends up owning the infrastructure to invest in it to make it not only continually available but also suitable for new innovations as they come along? Commercial reality dictates that for banks with high transaction volumes that cost per transaction should be lower.

Portable bank account numbers. Many of the challenger banks are supportive of the concept of portable bank account numbers. They look at the mobile phone industry and see the way that customers can take their phone numbers with them. However before recommending this change the CMA needs to research just how big an inhibitor to switching bank accounts for customers is the change of account number. Given the Seven Day Switching Service where the banks guarantee no interruption to direct debits and standing orders and given the limited numbers of times customers actually have to know their account number in order to transact, would portable bank account numbers really open the floodgates of customers switching bank account numbers?

Ending ‘free when in credit’ banking. In the UK customers have got used to so-called ‘free banking’ where as long as a customer remains in credit, whilst they get little or nothing for the balance that they retain, they don’t pay charges. A number of the challenger banks have complained that this gives the incumbent banks an advantage as it is difficult (but not impossible) to compete on price and because it gives banks offering current accounts a distinct advantage over those who don’t in terms of the low cost of all those balances when it comes to lending. It will take a brave politician to move to compel the end of free banking. Of course to attain transparency then the cost of each transaction e.g. cost of an ATM withdrawal, the cost of paying in a cheque, the cost of a direct debit, etc, would need to be made clear to customers and, the challengers would argue, that that would enable customers to choose between banks. However looking at a market where this is the way banking is conducted, Australia, then not only is there a greater concentration of current accounts held with the Four Pillars (Nab, Westpac, CBA and ANZ) than with the equivalents in the UK, but Australian banks are amongst the most profitable retail banks in the world. Despite that there are not lots of new entrants fighting to get a slice of the pie. For customers Australia is also one of the most expensive countries to bank. It would appear that ending ‘free banking’ alone would not solve the perceived competition problem.

Set a maximum market share for current accounts. On paper this would appear to be the solution. The big banks could be given a period of time over which they must reduce their share of the market to for instance to no more than 15% of the market each leaving the challenger banks to fight over the remaining 40%. The banks would need to be told the mix of customers they must dispose of, just as Lloyds was instructed for the disposal of TSB. However what does this do for consumer choice? Not all customers were happy to be told that they were moving from Lloyds to TSB without an option. Given that the CMA investigation is about creating competition and making it easier for customers to switch banks this does not appear to be the solution.

Make it even easier for new challengers to enter the market. Measures have already been put in place to reduce the capital required, shorten the process and allow challenger banks time to grow into being a full scale bank. The benefits of this are already being seen with the likes of Atom Bank being announced. It is difficult to see what more could be done in this area.

Make retail banking more profitable to encourage more new entrants. There is little chance of this being one of the recommendations of the CMA. The reality is that with increased regulation, increased scrutiny and rising costs for compliance retail banking is becoming less and less attractive a sector for investors. As JC Flowers have recently remarked with Returns on Equity going from double to single digits there are more attractive sectors to look at investing in.

Is the CMA looking to solve a problem that customers don’t see as a priority? With the advent of Seven Day Switching the number of customers changing banks has risen – over one million customers have chosen to do that. The biggest beneficiaries have been TSB, Santander and Nationwide Building Society. There more than a handful of challenger banks out there – Tesco, Marks & Spencer, Metro Bank, Co-op Bank, Handelsbanken, Aldermore and others with current accounts on the way – amongst them Atom Bank and Virgin Money. Despite that the market share of the large high street banks hasn’t changed significantly. The question is why aren’t customers changing banks? Is it simply because they see banking as a utility, that each of the banks are pretty much the same, that for most customers (unlike bankers, politicians, financial journalists and consumer champions) banking doesn’t enter their consciousness unless they have a bad experience. In the grand scheme of things for most customers they have far more important issues to think about than whether they should switch their bank accounts.

Perhaps it is time that the CMA focused on something of more day to day importance to consumers.

Friday, 7 March 2014

This is not just any fee-free current account, this is a Marks & Spencer fee-free current account

Marks & Spencer have announced that they are to launch a fee-free current account. The account will have no overdraft fees, the first £100 of which is interest free and a (relatively) low interest rate for overdrafts of 15.9%.  For those who transfer their main banking account to M&S they will receive a £100 gift card. A key attraction for M&S customers will be the loyalty scheme where points are earned for debit card spending in M&S stores and online. It also passes the critical requirement of allowing customers to bank online as well as on the phone or in store.

A key differentiating feature is not charging a transaction fee for ATM cash withdrawals made with the debit card abroad. For both Metro Bank and Nationwide the lack of transactions fees when abroad attracted customers; however that feature was withdrawn and both now do charge fees for transactions abroad.

On the face of it this is a competitive offering and should be attractive to to both M&S and non-M&S customers alike.

This is not a new market entry for Marks & Spencer (they launched their fee-charging account with a similar loyalty scheme in September 2012) but rather a change of their positioning re. free banking. M&S claims that their fee-charging account has been successful with M&S customers, so this does raise some questions as to why they should launch a fee-free product and at this time.

One of the dangers to M&S of having similar current account products with one offering a fee and one not is self-cannibalisation. Will customers of the current fee charging account be happy to see that whilst they are paying a fee other customers are not paying one for what seems a remarkably similar product? Will some of those customers look to switch to the fee free product? M&S is allowing these Premium Customers to switch their accounts to the free one and will even give them a £100 gift card if they switch their main account to M&S.

Of course this is not just a current account this is an M&S current account. Except it isn't. It is actually an HSBC current account as it is HSBC that is not only behind M&S Bank but owns 50% of the bank. While M&S may position itself as being good for current account competition in the UK market, with HSBC behind it the impact on the market share of the Big Four banks will be none.

Another question that M&S will, hopefully, have considered is what types of customers will be attracted to this account? With no mandatory minimum monthly amount that needs to be paid into the account, customers may only open this account for the loyalty scheme and maintain minimum balances or, as Nationwide found with its credit card, only use the card for cash withdrawals abroad. For a current account to be profitable for a bank it is important for it to become the primary customer account where the customers salary is paid into and the mortgage and other core regular payments come out of it. Without high current account balances or large overdraft fees (which the account does not charge) current accounts for banks are loss leaders. For M&S they need to demonstrably see the customers of their current accounts spend significantly more in M&S stores and online than non-current account customers for the bank to be deemed a success.

For those championing an end to so-called free banking, the launch in September 2012 by M&S of fee-charging current accounts was seen as setting an example to others that would help to accelerate the end of so-called free banking. For those championing an end of free banking, this recent news from M&S that they are launching fee-free accounts will be seen as a step backwards delaying the end of free banking further.

So why have M&S made this announcement at this time? There are already successful non-Big Four banks, particularly Nationwide, Metro Bank and Santander (with their 1-2-3 account) as well as HSBC-owned First Direct who have been taking advantage of the delays and the problems that other challenger banks have been facing in getting their current account propositions right. Now however with Tesco having announced that it will (finally) launch its current account offering this summer and Virgin Money expected to launch its basic bank account later this year, M&S is clearly keen to get to the potential switchers ahead of the others.

But why have M&S decided to launch fee free products given the issues and risks discussed above? It can only because of the need for volume. Running a profitable current account business with all the investment in infrastructure such as contact centres and IT, in personnel and marketing requires scale. Clearly M&S, despite their protestations, haven't achieved this with their fee charging accounts and they see this as an opportunity to build a bigger customer base which will reduce the marginal cost of running a bank.

It will only be some months after the launch of the both the new M&S fee-free accounts and the Tesco current account that it will be clear whether this move was good news for M&S' beleaguered shareholders and customers or not.

Sunday, 15 September 2013

Why Seven Day Current Account switching will not turn up competition

The launch this week of the Current Account Switching Service whereby UK banks will have just seven working days to switch customer's current accounts to a rival has been heralded as a key enabler of competition in the UK retail banking. In particular the Chancellor sees it as a way of encourage new entrants to build up market share.

The banks have been forced to spend hundreds of millions of pounds to rapidly put in place a system that will enable this to happen, however the expectations set by the Chancellor are unlikely to be met.

For a start this assumes that there is pent up demand to switch bank accounts that is held back simply because the process of changing accounts is too complicated or too slow. The reality is that most customers are simply consumers of banking services and see banking as a commodity much like gas, electricity or water. Despite what the banks might want to believe most bank customers rarely or never think about their banks. Who provides their banking service simply isn't  that important to most customers as long as it works.

Not only that but most customers think all banks are alike. Why would they change from one bank to another, even if the new switching services makes it marginally easier than before. Just the effort of researching an alternative bank and initiating the process of changing is more effort than most customers think is worth for the benefit they will get.

With so called 'free banking' it is even more difficult for banks to differentiate themselves for the average customer. When there is no perceived charge for writing cheques, paying bills and taking money out of a cash machine, then how do the banks make a difference in the mind of customers?

The slow take up of the M&S Bank Account can be partly attributed to the requirement to pay monthly fees, particularly given that that the target customers probably do not  believe that they pay anything for their existing accounts.

So-called 'value-added' accounts, where for a monthly fee customers can receive a bundle of addtional services such a travel insurance, breakdown cover and airmiles, have had some moderate success, but research shows that either customers do not use the additional services or they could have bought them cheaper as individual items. They are also potentially the next product to be subject to a misselling investigation given the similarity with the incentives and targets to sell these offerings to customers as were there for  Payment Protection Insurance.

The Chancellor has suggested that if the seven day switching service does not create the flood of switching that he is expecting then account number portability may be imposed on the banks. Account number portability is seen as the equivalent of phone number portability, except it blatantly isn't. Where traditionally people have had to know each other's telephone numbers to contact each other (even for this with the advent of the smart phone the number is stored and not really 'known'), there is little need to know bank account numbers in order to use the banking system. A customer only shares their bank account number with a few people and very infrequently in comparison to their telephone number. The use of bank account 'aliases' avoids the customer ever needing to know their bank account number. Having to have a new bank account number is not the reason people don't switch banks.

Should the Chancellor decide to ignore the evidence and impose account number portability then this will make the several hundred million pounds spent by the banks on the switching services look like loose change. To architect a long term solution to industry wide account number portability (unlike the switching service which has been thrown together with little thought about architecture and long term durability and has created an expensive legacy solution to maintain) will require very significant changes to the underlying banking infrastructure and the cost will be measured in billions and will be borne not only by the existing players but also new entrants. See http://www.itsafinancialworld.net/2011/01/why-portable-bank-accounts-arent-going.html

Fortunately the head of the FCA (Financial Conduct Authority, one of the two bodies that has replaced the Financial Services Authority), Martin Wheatley,  at his reason appearance before the Treasury Select Committee has already made it clear that the CASS (Current Account Switching Scheme) should be allowed to run for at least a year to see whether it has had the desired effect before any further consideration or detailed studies of the costs of providing account portability should be started. This effectively kicks it into the long grass and to after the General Election, which will be a great relief to many bank CEOs.

The Chancellor has also suggested that making direct debits and standing orders be moved from one bank to another at no cost to the switching customer should also be imposed on the banks if switching doesn't create the movement that he is looking for. This idea seems reasonable and it is reasonable as that is what the banks do already today, but is not a material factor in encouraging customers to switch accounts.

The ease of movement of  customers is only one half of the argument that the Chancellor and consumer lobbyists make for the introduction of the switching service. The other reason is to encourage new entrants and competitors into the banking industry.

However the ease of attracting and on-boarding customers is not the reason for there being so few sizeable new entrants in the market. With the increasing regulation, the higher levels of capital that need to be held (even if it can be raised and afforded in the first place) and the reduction in the ability to make a fair profit from retail banking makes entering the UK retail banking market unattractive to new entrants. Even Vernon Hill, the entrepreneur and founder of Metro Bank, the first new entrant to the UK for many years, has said that if he knew then what he knows now about how difficult it would be to get a UK banking licence he wouldn't have started. One of the reason that Tesco Bank has been delayed in its full launch has been the time it has not only taken to get a banking licence but also the time it has taken to get its executive's FSA approved.

So now that seven day switching is introduced will the big banks be quaking in their boots trying to lock the branches to stop customers leaving, making amazing offers to make them stay? Will new entrants such as Tesco Bank, M&S Bank, Virgin Money and banks we have not even heard of yet be having to close offers because of the volume of customers trying to switch to them? The answer is almost certainly 'no' because seven day switching is not the answer to creating competition in the market and the time and money spent on it will prove to have been a poor investment.

Wednesday, 2 February 2011

If switching is to become easier then banks need to excel at retention

As the banks, under pressure from both the Independent Commission on Banking and the Treasury Select Committee on Competition in Banking, have indicated that they are looking to improve the speed of switching current accounts from one provider to another (see http://www.itsafinancialworld.net/2011/01/banks-not-ambitious-enough-with.html ), they need to ensure that this improved capability is used as little as possible by their customers. (If it wasn't for the implied threat of regulation why would banks want to invest in making it easier for customers to leave them?).

This potential loss of customers throws the spotlight on retention. The banks should take a leaf out of the book of some mobile phone companies who have invested heavily in having teams of people who at even the hint of a request for a PAC code go out of their way to persuade the customer not to switch providers. Mobile phone retention teams are empowered to make the customer better offers including offering new handsets, improvements in tarriffs and other give aways.

Whilst all banks have some form of retention process or even dedicated retention teams, the question is whether in the new world, where customers expect to be able to switch providers ever more frequently, do they need to raise their game?

For banks the retention process needs to start even before a customer walks into a branch or calls a phone centre and says that they would like to transfer their current account to another provider. With all the data that the banks have about their customers in terms of the transactions they are making, banks should be able to be monitoring and acting on the leading indicators of potential defection, such as sudden reductions in savings account balances, stopping of standing orders, closing of direct debits or missed salary payments into accounts. These cues should be used to trigger such activities as putting a phone call into the customer to see if they are happy with the service being provided by the bank and ensuring that the teller or personal banker has this information available to them the next time the customer comes into the branch (though it may be too late by then).

Once the customer has actually made the request to transfer their bank account then the full retention programme needs to be  put into action. Just like the mobile phone retention teams, those responsible for retention need to be empowered to make better offers whether it be upgrades to different tiers of value added accounts, adjustments to overdraft fees, changes in savings/loan interest rates or additional features for their account.

To raise retention to world class standards there needs to be:
  • Predictive data based on customer transactions and behaviours
  • A method of delivering that data to those responsible for retention (whether it be the branch staff, the branch manager, the contact centre operative or a dedicated retention team) in a meaningful, simple and clear way
  • A measure of the customers current and protential lifetime profitability to the bank
  • Staff with strong interpersonal skills passionate about retaining customers
  • Empowerment of staff so that they can make meaningful (to the customer) offers whilst understanding the impact on customer lifetime profitability
  • An incentive scheme that makes successful profitable retention of a customer financially meaningful to the staff member who achieves the save
  • A hero culture where those most successful at retaining customers are acknowledged and held in high regard
Of course not every customer should be retained. For those customers who's lifetime value to the bank is negative or below a certain profit threshold then they should be able to take advantage of the new and improved switching process to join their new bank.

Tuesday, 25 January 2011

Banks not ambitious enough with switching targets

It's being reported that the banks are finally looking to invest in improving the time it takes to switch your current account from one  bank to another. This has been talked about for at least two years when the 2008 OFT report on banking said that they had to do better, but the catalyst appears to be in the Independent Commission on Banking. The banks want to appear to be doing something about speeding up switching before they are compelled to.

They are saying that they are aiming to get switching down to one to two weeks from the current average of four to six weeks, possibly even to the Dutch standard of seven days. They are also saying that it will cost them hundreds of millions of pounds to make the systems changes to achieve this. But why? They're not talking about account portability, where a customer has an account number for life (see http://www.itsafinancialworld.net/2011/01/why-portable-bank-accounts-arent-going.html ), but rather simply moving the money out of one bank account and trasferring it to another account in a different bank and moving direct debits and standing orders to the other bank. Even today internet bankers can see the balance on their accounts, they can see a list of their standing orders and their direct debits. Even if you were to do the process manually writing down the list of standing orders and direct debits, emailing it to the receiving bank, making the transfer of funds as a consumer would do it, surely can't take four to six weeks and cost hundered of millions of pounds to automate that manual process?

The challenge to the banks should not be to deliver switching in one to two weeks, not to deliver it in seven days but they should be aiming to deliver it no longer than it takes for the money to clear, and with Faster Payments which means it should be twenty four hours, but to be generous to the banks, let's say 2 working days from receipt of instruction.

Ultimately the question is even if there was a gold-plated process that was guaranteed to take less than two working days, would we see customers switching accounts in their droves? The reality is probably not. The reason customers don't switch current accounts is not because of the process, but rather because there is so little differentiation between banks in terms of the products they offer, the prices they charge and the service they deliver that banking is a commodity and most customers don't care which bank they bank with because they see them all as the same. That is the real challenge for the banks and where they should be investing their money.

At the end of the day the only real reason the banks are now proposing to  invest in the switching process is to remove one more complaint about them from the Independent Commission on Banking's long list.

Thursday, 20 January 2011

Why portable bank accounts aren't going to be here anytime soon

At the Treasury Select Committee on Competition and Choice in Banking, Jayne-Anne Gadhia, CEO of Virgin Money proposed that one day she would like to see portable bank accounts in the same way as today where you can have a mobile phone number for life. She is not the first person, nor will she be the last, to suggest this as the way to make it easier to move bank accounts, create more competition in the market and make it easier for new entrants to rapidly build up market share.

Across on the other side of the world the Commission looking into competition in the Australian banking market also considered this as the way to make switching banks easier. There were many in Australia who hoped that the implementation of portable account numbers would be one of their recommendations that would pass into law. Having taken hearings on the topic instead a review into the feasibility of this has been commissioned, effectively kicking it into the long grass.

In theory it certainly sounds like an attractive solution to overcome the reluctance of customers to move their bank accounts. Customers can do it today for their phones, gas and electricity, so why not for their bank accounts?

To find out why it is not as simple as that you have to understand the origins of our bank account numbers. When banks originally started operating your bank was effectively your branch. You would go into your branch to pay in some money and the amount would be handed over the counter and the clerk would write with his quill pen in the ledger on your account page  how much you have paid into your account. When you wanted to take some money out, the process would be reversed, the money would pass the other way over the counter and the clerk would write down the withdrawal amount with the quill pen in the ledger.

Not a lot has changed since then, particularly with some building societies where there is no on-line updating of accounts but rather entries are held locally in the branch ledger (albeit electronic) until the end of the day when the accounts are balanced and head office updated. Even in today's global retail banks customers have to 'belong' to a branch and the bank sort code and account are associated with a single branch. The whole payments process that transacts millions of transactions every day and the cheque clearing process are all based around the premise that a customer is identifiable by their sort code and account number. Each bank has a set of sort codes that tells the payments system which bank to transfer the money to and to which branch

To have portable bank accounts the connection between the customer and their bank and their branch would need to be broken and replaced with some other identifier. This is not minor surgery, it is more like a heart, lungs and brain transplant all being performed simultaneously with the added handicap of the anatomical guide to the human body having gone missing. It would effectively mean the re-writing of not only the core banking system of every bank but also the re-writing of the payment systems. Almost all of our banks and building societies are working on extremely old banking systems for good reason.The banks have shied away from replacing because the knowledge of exactly how they work has been lost as the original programmers have either retired or gone up to the great card punchrooms in the sky, and the risks associated with refurbishing or replacing them have been seen as too high and the benefits too low.

At a time when governments all over the world are looking at de-risking banks and where over the last few days and months we have seen National Australia Bank losing its payments systems for a couple of weeks, Bank of Ireland's systems going down,  Lloyds Bank's payments system paying out double and Bank of America losing its core systems for a weekend, no politician is going to mandate the high risk action that the banks must make the changes to make portable bank accounts viable.

You can completely understand why new entrants would like portable bank accounts as a way of easing their way into the market, but the reality is that it isn't going to happen anytime soon

Update June 2011.

The proposal by Lloyds Banking Group that the banks should create a shared database of direct debits and standing orders so that when a customer switches banks the direct debits don't get lost in the process appears to be getting traction across the banking industry. It is based on the model deployed in The Netherlands and is also being considered by the Australian banks. Lloyds is estimating that the cost of this change for the industry could be in the order of £2bn. This is still major surgery on the core banking systems but it is not the full blown account number portability that mnay new entrants are calling for.

Account number portability is increasingly becoming irrelevant. When more and more people don't even know their own telephone numbers, let alone others, due to storing their numbers in their phones, on their computers and iPads, and having the ability to speed dial, it brings further into question the need to know a long bank account number. With the increasing use of alternative ways of identifying yourself, the growth of mobile payments and the alternative means of making person-to-person payments then the need to know your account number will become increasingly redundant.

There are two real issues that stop people switching. Firstly there is the lack of sufficient differentiation between the banks to make it worth people changing bank accounts - banking continues to be seen universally by customers as a commoditised and poorly delivered service. Secondly there is the fear that the process will fail and extra costs and hassle will be occured. The Lloyds Banking Group proposal will only help address the latter (and will be some considerable time coming).

As the banks wrestle with the paradox of how they can make it easier for customers to leave them whilst retaining their customers then their focus has to be on how they differentiate themselves in the eyes of their customers and that is where the investment really needs to be.