Free the people by freeing their bank accounts

Till death us do partIt didn’t happen and it wouldn’t have worked anyway. UK Chancellor of the Exchequer, Alistair Darling, was expected to legislate that every bank in the UK provide a free bank account to every adult. No money, just the account.

Which is why it was silly. Just about anyone can walk into a UK bank and open a savings account. And legislating that banks provide the account leads to the question: how is this to be coordinated so that I don’t end up with 50 bank accounts, one from each bank?

Yet this idea has plenty of merit. Consider the phone industry. Service providers have a tremendous lock on their customers and can exercise a monopoly where customers have to sacrifice their telephone numbers in order to change providers.

Starting in the US in 1996 with the First Report and Order on LNP and Number Pooling, Americans could take their number with them when they went. This resulted in tremendous competition and the creation of new opportunities. It was such a good idea that it has started to spread around the world.

Knowing that you can keep your number no matter who you choose to use as your provider has led to greater competition, better service, and more confident consumers.

Now consider your bank account. The situation is even worse. For pay-cheques, to monthly debit orders, to financial history and credit records; everything is tied to your bank account. There is no way to move any of this easily without sacrificing a great deal. This gives banks tremendous lock-in and also leads to higher fees, poor service and risky behaviour from lenders (who assume you can’t run away).

A survey released in 2008 by UK-based Age Concern declared that only 16% of the British population have switched their bank after being unhappy with the service‚ while 45% of marriages now end in divorce. Yip, till death do most part.

In the US, similar analysis is pointing to a decline in people moving banks from the typical rate of 15% annually.

Individual banks have come up with “switch kits” or incentives to promote movement, and some people are certainly highly promiscuous. But this is getting things the wrong way round.

It is the bank account numbers that are causing the problem. What if you could keep a bank account number when you left? That would solve all those hassles with linkages and account history.

So, here’s the deal: if you want to free the people, promote responsible competition and improved service, free our bank accounts.

Not just a telephone number for life. All our numbers, for life.

3 replies »

  1. That’s a really good idea, because the problem with switching…especially in this day of electronic bill pay…is that a rather small decision to move your money is a hugely complicated task that requires making the switch with almost everyone you do monthly business with.

    I don’t know how it would work since routing numbers now include bank information, but i’m sure with all the geniuses out there it could be worked out.

  2. The phone companies bitched and whined about the “difficulty” of allowing number portability, and I’m sure the banks will too. However, banks already have interchange systems so that you can do interbank transfers so there should be no problems with extending this to bank number portability.