What is preventing this game-changing movement for customers?
What is the most effective solution to poor service, abusive sales and harassment from the banks to whom you entrust your hard-earned savings? Simple. Portability of bank accounts; or the ability to vote with your feet and upgrade to a better bank. The idea of bank account portability, which will genuinely force banks to compete for their customers, has been on the cards since 2012, when the Reserve Bank of India (RBI) initiated the process of creating a passcode. unique customer identification (UCIC). Since then, almost all obstacles to implementation (technological problems, high costs, lack of unique codes, etc.) have been considerably resolved; but account portability is nowhere on the cards.
Over the years, banks have used technology to their advantage by locking customers into a complex web of services, such as standing instructions to pay bills, equivalent monthly installments, automated rollover of fixed deposits, automatic debits debit card contributions and links to trading and demat accounts. They have also made the process of closing accounts a multi-step and time-consuming affair.
The portability of accounts will free bank customers from this enslavement. This will allow them to switch smoothly to another bank with the same account number and all standing instructions (deposit renewals, appointment, direct debit from credit cards, utility bills and equivalent monthly payments) intact, with no procedures for payment. complicated account opening or interpersonal skills. customer care (KYC).
Number portability in the telecommunications sector was successfully implemented in 2014, despite industry resistance. This led to a huge churn rate initially; But things got better after service providers struggled to treat customers well and offered lower rates, less opaque subscription plans, and eliminated hidden charges. The portability of bank accounts can also lead to a first churn which could be avoided by giving banks a window to clean up their act vis-à-vis customer service; but things will work out or the best banks will profit.
In 2012, the RBI Circular The introduction of UCIC clearly identified the need for a unique client identifier “between different banks and financial institutions” to help “the establishment of a centralized KYC registry”.
The banks dragged their feet to create UCIC; but RBI stubbornly pursued this with repeated circulars in 2013, 2014 and the emphasis on compliance (even in cooperative banks) in its annual inspection reports. My sources say all banks now have UCICs for each customer, allowing them to track all customer relationships and instructions through that single number.
In 2012, RBI also issued a notification asking banks to allow “portability of intra-bank accounts” in all cases where KYC was established. This allowed your account number to remain the same everywhere in India, within the same bank. He then declared that the portability of bank accounts was possible and could be achieved in three years. Lobbying against her began immediately, raising fears of disruption and “fierce competition”. Nine years later, most people agree that the disruption is good, but apparently not for the banks.
In 2015, the UK’s Financial Conduct Authority published a report on models for implementing account number portability and it also began to be adopted in Europe. In India, the Unique Identification Authority of India (UIDAI) and the National Payments Corporation of India (NPCI), a centralized payment system, have said interbank portability is possible. This was at a time when the computer industry (information technology) and financial technology companies were pushing for quick and easy onboarding of clients through Aadhaar and the government was forcing clients to link their bank accounts to their Aadhaar. and their phones.
In May 2017, then RBI Deputy Governor SS Mundhra announced that portability of bank accounts was not only possible, but would be a “far-reaching step towards strengthening competition and improving customer service.” . He said digital banking “would play a huge role in allowing bank accounts to be ported with the same ease as mobile numbers” through applications such as BHIM, IMPS and UPI.
regular readers of Life of money would know that the bank account portability request was high on our list of requests in a change.org petition in 2017 to highlight how banks were robbing their customers. This campaign was supported by all banking unions. Contrary to reports, unions have never opposed the portability of bank accounts; it was the management of the public sector banks (PSB) who opposed it.
In May 2018, exactly one year after Mr Mundra’s speech, Zee News reported that RBI had put portability on the back burner for various vague reasons that were never properly addressed. A central banker tells me that the Association of Indian Banks is delaying implementation on the grounds that the banks’ core banking platforms are not compatible. Interestingly, that didn’t stop the government from pushing nine banks into an elaborate merger. And the banks did not dare to resist.
RBI’s reluctance to push portability is also clear in the reaction of at least two former high-ranking central bankers who strongly oppose it. One argues that banking is different from telecommunications; customers already have multiple bank accounts with different banks (to avoid putting their eggs in one basket). In addition, the fact that banking operations are “highly confidential and portability would give a third party (central entity) access to some, if not all, information”. I strongly disagree with both premises. Yes, customers have multiple bank accounts for security reasons and so it is even more imperative that they have the option to switch when they encounter poor service or high fees. The data privacy argument is also rather empty: Sensitive customer data is already shared with four credit bureaus and can be easily exploited by all potential lenders. Additionally, when ATM networks can be shared seamlessly across the banking system, why should account migration be a problem?
The second central banker agrees that all major banks are opposed to portability. Therefore, there has never been a frank and holistic debate on the “need, desirability, capacity, methodology or cost-benefit of enabling portability of accounts” which is the key to implementation. . “We haven’t even achieved good intra-bank portability, especially for domestic and international transactions,” he said.
Number portability would give the new banks a fighting chance to attract customers (especially when the increased deposit guarantee had reduced the risk of deposits down to Rs5 lakh) and they welcome the idea. But the banking system works like a closed club and they have no voice, a private banker tells me. The point is, most of the portability hurdles have already been resolved, unless a comprehensive rollout plan is announced. The two key pillars of portability are UCIC, which is already in place, and a centralized KYC.
A centralized KYC is already available via CERSAI (Central Registry of Securitization Asset Reconstruction and Security Interest of India) – a central registry which, among other things, manages and maintains a KYC registry, governed by the PML (Prevention of Money Laundering) Rules of 2005. The Central Registry of Records CERSAI’s KYC, started in 2016, was to end regular harassment regarding KYC and beneficial ownership of regulators. It covers RBI, SEBI, IRDAI and PFRDA and already has over 220 million KYC records. The CERSAI CKYC is a 14-digit number linked to an identity document and stored in electronic format. Most importantly, it is thoroughly checked and is not limited to self-certified photocopies like all other KYC requirements. The mystery of why every financial regulator continues to harass investors, depositors and clients with a new KYC for every new financial relationship will likely only be resolved when someone sets out to file a public interest litigation (PIL ) or a class action to demand answers. of our policy makers.
When CERSAI set up the verified and centralized KYC, another key portability requirement was also put in place. And yet, as customers, we have neither the portability nor the end of harassment on KYC, while the banks continue to take advantage of the fact that customers have little choice to change. Obviously, the barrier to portability is not the technology but the way banks have become accustomed to treating customers. Will RBI Governor Shaktikanta Das bite the bullet and push it through?