Portable bank accounts

The rationale for portable telephone numbers obviously lies in the fact that these are printed on visiting cards and various membership cards—and thereby intricately linked to both business transactions and personal communication. Likewise, the humble bank account number, too, is linked—to your loan instalments, your SIPs (systematic investment plans), other investment transactions such as dividend payouts, your provident fund account, your demat account, your trading account, your utility bills, etc.

In the days of plain vanilla banking, the need for portable account numbers wouldn’t have arisen, but today, with the range of financial products on offer, this is a debate that needs to be initiated. In case you are not happy with the services and wish to move away from your primary banker, you can’t, because of the dependence that these linkages have led to. And while banks do everything it takes to become your primary banker, once your account is linked to such services, you become their customer for life, leaving almost no incentive for them to serve you—especially if you happen to have a modest balance in your bank account. That explains why, just like as in telecom services, so much money is spent on marketing and promotions to secure new clients, while existing clients have to hold for 15 minutes to speak to a phone banker. The same principle—who cares for existing customers?

But this can change.

Imagine if our—known to be among the most efficient—banking regulator were to give us the option of number portability. Some part of the effort being spent to woo new customers will then be directed at better servicing of account holders. The possibilities are huge; you would never have to wait in long queues and you would never be saddled with those hidden charges. ?Currently, banks charge a penalty for not being profitable—the minimum average quarterly balance charge. Banks will have to regularly improve service quality. In a perfect market, with commoditization of bank accounts, people will move towards the best and the cheapest. Service will become the key differentiator. Banks will either try to be the best or just vanish.

Since the constraints on changing account numbers create artificial barriers of entry in the banking sector, number portability will take us towards that perfect market. Imagine new banks coming in with better technology and better services, and we being able to move our accounts seamlessly.

It is an open secret that new customers tend to be charged lower rates for loans, while existing customers keep paying higher rates. Isn’t this because existing customers don’t have the choice the new customer has? Banks waive the first year fees, it may be charging for demat accounts, for credit/debit cards, etc. Customers have choice initially, but once trapped, they’ve nowhere to go.

Incumbents, especially all the public sector banks, as well as the new-age banks that aggressively push in first-year fee-waiver packages, will oppose if the stickiness of their accounts were to get negated by a portability policy. But new and likely entrants might support it.

And the winner will be the customer. Nobody wants 10 savings accounts and everybody wants to be with the best.

It will be interesting to know the views of the regulator. Number portability in banking will involve costs for technological compatibility, on the regulatory front and for the clearing processes. But the service quality today makes one think of a seat given to an electoral candidate for life—the gift of a dictatorship.

Comments are welcome at yourviews@livemint.com

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