John Kavanagh June 20, 2012
Painless exit … the new bank will transfer direct credit and debit arrangements. Photo: Louie Douvis
New regulations make it a lot easier to move your accounts to different institutions.
One in 10 Australians change their transaction account each year. That number might be about to rise sharply, following the introduction on July 1 of a new ''tick and flick'' service to make account switching easier.
For many of us, the job of changing bank accounts is made difficult by all the direct credit and direct debit arrangements we have put in place - salary payments into our transaction or mortgage account, regular insurance and other payments coming out.
It is time-consuming and sometimes difficult to change these arrangements.
The increased requirement for identity verification is another hurdle to changing accounts.
Under the new rules, the task of transferring direct-entry arrangements from one financial provider to another will pass from the customer to the financial institution. Customers will sign a document authorising their new financial institution to execute the transfers on their behalf.
The new institution will have the authority to require the current provider to change payment arrangements.
The government gave a commitment to make account switching easier in its 2010 banking policy package, ''A Competitive and Sustainable Banking System''. An initial proposal was to have account number portability, so that we could keep our bank account number when we change banks - just as we keep our mobile phone numbers when we change mobile providers.
However, a review of proposals by the former Reserve Bank governor, Bernie Fraser, rejected this approach as too costly.
Full account number portability remains the goal of some consumer advocates, including Choice, so we may not have heard the last of that idea.
Instead, Fraser recommended the use of an electronic ''mailbox'' to handle secure messaging of customers' direct entry payment details between financial institutions.
The Australian Payments Clearing Association (APCA) has the job of building this ''mailbox'' and co-ordinating changes to the direct-entry system to accommodate the new service.
The APCA chief executive, Chris Hamilton, says approved deposit-taking institutions will be ready to go on July 1.
But the same cannot be said of the 200,000 businesses that use direct entry for debits and credits. There is nobody co-ordinating their end of the change.
Hamilton says he understands that large organisations have made the necessary changes to communicate with the new ''mailbox'' but some smaller users, such as a local gym, might not be up to speed.
Under the new rules, it is the job of the financial institutions to make sure direct-entry users comply with the new rules. Hamilton expects it will work well but concedes there may be a few teething problems as smaller businesses catch up with the changes.
He says the degree of difficulty of the transition will depend, to a large extent, on the volume of requests coming through the mailbox.
In its submission to the Fraser review, APCA pointed out that about 10 per cent of transaction accounts are transferred each year, which suggests many people who want to change providers are already doing so.
''The new rules lower the hurdle and make the transaction-banking market more competitive. But the impact might only be at the margin,'' Hamilton says.
In his review, Fraser found that barriers to account switching are most pronounced in the case of transaction accounts, where additional identity checks are required, and for many customers there will be a number of direct debits and credits to be transferred.
''For some customers, switching does raise problems, which might be alleviated if simpler and more effective formal switching arrangements were available,'' Fraser says.