What is the most effective solution to poor service, mis-selling and harassment by banks which are entrusted with your hard-earned savings? Simple. Bank account portability; or the ability to vote with your feet and switch to a better bank. The idea of bank account portability, which will truly 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 unique customer identification code (UCIC). Since then, almost every hurdle to implementation—technology issues, high costs, absence of unique codes, etc—having been substantially addressed; but account portability is nowhere on the cards.
Over the years, banks have used technology to their advantage locking in customers into a complex web of services, such as standing instructions to pay bills, equated monthly instalments, automated roll-over of fixed deposits, auto debits of debit card dues and linkages to trading and demat accounts. They have also made the process of closing accounts a multi-step and long-drawn affair.
Account portability will free bank customers from this enslavement. It will allow them to switch smoothly to another bank with the same account number and all standing instructions (deposit renewals, nomination, direct debits of credit cards, utility bills and equated monthly instalments) intact, without complicated account opening procedures or know-your-customer (KYC) hassles.
Number portability in the telecom sector was successfully implemented in 2014, despite industry resistance. It led to a huge churn initially; but things have settled down after service-providers worked at treating customers well and offered lower tariffs, less opaque subscription plans and eliminated hidden charges. Bank account portability may also lead to an initial churn which could be avoided by giving banks a window to clean up their act with regard to customer services; but things will settle down or the better banks will benefit.
In 2012, the RBI circular introducing the UCIC clearly identified the need for a unique customer identifier ‘across different banks and financial institutions’ to aid ‘setting up a centralized KYC Registry’.
Banks dragged their feet over creating UCIC; but RBI has doggedly pursued this with repeated circulars in 2013, 2014 and a focus on compliance (even in cooperative banks) in its annual inspection reports. My sources say that all banks now have UCICs for every customer, allowing them to track all customer relationships and instructions through this single number.
In 2012, RBI had also issued a notification asking banks to permit ‘intra-bank account portability’ in all cases where KYC was ascertained. It allowed your account number to remain the same anywhere in India, within the same bank. It had then said that bank account portability was possible and could be achieved in three years. The lobbying against it began immediately, raising fears of disruption and ‘fierce competition’. Nine years later, most people accept that disruption is good, but apparently not for banks.
In 2015, the Financial Conduct Authority of the UK released a report on models for implementing account number portability and it began to be adopted in Europe too. In India, both, Unique Identification Authority of India (UIDAI) and National Payments Corporation of India (NPCI), a centralised payment system, said that inter-bank portability was feasible. This was at a time when the IT (information technology) industry and fintech companies were lobbying for quick and easy on-boarding of customers through Aadhaar and the government was forcing customers to link their bank accounts to their Aadhaar and phones.
In May 2017, then RBI deputy governor, SS Mundhra, announced that bank account portability was not only possible, but would be a “far-reaching step towards enhancing competition and improving customer service.” He said that digital banking would ‘play a huge role in enabling bank accounts to be ported with the same ease as mobile numbers’ due to apps like BHIM, IMPS and UPI.
Regular readers of Moneylife would know that the demand for bank account portability was high on our list of demands in a change.org petition in 2017 to highlight how banks were fleecing customers. This campaign was supported by all bank unions. Contrary to reports, unions were never opposed to bank account portability; it is public sector bank (PSB) managements that were against it.
In May 2018, exactly a year after Mr Mundra’s speech, Zee News reported that RBI had put portability on the ‘back burner’ for a variety of vague reasons which have never been correctly addressed. A central banker tells me that the Indian Banks Association is delaying implementation on the plea that core banking platforms of banks are not compatible. Interestingly, this has not prevented the government from pushing nine banks into an elaborate merger. And banks haven’t dared to resist.
RBI’s reluctance to push portability is also clear from the reaction of at least two senior former central bankers who are strongly opposed to it. One argues that banking is different from telecom; customers already have multiple bank accounts with different banks (to avoid putting their eggs in one basket). Also, that banking is ‘highly confidential and portability would give a third party (central entity) access to certain information if not all’. I strongly disagree with both premises. Yes, customers have multiple bank accounts for safety and that makes it even more imperative that they have the flexibility to switch when they encounter poor service or high charges. The data confidentiality argument is also rather hollow—sensitive customer data is already shared with four credit bureaus and can be easily tapped by all potential lenders. Also, when ATM networks can be seamlessly shared across the banking system, why should account migration be an issue?
The second central banker agrees that all big banks are opposed to portability. Consequently, there has never been a frank and holistic debate on the “need, desirability, capability, methodology or cost benefit of permitting account portability” which is key to implementation. “We have not even achieved proper intra-bank portability, especially for domestic and international transactions,” he says.
Number portability would give newer banks a fighting chance to compete for customers (especially when the increase in deposit guarantee had de-risked deposits up to Rs5 lakh) and they welcome the idea. But the banking system operates like a closed club and they have no voice, a private banker tells me. The fact is that most hurdles to portability have already been fixed, barring the announcement of a holistic roll-out plan. The two key pillars to portability are the UCIC, which is already in place, and a centralised KYC.
A centralised KYC is already available through CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India)—a central registry which, among other things, operates and maintains a KYC registry, governed under PML (Prevention of Money Laundering) Rules 2005. CERSAI’s Central KYC record registry, started in 2016, was to have ended the regular harassment over KYC and beneficial ownership across regulators. It covers RBI, SEBI, IRDAI and PFRDA and already has over 220 million KYC records. CERSAI’s CKYC is a 14-digit number linked to ID proof and stored in electronic format. Most importantly, it is painstakingly verified and not limited to self-attested photocopies as with all other KYC requirements. The mystery of why every financial regulator continues to harass investors, depositors and customers with fresh KYC for every new financial relationship will probably be resolved only when someone gets around to filing a public interest litigation (PIL) or class-action suit to demand some answers from our policy-makers.
When CERSAI set up the verified, centralised KYC, another key requirement of portability was also put in place. And, yet, as customers, we neither have portability nor an end to harassment over KYC, while banks continue to take advantage of the fact that customers have little choice to switch. Clearly, the hurdle to portability is not technology but how banks have grown accustomed to treating customers. Will RBI governor Shaktikanta Das bite the bullet and push it through?