A Modest Proposal: Portable Banking
Ever tried to change your bank account? I have. And I didn't like it one bit. So here's a proposal that should make the process so much more streamlined.
Where Are We Now?
In the bad old days, if you wanted to move house, you had to change your phone number. The number you dialed was the actual address of your phone line. With the advent of digital exchanges, all that changed. Your phone number is now just an external label; the number of the actual line you connect to is stored internally. This means that you can change your physical line number without having to change the actual number dialed.
From day one, digital cellular phone services also adopted this model. The internal number for your actual phone is not the number you dial - that's stored on your SIM card. Again, you can change phones without having to change your telephone number.
Why does this not also apply to bank accounts?
The banks were the first large institutions to take advantage of information technology. They should have been the first to realise the power of divorcing your external account number from the internals of where your money is actually stored.
I first started thinking about this when switching my account from one bank to another. The process was advertised as taking 5 days, as everything would be dealt with for me by the bank. If only it were that simple.
In reality, the bank sends out automated messages to anyone taking direct debits, informing them of the change in account number. This may only take 5 days, but the general incompetence of the receivers of this information meant that the actual time to sort out all the problems was not 5 days, but 10 months.
And that's just for direct debits. I still had to fiddle around with payroll, credit cards, child benefit payments, and miscellaneous other people who all needed to know my new details.
If the banks adopted an internal/external ID scheme, then this change would have had to have happened at one place – the central clearing house. No-one else need have known, so there would have been no changeover penalty.
And maybe that's the rub. There would be no changeover penalty. The banks advertise how easy the process of changing is, but we call know that the actual time to sort out the whole thing is many times longer than they claim, and are customers are thus discouraged from changing accounts.
Just imagine what life would be like if you really could change your account with no hassle. Your bank annoying you? Just change. No need to think twice because this won't now take half a year or more to sort out the mess. This probably doesn't sound too good if you're a large monopoly bank with poor customer service, does it?
How Should It Work?
At present, we have a 6-digit sort code and an 8-digit account number. We can keep this as the internal representation – after all, it does tell you exactly where the money is. Let's add a few zeros onto this to allow for further expansion. Double the size if necessary – it's not a number that humans will be dealing with on a day-to-day basis.
For the external representation, we create a new unified account number. To start with, the easiest way is to take the existing sort code and account number, munge them together, add some extra zeros again and give you this new number. This need never change, unless you want it to. People are already used to 16-digit numbers as credit card numbers, so why not adopt this format for account numbers too?
So, to take a concrete example, imagine Mr John Q Average, who has an account at MegaBank, sort code 11-22-33, account number 12345678.
For this physical account, we create a new physical account number (let's double the number of digits, to allow for lots of expansion). This would have number 0000001122330000000012345678. This is a terrible number for users to deal with, but that's OK because only the computers will ever really see it.
Meanwhile, Mr Average gets a new unified account number which is 0011-2233-1234-5678.
At the clearing house, there is a simple lookup table that associates these two key numbers with each other.
Every month, his wages are paid into this account number. At the clearing house, they look up the actual physical account number (0000001122330000000012345678) and transfer to that account. The same process happens when he writes a cheque, pays a direct debit, or honours a standing order.
A couple of months down the line, the shoddy service at MegaBank makes Mr Average want to change to use FriendlySave instead. Fine. He goes to FriendlySave and opens an account using an account transfer form. Obviously, he has to supply adequate ID to ensure that he is who he says he is.
He gets a new physical account number, say 0000009988770000000087654321, which identifies his account slot at FriendlySave. At some point, after adequate confidence has been achieved with his identification, the clearing house receives a transfer order requesting the transfer of all assets from the existing physical account attached to his unified account number, and at the same time, the reassignment of the internal account number. This is an atomic operation – it should not be possible to connect a debit or payment to an inactive account.
So, now the clearing house has the unified account number 0011-2233-1234-5678 associated with the new physical account 0000009988770000000087654321. That's where his wages now go, and where his bills are paid from, with no need for anyone except MegaBank and FriendlySave to even know.
And then, maybe it really will only take 5 days to transfer my account to a new bank.
So, how about it, high street banks? What's the problem?