The much-heralded bank switching package unveiled by Treasurer Wayne Swan within months of Kevin Rudd's election was bureaucratic, cumbersome and “fundamentally flawed”, according to the man appointed to review it, former Reserve Bank governor Bernie Fraser.
The scheme required customers planning to change banks to tell their old bank, request of printout of regular deductions and deposits, take it to the new institution, obtain one letter from the new institution for each payment that would be moved across, to sign each letter and then return them to the new institution.
So unwieldy was the process that in the three years since the process was used in only 6000 of the millions of occasions on which customers switched banks.
“I think at the time those in charge thought they were making progress,” Mr Fraser told the Herald. “Banks that weren’t enthusiastic could agree to it knowing it didn’t commit them to much.”
Trumpeted by Mr Swan as a reform that would allow customers to vote with their feet, the package was accompanied by a "hotline" that turned out to be the Australian Securities and Investments Commission switchboard.
“All the incentives were wrong,” Mr Fraser told the Herald... “It relied on the old bank, the losing bank, to play the game and assist the customer to quickly move to another bank. And it was bureaucratic and cumbersome for customers wanting to switch.”
“Both of those things seemed to be fundamental flaws.”
The new scheme recommended by Mr Fraser and yesterday endorsed by Mr Swan will require customers to fill in just form and lodge it with their new institution rather than the one they are leaving. It will start next July.
Mr Swan also announced a one-page mortgage insurance fact sheet and a national e-conveyancing system for property transactions due to start in 2013.
Mr Fraser said he had been more successful than Mr Swan three years earlier in getting the banks to agree to a good switching scheme because he had been given “a big stick”.
He had been asked to investigate “full account number portability” which would enable anyone who switched banks to carry with them their account number, meaning all details would move across.
Mr Fraser found the idea would be “massively expensive” for the banks, in his words: “akin to taking a gold sledge hammer to crack what is really quite a small nut.”
While mobile phone companies were able to manage phone number portability, financial institutions were more complex and had no central clearing house.
Bank switching was in good health with or without special measures. One in three new home loans was in fact a refinancing of an old home loan with a new lender.
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