Boost consumer flexibility to transfer deposits and mortgages

The Gillard Government will take important steps to progress the transition to full bank deposit portability. Portability would allow Australian consumers to quickly and seamlessly switch their deposit account and mortgage to a competitor who is offering a better deal.

The Government will appoint former Reserve Bank of Australia Governor Bernie Fraser to conduct a comprehensive feasibility study to examine the technological options, the potential timeline and processes for implementing full account number portability.

Bank deposit portability would complement the Gillard Government’s tough new ban on mortgage exit fees for new home loans and transaction account switching package, which empower consumers to keep the banks honest with the threat that they can always walk down the road and get a better deal.

Many bank customers hold their savings in a deposit account with the same bank as they have their home loan, so the inconvenience of moving their deposit account also acts as a significant barrier to moving their mortgage.

Deposit account number portability could ultimately provide consumers with a personalised, transferable account number to which all their direct credits and debits attach, and which moves with them when they switch. It could empower consumers to switch around and get the best deal on their savings.

Competition in the banking sector — like any part of the economy — requires that customers be able to move quickly, cheaply and easily between competitors. Banks currently exploit the financial and time costs that consumers incur when they switch to maintain a fee and interest rate structure that is higher than it otherwise would be.

The ability of consumers to walk down the road and get a better deal boosts competitive pressure on the big banks — any bank which doesn’t offer a competitive deal and the highest level of customer service faces the risk of losing its customers.

The feasibility study by Mr Fraser will involve extensive consultation with the Reserve Bank of Australia, which has primary responsibility for the Australian payments system, and will examine the range of issues surrounding account number portability:

  • Assessing the current technological limits and possibilities around portability.
  • Preserving the regulatory integrity of bank payment systems for consumers, including privacy of information.
  • The potential need for a Central Account Registry to oversee all banking details and account information, under appropriate supervision.
  • The benefits, costs and risks of introducing account portability on various timelines.

Mr Fraser will consult with our financial regulators, the industry, technical experts and consumer groups and all other relevant stakeholders, and report to the Government on the findings of the study by 30 June 2011.

The Gillard Government will also take further steps to boost the capacity of Australian home borrowers to transfer mortgages by accelerating its development of potential frameworks to:

  • Transfer Lenders Mortgage Insurance from lender to lender — to avoid consumers losing the value of the insurance when switching.
  • Allow consumers to avoid lender fees, as well as mortgage discharge and re‑establishment costs, through the introduction of a central repository to hold all mortgages so that refinancing a mortgage would not involve a borrower discharging and reinstating their mortgage.

These mortgage switching measures should further help to encourage consumers to switch home loans by lowering the associated costs and inconvenience.

The Government introduced a transaction account switching package in 2008 to make it easier for Australians to switch to a better deal. During the turbulence of the global financial crisis it is understandable that many savers would have had a preference for the stability of their existing institution.

However, the account switching package will continue to offer an easier way of switching transaction accounts while full account number portability is being developed. The Government expects that more consumers will utilise the account switching service as competition returns to the banking sector and the benefits of the package become more widely known.