BofE's Haldane backs shared database for customer accounts to boost competition

BofE's Haldane backs shared database for customer accounts to boost competition

Senior Bank of England executive Andy Haldane has backed calls for the creation of a shared database for the storage of customer account details, arguing that the move would help boost competition in financial services.

In a speech at Occupy Economics' Socially Useful Banking event on Monday, Haldane, executive director for financial stability at the BofE, bemoaned the fact that - until Metro arrived on the scene in 2010 - no new bank had been set up in the UK for a century.

Although cautioning that there is no "silver bullet" to the problem, Haldane said he is attracted to the prospect of putting some core banking services in the hands of a shared utility, storing customer account details.

"With customer information held in a network utility, like the electricity grid or railway network, banks could plug and play when offering deposits and loans to customers. The costs of entering the banking market would be lowered for new banks. And so too would the costs of searching and switching for customers, between banks and between products, rather as you might between gas or mobile phone suppliers," he told the audience.

Last year the Independent Commission on Banking did set its sights on the often difficult process of account switching as part of its push for increased competition in the sector. Initially the Commission looked at full account number portability but in its final report settled for an emasculated "redirection service", deciding that it can deliver many of the same benefits at a lower cost.

The bank-owned UK's Payments Council's board then gave the go-ahead for the project, committing up to £850 million for the service, which is slated to go live next September.

With the new service, at least one strong new player will enter the market - retail giant Tesco has publicly stated that it is waiting for the system before launching its current account.

In his speech, Haldane said that there are already some encouraging competition signs and that "in weak moments, I think that we might even be on the cusp of a technological revolution in banking", citing the growth of mobile services and new non-bank services such as peer-to-peer lending, crowd-funding, invoice-financing.

However, the central bank man also highlighted the value of more old-fashioned banking, focussed on local, relationship-based retail services, exemplified by Swedish-owned Handelsbanken, which has been quietly building up its UK operations, and now has a network of over 100 branches, opening a new outlet every two weeks.

Said Haldane: "Their business model is fascinating, Quaker-even, in its orientation. They offer only basic banking services, mortgages and small business loans, to people in a tight, locally-defined catchment area. All credit decisions are taken locally by people, not centrally by a computer. No bonuses are paid and no-one has a sales-target. When the whole firm out-performs, a contribution is made to a pooled fund which is invested on employees' behalf. The fruits of success are distributed equally and gratification is deferred."

This "back to the future" banking can thrive if people reward it with their patronage, Haldane told the Occupy audience in a speech in which praised the movement, insisting that "Occupy's voice has been both loud and persuasive" and "policymakers have listened", even claiming that "we are in the early stages of a reformation of finance, a reformation which Occupy has helped stir".

Read the full speech here:

Download the document now 50.5 kb (PDF File)

Comments: (4)

A Finextra member
A Finextra member 31 October, 2012, 07:291 like 1 like

Is Andy in possession of the silver bullet for hack free 100% indentity theft protected central data base for all the UK bank accounts? If so, he should leave his job and consult on the solution to companies that have the challenge to protect their customer databases. If not, he is proposing to launch a very large operational risk for the banking services for consumers and corporates and ultimately society. All for the worship of the Holy Grail of "insufficient competition in banking" and the proof of the problem is lack of new banks. How many new large supermarket chains have been created in the UK in the last 10 years? Or car manufacturers? Is there insufficient competition in these areas as well? Furthermore he proposes socialisation of a valuable asset - the capacity to meet his own Know Your Customer requirement in a bank with a branch office network where identities of new customers are checked face-to-face. This would lead to the disappearance of the branch networks when high-street banks price compete with virtual banks and  close the branches to make ends meet. As a bank customer I value the brick-and-mortar bank with the branch where I can deal with my more complex issues (that cannot be serviced by an internet bank application) instead of talking to a virtual bank call centre person in India. This proposal looks more like preparation for a political career and not as a regulator initiative.  

Gary Wright
Gary Wright 31 October, 2012, 08:46Be the first to give this comment the thumbs up 0 likes

At last a regulator with some imagination. Although some of the ideas are a tad off beam the overall attempt is very welcoming. For far too long Banks have maintained legacy systems within a legacy market structure that acts as a barrier to new banks. We have the technology to lighten the load and attract new banks and increase competition. We need banks that specialise and offer choice. A move away from one stop shop banks has too be the way forward. These ideas should be put under a microscope and challenged but not left on the shelf because its too difficult a leap for people to get their heads round. To get out of the mess were in and create a brighter future we must be prepared to change and innovate. Well done Andy 

Michael Fuller
Michael Fuller - None - London 31 October, 2012, 15:30Be the first to give this comment the thumbs up 0 likes

Apart from having concerns about the security implications of account data being shared and held in a single database where it is most vulnerable to attack the suggestion that Metro is the first new Bank in the UK for 100 years is really just propoganda from Metro.

National Girobank and the numerous building societies (Abbey National, Halifax, Alliance & Leicester, Nationwide etc.) which began offering banking services all qualify as new banks although admittedly none of them were start ups from the ground up.

Banking is certainly about trust so whether people really want a brand new start up as opposed to a business they know diversifying into banking is open to question.

People will switch if the offer is good enough but the sharing of everyone's account data merely to facilitate a small percentage to switch doesn't seem sensible.

A better idea might be a service for customers to be able to announce their wish to find a new banker and permission to do a credit check. Banks could then bid for their business giving rise to real competition.

Nick Collin
Nick Collin - Collin Consulting Ltd - London 01 November, 2012, 09:24Be the first to give this comment the thumbs up 0 likes

Andy Haldane gets my vote for the next governor of the BoE!  I strongly recommend downloading and reading the full speech - it includes far more than the highlights referred to above - in fact it's a comprehensive and coherent strategy for a complete systems-oriented reformation of banking as we know it.