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Account Portability in Banking: Complex, But Not Impossible (Joris Lochy)

Republished By Plato
Republished By Plato

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In the telecom world, number portability has long been a reality. You can switch mobile providers without losing your phone number — a change that radically transformed the industry. It made switching carriers seamless, eliminating the hassle of informing
contacts about a new number. This one innovation significantly boosted customer mobility and competition across the sector.

Now imagine if banking worked the same way. Switching your primary bank account today is far from effortless. From opening a new account to closing the old one, the process is often time-consuming and costly. Some banks even restrict flexibility by requiring
your salary to be deposited into the same account that holds your mortgage or loans. This bundling makes it even harder to switch.

And the challenges don’t end there. A new IBAN means updating every organization that pays or charges you — employers, tax authorities, childcare providers, pension funds, utility companies, and countless subscription services. Direct debits must be reconfigured,
and your debit and credit cards, typically tied to your bank, will be replaced — each with new numbers, requiring updates across all your digital wallets and platforms.
No surprise, then, that customers hesitate to switch. The administrative burden is just too high.

If customers could retain their account number when switching banks — just as they do with phone numbers — it would eliminate one of the biggest barriers to change. But in practice, it’s not that simple.
Direct debits are institution-specific, so even with a portable account number, the underlying instructions would still need to be reissued. Similarly, debit and credit cards are tied to specific issuers. Without card number portability, the admin burden remains
substantial.

There’s also a structural challenge. Financial institutions often identify themselves through account number prefixes. Allowing for true account number portability would require a fundamental overhaul of the system to maintain uniqueness and reliability.

A more feasible alternative could be aliases. Rather than porting account numbers, we could shift to using persistent aliases — such as a mobile number, email address or unique ID — to link payments and debits. A centralized service could
manage the mapping between this alias and the customer’s actual account and institution.
This would empower customers to switch banks without notifying every counterparty. They’d simply update the alias mapping, and the rest would follow.

While individuals already face significant friction in switching, businesses suffer even more. Companies receive payments from an extensive network of clients and partners. Changing an account number demands large-scale outreach, accounting system updates,
and can even raise suspicion — since change-of-account notices often resemble fraud attempts.
For businesses, switching accounts can be a logistical nightmare. Yet many are motivated to do so for reasons such as cost savings, consolidation, or post-M&A restructuring.

All of this raises a fundamental question: do we still need the concept of a static bank account at all? In a previous blog, “A Bank Account: A Concept of the Past” (https://bankloch.blogspot.com/2020/03/a-bank-account-concept-of-past.html),
I explored the idea of dynamically managing money across institutions via a centralized customer repository. This vision could be further enabled by the rise of Central Bank Digital Currencies (CBDCs), where individuals might hold a universal account directly
with the central bank.

In such a world, account portability may become irrelevant. The account would no longer be the anchor of financial identity — instead, we’d move toward something more dynamic, flexible, and suited to the digital age.

For more insights, visit my blog at
https://bankloch.blogspot.com

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