The Israel Consumer Council's campaign for increased disclosure of bank charges and the Credit Data Law, which was approved by the Knesset earlier this week, create the impression that the retail banking sector is on the verge of a revolution.
The ICC is fighting for increased disclosure of banking charges in order to enable consumers to compare the charges of the various banks and thus increase competition, while the aim of the credit data law is to provide the banking sector with information about clients and in accordance with that information to charge tariffs appropriate to the customer's credit rating. Good customers will receive better credit terms than currently available because the data will help the banks price customer risk in a more efficient manner.
Both initiatives are welcome and put pressure on the big banks. However, this pressure results primarily from the well-timed media attack and less from fears that customers will, en masse, close their accounts in one bank and transfer them to another.
The banks know full well that customers are still faced with almost insurmountable obstacles, which when all is said and done, lead the clients to stay with their banks and prevent them from getting better terms from competitors.
Clients are bound to the banks by long-term commitments that can not be terminated in one go, such as direct debit orders, credit payments and post-dated checks. In order to transfer an account to another bank, all these transactions have to be either terminated or transfered. The transfer of all these transactions, in addition to the bother involved, costs money, reducing the feasibility of transferring an account.
These, of course, are not the only obstacles. A no less troublesome obstacle is the correlation between a client's credit portfolio and his asset portfolio. Consumers receive credit from a bank in accordance with their financial assets. As against every credit framework, a client has savings accounts, deposits or other assets. In many cases these assets are not liquid and in order to withdraw and transfer them to another bank, the client has to wait several months.
In this instance as well, consumers can not close down an account immediately, and in order to move to another bank, consumers are often forced to hold two accounts at the same time, which of course means double the management charges.
In the past, the Finance Ministry examined the possibility of increasing competition in the retail banking sector by enabling consumers to transfer index-linked savings accounts from one bank to another before the maturation of the account.The proposition was based on the fact that in any event the funds in these savings accounts are invested in government bonds, which allows for the possibility of creating a mechanism for the transfer of assets from one bank to another before the maturation of the account.
However, nothing was done and the obstacles to transferring accounts still stifle any real competition in the retail banking sector. For the Credit Data Law to achieve its goal, action needs to be taken to facilitate the transfer of accounts from one bank to another.
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