Israeli Banks May Be Allowed to New Open Accounts Over the Internet

Bank of Israel drafts new rules, but technologists call solution out of date

Tal Cohen

Israelis will be able to open and close bank accounts over the Internet starting January 2015, according to a senior executive in the technology division of one of the country’s major banks. The Bank of Israel’s supervisor of banks has prepared a draft of the new regulations to allow using the Internet in such cases, and the executive expects implementation to start next year.

The Bank of Israel currently forbids opening new bank accounts over the Internet for a number of reasons, but especially because anti-money laundering regulations require banks to know their customers and the characteristics of their financial activities. But a committee headed by Supervisor of Banks David Zaken tasked with finding ways to improve competition in the banking industry, which published its recommendations a year and a half ago, noted that this ban is a major barrier to competition and technological solutions already operate elsewhere in the world to allow opening such accounts over the Internet without fears of misuse by money launderers.

The present situation mostly benefits the large two banks, Bank Hapoalim and Bank Leumi, which have a large spread of branches all over the country. The smaller banks have a harder time providing coverage everywhere in Israel.

A preliminary draft of the new rules has already been distributed to the banks. The central bank will require that the process for opening an account via the Internet will be identical to that done in person in a branch today − but instead the customer will hold a video conversation with the bank clerk over the Internet. The customer will be asked to present his or her identity card and another official document for identification, such as a driver’s license or passport. In addition, in order to activate the account the customer will be required to transfer money into the new account initially from an already existing account in his or her name.

Only those aged 18 and up will be allowed to use the new process, cash transactions will be limited to 10,000 shekels, and bank transfers to 50,000 shekels. Such accounts will also be limited to a maximum of 300,000 shekels. These limitations will be lifted once the customer appears in person at any branch of the bank and is identified by a clerk − in practice completing the existing identification process.

The senior executive in the large bank’s technology division told TheMarker that the video solution the Bank of Israel is proposing is outdated and has no technological justification. There is no reason not to conduct the entire procedure over the Internet on the bank’s website, without needing a clerk at the other end of a camera, he said.

A number of questions are still unanswered, such as will the customer be able to transfer an investment portfolio or credit-card charges through the same process. Standing orders will be transferable between banks in such a fashion starting in 2015.

Most banks are already working to adapt their computer systems to support the changes, and expect the move to increase the number of people who switch banks, which is only 4% a year as of now.