The supervisor of banks at the Bank of Israel, David Zaken, released draft regulations Wednesday aimed at allowing Israelis to open Internet bank accounts without physically appearing at a bank branch, starting mid-July.
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“Allowing the opening of accounts on the Internet will be a significant step in easing the move from one bank to another, and increasing the competitive ability of the retail customer − households or small businesses,” Zaken said.
Currently only 4% of clients switch banks in any year, a situation that particularly benefits Israel’s large banks by making it harder for smaller rivals to win over new clients. A final version of the regulations will be published shortly after relevant ministries and the advisory council on banking matters comment on them, the Bank of Israel said.
Internet bank accounts would be opened via the banks’ websites. Prospective clients would be required not only to provide their personal details but provide identification with a bank staff member via a video call. The proposed regulations require that customers provide the bank representative with their identity card and one other form of identification, such as a driver’s license or passport.
An Internet bank account would become active once the account holder transfers funds from an existing account in his or her name, as an additional safeguard verifying the customer’s identity. In part, this is in an effort to prevent the account from being used for money laundering, which the government is fighting via another program led by the Prime Minster’s Office by cracking down on cash transactions.
The Bank of Israel’s proposed rules require that the customer be at least 18 years old. Accounts opened online are limited to cash transactions of up to 10,000 shekels (about $2,900). At the end of each business day, account balances will not be allowed to exceed 300,000 shekels, but that limitation is to be lifted once customers go to a bank branch in person and identify themselves.
Zaken noted the importance of Internet banking as a means of increasing competition in the industry.
Additional impediments to switching banks remain, however. The transfer from old accounts of standing orders authorizing payment of bills through Internet accounts will only be made available as of March of next year. Until then, customers opening a new account will have to appear in person to authorize the transfer of standing orders from an older bank account.
Another missing element in enhancing competition in the industry involves the unavailability of credit-rating databases on individuals that lenders could use in connection with requests from customers who have no prior history with them. Sometimes the absence of such a database even presents difficulties when new customers apply for a credit card with a new bank.
Last year Zaken tried to create a system through which banks would provide a credit rating document to their existing customers that could then be presented to other banks. Knesset Economic Affairs Committee Chairman Avishay Braverman (Labor) halted the effort, on the argument that the mechanism would make it difficult for those with weak credit histories to obtain credit. Braverman’s position, however, makes it more difficult in the absence of such a credit system for potential borrowers with a good credit history to obtain credit. The relative difficulty in obtaining credit from a new bank primarily benefits the country’s two largest banks, Bank Hapoalim and Bank Leumi, who already have a large pool of customers.