The Biden Executive Order on promoting competition
by Tyler Cowen July 10, 2021 at 1:29 am inCurrent Affairs
Economics
Law
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The Director of the Consumer Financial Protection Bureau, consistent with the pro-competition objectives stated in section 1021 of the Dodd-Frank Act, is encouraged to consider:
(i) commencing or continuing a rulemaking under section 1033 of the Dodd-Frank Act to facilitate the portability of consumer financial transaction data so consumers can more easily switch financial institutions and use new, innovative financial products;
From Executive Order on Promoting Competition in the American Economy | The White House:
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Portability of bank account information is a good idea.
From The Biden Executive Order on promoting competition – Marginal REVOLUTION:
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Why can’t you port your bank account number the way that you port your phone number?
The Financial Conduct Authority (FCA) has just launched an investigation into the Current Account Switching System (CASS) that the UK banks were forced to implement a year ago. Interestingly, though, they are also reviving an idea that the Independent Commission on Banking (ICB) put forward three years ago, that of porting bank account numbers across institutions.\n\nI explained at the time, in exhausting detail, how mobile phone numbers work and why bank account numbers are not analogous. Anyway, it is timely for the FCA to now take a look at this subject again in light of figures that appear to show that the CASS has made no difference to customer mobility. As the regulator states:\n\nThe Current Account Switch Service is not the only option to make switching easier for current account customers. Alongside our review of the new service we will also gather evidence on other options including account number portability (ANP).\n\nTheir thinking around ANP is that if people could keep their account number it would make account switching much faster (in fact, instant) and it might be a factor in increasing competition. One way of implementing a viable ANP, as I also wrote some years ago, is to use virtual account numbers, or VANs:\n\n
The Independent Commission on Banking recently published an interim report on their Consultation on Reform Options. This interim report raises the subject of bank account number portability. Section 5.17, to be specific, says that:
Beyond improvements to the existing system, full account number portability would enable customers to change banking service providers without changing their bank account number. This would remove the need to transfer direct debits and standing orders, which remains the main area where problems may arise. In the past, portability has been rejected as overly costly, but if no other solutions appear effective and practicable, it should be reconsidered to see if this remains the case given improvements in IT and the payments system infrastructure.
It seems reasonable for the Commission to wonder why customers cannot port their account number from one bank to another the way that they can port their mobile phone number from one network to another. That seems a plausible request for 2011, but phone numbers and account numbers aren’t quite the same thing. A phone number is an indirect reference to your phone (well, your SIM card actually) whereas the account number is the “target”. Thus, we shouldn’t really compare the account number to the phone number, but think of it more as the SIM. Each SIM card has a unique identifier, just as each bank account has an international bank account number (IBAN). When you turn on your phone, essentially, your SIM tells your mobile operator which phone it is in and then “registers” with a network. I am writing this in Singapore, where I just turned on my iPhone, so now my O2 SIM card is registered with Singtel. When you call my number, O2 will route the call to Singtel, who will then route it to my phone. But how does the call get to O2 in the first place?
In most developed nations there is what is called an “All Call Query” or ACQ system: there is a big database of mobile phone numbers that tells the operators which mobile network each number is routed by. In order to make call connections as fast as possible, each operator has their own copy of this database that is regularly updated. Note that for reasons that are too complicated (and boring) to go into there, in the UK there is a different scheme, known as indirect routing, whereby when you dial my phone number 07973 XXXXXX it is routed to Orange (because that’s where all 07973 numbers originated from) and then Orange looks XXXXXX number up in its own database to see where to route the call to (in this case to O2). This is why calls to ported numbers in the UK take longer to connect than they do in other countries.
It’s entirely possible to envisage a similar system working for banks, whereby we separate the equivalent of the mobile phone number — let’s call it the Current Account Number (CAN) — from the underlying bank account and have an industy database that maps CANs to IBANs. This database would be the equivalent of the ACQ database. (I rather like the branding too: if the banks decided to operate this cross-border, they could label it the international current account number, or iCan.) So the bank sends your salary via FPS to the iCan, and the database tells FPS which actual IBAN to route it to. No matter which bank accounts you use or change to throughout your employment, the employer always sends the salary to the iCan and thus reduces their own costs.
There is an analogy to this is in the way that some of the new contactless payment cards work. In the US, American Express credit cards give up what is called an “alias PAN”. The PAN, or primary account number, is the 16-digit number on your credit card. When you use your Amex card via contactless, the 16-digit number it gives up is not the actual plan but an alias PAN. Only Amex know which actual PAN this alias PAN refers to. The advantage of doing this is that if criminals get hold of the alias PAN, they can’t use it to make a counterfeit magnetic stripe card, because the alias PANs are only valid for the contactless cards (which they can’t counterfeit, because the contactless cards have computer chips in them).
In the UK, we route by sort codes. Any account number beginning 20- is known to be Barclays, so a payment switch will send the payment through to Barclays. We might decide, say, that sort codes beginning with 00 are iCans. When you get your first bank account, the bank sets up the IBAN and iCan. For your salary, direct debits, standing orders and so forth, you give the iCan. BACS and FPS will be told about iCans, so when a payment to an IBAN beginning “UK00-” enters one of those systems, they go to a shared database and look up the IBAN to route the payment to.
In the world of payments, a related discussion has already sprung up. This is the discussion about Legal Entity Identifiers (LEIs) that have been going on recently. Many interbank payment messages have account identifiers only and the some law enforcement agencies want to stop this and have banks validate the names as well (it will help to track funds to and from suspects I guess).
A global standardized Legal Entity Identifier (LEI) will help enable organizations to more effectively measure and manage counterparty exposure, while providing substantial operational efficiencies and customer service improvements to the industry … The LEI Solution is a capability that will help global regulators and supervisors better measure and monitor systemic risk.
[From
Legal Entity Identifiers: An Emerging Risk Management System ]
I’m sure I’d heard somewhere before, possibly at the International Payment Summit, that the plan was to use the SWIFT business identifier codes (BICs), but apparently that’s no longer the case. Fabian Vandenreydt, the new Head of Securities and Treasury Markets at SWFIT, recently said that the International Standardization Organization’s Technical Committee 68 (ISO TC68) has concluded that developing a new code would help avoid ambiguities that might be involved if existing codes are used. The BIC is made up of eight to 11 alphanumeric characters with four letters for the bank, two letters for the country, two digits for the location, and three digits for the specific branch but ISO TC68 want we we nerds call an MBUN (a “meaningless but unique number”).
I don’t think this is way forward for people, though. LEIs are unique corporate identifiers: a corporate identity has one, and only one, LEI. Fortunately, or unfortunately, depending on your view, there is no unique identifier for British persons (and nor is there likely to be under the present administration), nor Europeans, nor citzens of the world. And I don’t think we would want the financial services industry to develop its own sort-of-identity card scheme. We just want a simple, portable, pointer to a person that can be used to index into their KYC’d persona.
The easiest way to do this would be to assign a unique financial services identifier (FSI) to a person or other legal entity the first time that they go through a KYC process. I might have the FSI “citizendave!barclays.co.uk”, for example. One someone has one of these FSIs, then there would be no need to drag them through “know your customer” (KYC) again. This would greatly reduce industry costs and make the process of obtaining a new financial service — a new bank account, a new credit card, a new insurance policy, a new accountant — much simpler. Imagine the simplicity of applying for in-store credit for that new sofa by just giving them your FSI and watching the application form magically populate by itself on screen.
It doesn’t matter if a person has multiple FSIs, because each FSI will have been obtained as the result of a KYC process. If the FSI Directory ends up with two “Dave Birch” entries, so what? It’s not an ID card scheme, it’s a “save money for the financial services sector and make life easier for consumers” scheme. And it wouldn’t matter either if both of my FSIs point to different iCans: I might, for example, have a personal persona and a small business persona—lets say citizendave!barclays.co.uk and citizendave!rbs.co.uk and that point to my personal and my small business accounts—and I want to use them for different purposes.
Picture this. You are fed up with the appalling service you get from your bank, so you walk into a branch of New Bank. You ask to open an account, and are directed to the ATM in the lobby and asked to request a balance from your existing current account. You put in the card and enter the PIN. While the ATM is carrying out the balance enquiry, the FSI (obtained from your card) is sent to the Directory and within a couple of seconds both your account balance (from your bank) and your picture (from the FSI Directory) are on the screen. The New Bank agent presses a button and a pre-filled application form is printed out for you to sign and, once you have, the existing system for transferring accounts is triggered.
There might be another useful spin-off from the FSI as well. Suppose you could designate a default account against the FSI: generally speaking, your iCan, but it could also be a prepaid account somewhere, or your PayPal account or whatever. Then someone could send you money by giving your FSI: no need to type in names, sort codes, account numbers. Anyone could pay anyone by entering the FSI into the ATM, or their internet banking screen, or (most likely) their mobile. Simple.
I’ve written before about what the industry should have done, which is to create a virtual sort code and account number that customers can switch to wherever they like: that way, they give their employers and whoever else a single sort code and account number which never, ever changes, Then, if they want to switch bank, they re-route the virtual account and there’s no need to notify billers, counter parties etc to update their databases.\n\nIt is this sort of VAN that is truly analogous to the mobile phone number, so I have a VAN proposal for the FCA even though the ICB didn’t consult with me last time. All mobile phone numbers in the UK begin with a “7”. Well, what if all VANs in the UK began with “70”? How cool would this be? The two main portable numbers that a consumer needs would both begin with a “7”.\n\nWhy “70” for VANs? Well, the “70” series of sort codes has an odd history. The use of individual sort codes within the range 70-00-00 to 70-99-99 was discontinued in the 1990s.\n\nSo let’s re-use the 70 range! We can issue people with VANs of the form 70-ZX-XX 99999999. These would be compatible with all existing systems and with the International Bank Account Number (IBAN) scheme. I suggest that we use the “Z” in the VAN as a good old-fashioned check digit, leaving 11 digits for the individual account numbers (ie, 100 billion account numbers), more than enough for the UK for the foreseeable future.\n\nThis “7-0 solution” for ANP has absolutely no impact on existing systems. As there are less than 100m bank accounts in the UK, the scheme provides multiple VANs for each person, business, charity, government department and so on in the UK. Having lots of VANs is useful. I might have a work VAN and a home VAN, for example. My wife and I might decide to have three VANs: one that maps to our joint account and one each to map to ask individual savings accounts. When opening a new bank account, consumers would be asked whether they wanted to use an existing VAN or create a new one: the new VAN would be created or the existing VAN directed to the new account there and then.\n\nThe initial database mapping the VANs to the real account numbers can be created in an overnight run by the banks exporting their current account numbers to a new virtual account number mapping database. Then consumers could use their home banking authentication to log in to the virtual account number system (with the obvious acronym VANS) to “claim” their VAN by adding their relevant contact details, such as a mobile phone number and email address, and more importantly to change the target account number whenever they wanted.\n\nA straightforward and highly-desirable extension to the scheme would be to allow consumers to make direct payments to the mobile phone number or e-mail address registered against the VAN as well as the VAN itself, thus providing the functionality of PingIt and PayM but at a more general level. You might even allow consumers when claiming a VAN for the first time to choose a “Payment Name” for that VAN, just as they choose a Twitter name or a Facebook name.\n\nHere’s my ANP vision for the FCA, then. I have a Barclays account. I log in to the VAN system and select that account number. The system bounces me to Barclays for authentication. Once this is done, I am returned to the VAN system where I can now claim the VAN pointing to that Barclays account. Let’s say it’s 70-10-99 11223344. I add my e-mail address and my mobile phone number to the VAN record.Then I select a payname. First of all I try £dave, but it turns out that it’s already been allocated. I try again and get £davebirch.\n\nThe next time I take out a mobile phone contract, instead of trying to remember my Barclays sort code and account number, I can just type in “£davebirch”. I tell my employer that my bank account is 70-10-99 11223344 or, if they have modern accounting software, “£davebirch”. If I change bank accounts, I log in to VANS again and change from my Barclays account to my new Metro account: I don’t need to inform the mobile phone, my employer or anyone else. Simple.
Snippings 