- The Banking Supervision Department is working to enhance competition in the banking system, by promoting several projects and major restructuring of the market. (See chapters 2 and 3 of the Banking Supervision Department's 2018 Annual Survey, English translation forthcoming.) This is done, inter alia, through a joint project with the Ministry of Finance to simplify online customer switching from one bank to another.
- In this context and as part of implementation of Amendment 27 to the Banking (Service to Customer) Law, 5741-1981[1] (hereinafter: "the amendment"), it was determined that each bank should establish an online system for switching bank accounts (hereinafter: "the online system") by 2021. This is a complex project from an operational perspective and a high-cost one, estimated at hundreds of millions of shekels.
- The objective of the online system is to facilitate customers switching their accounts between banks in an online, secure and convenient manner, rapidly and at no cost to the customer. Another objective is to increase competitive pressure on all banks. The system may also motivate customers to distribute their financial products across banks—i.e., have a checking account with one bank and use diverse financial products from other banks and non-bank entities.
- Currently, prior to the system being launched, there are on average 285,000 customers per year who switch from one bank to another, making up 2.5 percent of all current accounts in the banking system in 2016–18. This rate is similar to estimated rates around the world, and in particular in the UK, which already has such a system in place.
- An examination of the customers switching between banks indicates that among those aged 30–40, the percentage is slightly higher than the average, and that in 70 percent of the switches at least one banking product other than a current account is used during the transition period. In 9 percent of the cases, the switch is made in conjunction with obtaining a housing loan (37 percent of new housing loan borrowers switched banks in 2016–18), 30 percent of transitions are made in conjunction with obtaining a non-housing loan or going into overdraft, and 28 percent are in conjunction with opening a deposit account at the new bank.
- In the UK, where a system for online checking account switching has already been deployed, it was found that the rate of current-account switching did not change after the system was launched. Therefore, we estimate that launching such a system in Israel would not significantly increase the number of transitions. However, the UK system did result in an increase in the average number and variety of financial products and services offered to customers. We therefore expect that in Israel, too, the banks would become more sophisticated through the system being implemented, with competition increasing not only for traditional aspects of the banking services, but also for specific services.
[1] As part of legislation of the Economic Plan Act, 2018.