One of the reasons our smartphone service in the United States is improving so quickly is an FCC rule from 2003 that says consumers can bring their phone numbers with them when they change carriers. If it weren’t so easy for consumers to change phone companies, carriers would have a vice clamp on your nipples and they would feel less pressure to compete aggressively. In this case, government meddling in the free market worked like a charm.
The banking industry is a lot like the phone industry before the 2003 FCC rule on phone number portability. For consumers, changing banks is a gigantic pain in the ass. I have my automatic bill payments linked to my existing accounts. I’d need to reorder checks and make sure the outstanding payments clear. I’d need to learn what services the new bank has, and order new credit cards, and get a new ATM card. It’s all doable, but I’m not going to jump ship just because my bank is being a jerk about one thing or another. It’s too much work. Let’s call this situation a stickiopoly. Banks do compete, but not as aggressively as they would if consumers could switch at the drop of a hat.
So what would happen if banks had to adhere to a “bank consumer portability” law? Suppose you could switch banks as easily as giving your new bank your social security number and asking them to switch all of your credit cards, mortgages, and bank accounts automatically. And let’s say the new bank also has the capability to switch all of your automatic payments (water bill, energy bill, car insurance, mortgage, etc.) at the same time with no effort on your part.
If switching banks were easy, a bank would magnify its risk any time it engaged in sketchy behavior such as LIBOR manipulation, ridiculous overdraft fees, or lending discrimination. Consumers could punish banks for being jerks. For example, I wouldn’t want to be associated with a bank that was guilty of LIBOR manipulation. I’d figure the rest of the bank’s management was rotten too and they’re probably screwing me in some way I’m not yet aware of. If it were easy to change banks, I’d do it. But it’s not easy, so I don’t. (My LIBOR example assumes at least one bank wasn’t in on the scam.)
And this brings me, very indirectly, to my point for today. On 7/14/12 I published a Dilbert comic that mocked banks. The original version of this comic used coarse language that reads funnier to me. But newspapers wouldn’t have found that language acceptable. Today I submit for your consideration both the published version and the unacceptable version. Which do you prefer?
This one got published…
This was the original version…