The Bank of Jamaica (BOJ) is planning to introduce an electronic know your customer (e-KYC) database later this year in a bid to spur further competition in the commercial banking sector.

This was revealed in an article titled “Richard Byles on Jamaica’s inflation – targeting baptism of fire” on centralbanking.com — a financial website with emphasis on central banks, international financial institutions and financial market infrastructure and regulation — which was published last Wednesday from an interview done on November 9 in St Kitts. The BOJ has been discussing different ways to spur competition which includes deposit portability, a move that would allow consumers at one bank (Bank A) to open a new account at another bank (Bank B) by porting KYC information from Bank A.

“The World Bank is helping us to set up a central e-KYC depository that will work alongside a national identification system. This is in pilot now and will be rolled out in 2024. I’m hoping at some point in the next year we can discuss with the DTIs how we will store the data to ensure safety, security and quality, so that everybody feels comfortable subscribing to it,” said BOJ Governor Richard Byles.

As it currently stands, the process of opening an account at another commercial bank can be quite laborious as each institution would apply its own determinations on accepting the KYC of a customer, even if they are already banked. This is complicated by the fact that very few banks offer the option of online account opening for non-customers, which means that customers would have to visit one of the limited bank branches to open an account when fewer branches are being opened. Deposit portability would foster competition and empower customers to select the services that work best for them.

“When Bank of Jamaica’s policy rate goes to 7 per cent and customers are content to stay with a bank that pays less than 1 per cent, it says something. One is that it’s very hard to move because of ‘know your customer’ requirements. So, if we can get a central depository of e-KYC established, customers could move quickly from one institution to another. But there’s also the issue of confidence. People have a lot of confidence in the two big banks. We need to ensure new start-ups can also win this confidence.”

There are currently eight commercial banks, but Byles has highlighted that two institutions — National Commercial Bank Jamaica Limited (NCBJ) and the Bank of Nova Scotia Jamaica Limited (BNSJ) — dominate with 60 per cent market share between them. This has impacted the monetary transmission mechanism which has resulted in interest rates on savings accounts and credit options among deposit-taking institutions (DTIs) remaining static. The BOJ’s March 2023 publication of weighted deposit rates by commercial banks showed that JMMB Bank (Jamaica) Limited and FirstCaribbean International Bank (Jamaica) Limited, which are the fifth and sixth largest commercial banks, offer weighted interest rates on savings accounts above 1.00 per cent while all other banks offered less than 0.65 per cent.

This has led Byles to discuss the idea for digital banks, sometimes termed neobanks, to become the necessary disruptor to force greater innovation in the space. In effect, Byles would want to have digital bank licences issued in the next three years that should be more efficient and possibly able to attract a larger market of customers from traditional banks.

“In the past, we have tried this by allowing more investors to start banks. But those banks have sought to mirror larger dominant banks. Although they have been successful in terms of making a profit, they haven’t really taken any significant market share. I think instead of several banks that mimic the behaviour of the larger banks, we need one or two ‘disruptive’ banks that can really get people to react to financial signals in the market,” Byles added on the need to introduce these digital banks to assist with the monetary transmission mechanism.

The last two entrants into the commercial banking space were JMMB Bank and JN Bank Limited in 2017 when they transitioned from being a merchant bank and building society. Since then, both banks introduced point of sale (POS) services last year, with JN Bank planning to launch a Visa debit card later this year.

In the Caribbean, Sagicor Bank (Barbados) Limited launched in March 2023 which gained overwhelming interest within the first three months as the neobank offered competitive savings rates. WiPay launched the Colour App which is backed by Colour Bank (USA), which is a USA-based neobank. Other major neobanks include Nubank, which was launched in Brazil in May 2013 and is the largest fintech bank in Latin America. Its parent company Nu Holdings Limited is listed on the New York Stock Exchange.

Despite the ambitious plans to push the country’s banking sector forward, some banking executives have raised concerns on deposit portability against the backdrop that most retail customers have savings accounts and not chequing/current accounts. The United Kingdom launched the Current Account Switch Service (CASS) in September 2013 which allows consumers, small businesses, small charities and small trusts to switch current accounts from banks or building societies at no cost. They highlighted that the nature of banking which is built on liquidity planning around deposits would be put under pressure if the proposed idea goes through as discussed.