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Dormant bank accounts: inevitable, but not hopeless

Dormant bank accounts: inevitable, but not hopeless

BRUSSELS, 29 November 2017 – Dormancy remains an unavoidable part of savings mobilisation for banks and their customers, says a noted expert working with WSBI on financial inclusion efforts.

According to independent financial inclusion specialist Stephen Peachey, who has worked on multiple projects for WSBI and has been working in savings banking for over 30 years, certain levels of dormant accounts are a usual phenomenon in banking all around the world. However, there are some basic rules that banks can follow to reduce dormancy.

Dormancy means various things in financial services. For mobile wallets it means no activity in the last three months, for regulators – no activity in the last year or two, while for savings banking – no activity in the last six months.

Dormant accounts are inevitable because not everyone can save steadily throughout a year. However, those accounts do not bring any value neither to banks nor to their customers. Accounts that are sold but not used rarely make money, while accounts that are emptied by bank charges are considered as a theft, in particular among rural people. Mis-sold accounts that can never be used are never forgiven, says Peachey.

“There are many ways savings banks can employ to tackle dormancy. If a previously active account becomes quiet, the bank should contact the customer – through digital messaging, for example – to remind them of bank's services," he noted. “If the current account does not meet the needs of the customer anymore, the bank should offer a more suitable option without charging a fee for it."

Forgive fees, analyse customer data

If the customer wishes to use the account again, a nice gesture is not to charge the customer for the months they were not using their account. This would help to keep the customer and improve relationship with them.

Financial inclusion specialist also advises to look into data that banks have about their customers and their activities. Alternatively, public data from different institutions or country data can also be used to get more insights into the dormancy situation and tendencies in the region.

The financial inclusion challenge

The biggest challenge of dormancy is often related to financial inclusion. Global efforts to bank people all around the world and to provide access to banking services result in worryingly high levels of dormancy. Lack of financial education or basic instruction on how to use banking services lead to opening new accounts never used. Peachey calls on banks and governments in emerging markets to aim to sell accounts better designed to stay active in the long term.

Peachey concluded: “Accounts that have not been used for one year are almost all turning permanently inactive. If the account has not been used for two years, it is reasonable to close it if local regulation allows such action. In many cases such situation can be avoided if banks take action much earlier."

Financial education; Financial inclusion; Savings mobilization; Bank accounts