Israeli Bank Switching Reforms Double Customer Transfers

A reform in Israel's banking sector has more than doubled the rate of customers switching banks, with 1.4% of clients changing institutions annually compared to 0.6% before the changes. Despite this increase, the rate remains significantly lower than the global average of approximately 2.3%, with most of Israel's 8 million checking accounts remaining with their original banks.

In the first three years of the reform, 318,600 requests to switch banks were submitted, and 223,200 transfers were successfully completed. The process, governed by Israeli banking law, mandates that the new bank handles the entire transfer from the old bank, with completion expected within seven business days. Customers have a window to cancel the switch up to the sixth business day. Neither the old nor the new bank can charge fees for the transfer itself or for redirecting subsequent transactions.

During a switch, all account balances, both positive and negative, in shekels and foreign currency, are transferred, though negative balances require the new bank's approval. Standing orders, direct debit authorizations, and old checks are also moved. The "Follow Me" mechanism reroutes salaries, social security benefits, and tax refunds to the new account for up to three years, even if the employer hasn't updated their records. However, loans, credit lines, mortgages, and closed savings plans remain with the original bank until maturity, and certain assets like safe deposit boxes and non-transferable securities are not moved.

The reform allows for switching individual and small business checking accounts. Joint accounts can be transferred if all partners agree and are also listed on the new account. Certain accounts, such as frozen, trust, or deceased individuals' accounts, are ineligible for the transfer. New banks can reject transfer requests under specific conditions, including unapproved negative balances, exceeding account limits, or if a closure process has already begun at the old bank.

The "Follow Me" service, initially set for two years, has been proposed for extension to October 2029 for transfers completed by September 2026, due to significant ongoing transaction volumes. In its first three years, this system facilitated approximately 10 million transactions, including 3.8 million credits and 5.7 million debits. The reform has also reportedly narrowed interest rate margins on overdrafts since 2021, and younger demographics show a higher propensity to switch banks.