Slowdown in house prices to continue: HSBC

From Australian Broker.

Economists from HSBC have joined calls that Australia’s house market boom is reaching an end, predicting a moderation in house price growth to single digits in the coming quarters.

In the bank’s most recent Downunder Digest, Australian housing: Cooling Not Crashing, chief economist Paul Bloxham and economist David Smith write that slowdowns in the Sydney and Melbourne housing markets will continue to weigh in on national house price growth for the next few quarters.

“[We] retain our forecast that national housing pricing growth will slow from the double-digit rates of recent years to 3-6% in 2018,” the economists said.

They expect house price growth to be between 2-4% in Sydney and 7-9% in Melbourne for the upcoming year. In other cities, low single digit rates are expected.

Bloxham and Smith attribute cooler property markets in Sydney and Melbourne to increased housing supply through greater volumes of apartment construction, tighter prudential lending regulations, and a crackdown on foreign investors both locally and within China.

HSBC does not expect a sharp decline in house prices however, with a hard landing only caused by an unexpected shock from overseas or a steep rise in Australia’s unemployment rate.

Sudden changes from within the country are also off the table, the economists predicted.

“Although we see the RBA beginning to lift its policy rate in 2018, we expect only a slow pace of cash rate tightening and some relaxation of current tight prudential settings as the housing market cools.”

Overall, past upward trends of house price growth have been more boom than bubble, they wrote.

NAB Launches Online SME Unsecured Lending Product

In a nod to the emerging Fintech SME lending sector, NAB today announced $100,000 unsecured lending for Australian small business owners to grow and expand, backing the strength of their business without the need for security requirements such as property or cash, with a decision is around 10 minutes.  As we discussed recently, getting funding for SME ex. security is tough.

The rates look highly competitive at 13.85% relative to many of the other Fintech alternatives.

Customers apply via a fast and simple digital application process, with conditional credit approval granted in minutes. Once application contracts are signed and returned, cash is delivered within 24 hours.

Executive General Manager Business Direct and Small Business Leigh O’Neill said NAB recognises that fast and easy access to funds is critical for small businesses as they grow.

“There is often a perception that access to credit is difficult without a property or other major asset to secure against. That’s why we’ve responded by placing more emphasis on the strength of the business rather than traditional physical bricks and mortar, and we’re doing this at a fair and competitive price,” Ms O’Neill said.

NAB is the only Australian bank to have developed in-house an unsecured online lending tool without a third party referral involved. QuickBiz first launched in June 2016, initially up to $50,000.

The new $100,000 QuickBiz loan is an extension to NAB’s existing unsecured, self-service digital financing facilities, which includes an overdraft and credit card, all unsecured and capped at $50,000 for eligible customers.

“Six months after a QuickBiz loan application, just under half of our customers grew their business turnover by greater than 10 percent. This confirms we have an important role to play by offering finance to businesses with good prospects- it’s the the kick-start they need.”

“Small businesses are the backbone of the Australian economy. We need all parts of the economy – big business, government and industry – to get behind them to move the country forward.”

NAB’s Unsecured Solutions Fast Facts:

  • Unsecured QuickBiz loan, up to $100,000 available for eligible Australian SMEs
  • Direct connectivity to Xero or MYOB data, or simple financial upload from any accounting package
  • Application and decision in under 10 minutes
  • Competitive and transparent annualised interest rate charges, 13.85 % – no hidden surprises

For more information on the entire QuickBiz product suite (loan, overdraft) and Low Rate NAB business cards),

Using Credit Card Payments Data For The Public Good

Interesting post from the UK’s Office for National Statistics blog, which highlights the power of data analytics using anonymised  credit card payments data.

The intelligent use of data gathered by our leading financial institutions can result in faster, more detailed economic statistics.  Tom Smith describes how a joint event staged by ONS and Barclaycard illustrates the vast statistical potential of  anonymised  payments data.

“My job at the Data Science Campus brings many fascinating days as we work with organisations across government and the UK to unlock the power of data. One recent event particularly stands out.

Our experts from across ONS joined forces with analysts from one of the world’s biggest financial organisations to explore how commercial payments data could help tackle some of the UK’s biggest economic questions.

Following a successful knowledge sharing day at the ONS Data Science Campus, Barclaycard, which sees nearly half of the nation’s debit and credit card transactions, hosted a ‘hackathon’ at the state-of-the-art fintech innovation centre Rise. This brought together 50 economists, developers, data scientists and analysts to address three challenges:

  • How could payments data improve our understanding of regional economies?
  • Where could financial inclusion policies best be targeted?
  • How could we use payments data to create superfast economic indicators?

Over two days, the ONS and Barclaycard teams worked collaboratively – in some cases right through the night – to identify how the payments data could be used to improve our understanding of the economy. The traditional hackathon finish saw the teams ‘pitching’ their work to a panel of judges from across ONS and Barclaycard.

The winning team focused on building predictors and indicators that provide fine-detail information for trending economic changes. Even at this early stage of development, their work shows how bringing together card spending data and economic data held by ONS could improve the information available for policy & strategy decision makers to make timely economic decisions.

There is much work to be done to turn this demonstration into a working model. But one of the things that stood-out for the judges was the winning team’s roadmap for how to get there, including the development and data architecture needed for a successful prototype.

“We’re really excited to play a key role in helping to support a better understanding of UK economic trends and growth. The hackathon was a great event to harness the excitement and expertise created through our partnership with the ONS, and the winning teams have shown tangible evidence that payments data can indeed be used for public good.” – Jon Hussey, MD Data & Strategic Analytics, Barclaycard International

For the Data Science Campus, collaborations are all about knowledge exchange. They are an opportunity for us to access expertise in tools, technologies and approaches to data science from outside government, evaluate them in a safe environment, and share our learning across ONS and wider government.

It was inspiring to see the level of energy, drive and collaboration, and to pool ONS and Barclaycard skills into understanding how payments data can be used for public good. (And it is worth pointing out that no money changed hands and no personal data were involved. ONS is only interested in producing aggregate statistics and analysis.)

Our work with Barclaycard illustrates perfectly how the rich data held by partners outside government can improve our understanding of the UK’s economy. This is a key part of ONS’ Better Statistics, Better Decisions strategy, enabling ONS to deliver high quality statistics, develop and implement innovative methods, and build data science capability by tapping in to best practices wherever they may be.

A bubble? We don’t even know how to value Bitcoin

From The Conversation.

Bitcoin is a “speculative mania” according to the governor of the Reserve Bank of Australia. But it’s not so easy to say that Bitcoin is a bubble – we don’t know how to value it.

Recent price rises (close to A$18,000 in the past three months) may be too great and can’t continue. But the Bitcoin market is only just maturing as an investment and as a currency, and so it may still have room to grow.

A bubble is when the price of an asset diverges from its “fundamentals” – the aspects of an asset that investors use to value it. These could be the income that can be earned from a stock over time, a company’s cash flow, the state of a country’s economy, or even the rent from property.

But Bitcoin does not pay out profits (like shares) or rent (like property), and is not attached a national economy (like fiat currencies). This is part of the reason why it is hard to tell what the underlying value of Bitcoin is or should be.

In the search for fundamentals some have suggested we should look at the supply of Bitcoins in the market (which is regulated by the technology itself), the number of Bitcoin transactions through the market, or even the energy consumed by Bitcoin miners (the computers that validate transactions and are rewarded with Bitcoins).

Diverging from fundamentals

If we take a close look, we can see how the price of Bitcoin may be diverging from these fundamentals. For instance, it is becoming less profitable to be a miner, especially as the energy required increases. At some stage the cost may exceed the price of Bitcoin, making the network less worthwhile to both mine and invest.

Bitcoin may be the best known cryptocurrency but it is also losing marketshare to other cryptocurrencies, such as Ethereum and Litecoin. Bitcoin currently accounts for 59.4% of the total global cryptocurrency market, but at the beginning of 2016 it was 91.3%. Many of these other cryptocurrencies have more functionality than Bitcoin (such as Ethereum’s ability to execute smart contracts), or are more efficient and use less energy (such as Litecoin).

Government policy, such as taxation or the establishment of national digital currencies, may also make it riskier or less worthwhile to mine, transact or hold the cryptocurrency. China’s ban on Initial Coin Offerings earlier this year reduced the value of Bitcoin by 20% in 24 hours.

Without these fundamentals the price of Bitcoin largely reflects speculation. And there is some evidence that people are simply buying and holding Bitcoin in the hope it will keep rising in value (also known as Greater Fool investing). Certainly, the cap on the total number (21 million) of Bitcoins that can exist, makes the currency inherently deflationary – the value of the currency relative to goods and services will keep increasing even without speculation and so there is a disincentive to spend it.

Bitcoin still has room to grow

Many big investors – including banks and hedge funds – have not yet entered into the market. The volatility and lack of regulation around Bitcoin are two reasons stopping these investors from jumping in.

There are new financial products being developed, such as futures contracts, that may reduce the risk of holding Bitcoin and allow these institutional investors to get in.

But Bitcoin futures contracts – where people can place bets on the future price of stocks or markets – may also work against the price of Bitcoin. Just like gamblers place bets on horse races rather than buying a horse, investors may simply buy and sell the futures contracts rather than Bitcoin itself (some contracts are even settled in cash, rather than Bitcoin). All of this could lead to less actual Bitcoin changing hands, leading to less demand.

Although the rush to invest is apparently encouraging some people to take out mortgages to buy Bitcoin, traditional banks won’t lend specifically for that purpose as the market is too volatile.

But it’s not just on the finance side that the Bitcoin market is set to expand. More infrastructure to support Bitcoin in the broader economy is rolling out, which should spur demand.

Bitcoin ATMs are being installed in many countries, including Australia. Bitcoin lending is emerging on peer-to-peer platforms, and new and more regulated marketplaces are being created.

Many companies are accepting Bitcoin as payment. That means that even if the speculation dies down, Bitcoin can still be traded for some goods and services.

And finally, although the fundamentals of Bitcoin are still up for debate, when it comes to transaction volume through the network there appears to be a lot of room for growth.

It’s good to remember that people have been calling Bitcoin a bubble for a long time, even when the price was just US$35 in 2013.

In the end, this is uncharted territory. We don’t know how to value Bitcoin, or what will happen. Historical examples may or may not apply.

What we do know is that the technology behind most cryptocurrencies is enabling new models of value transfer through secure global consensus networks, and that is causing excitement and nervousness. Investors should beware.

Authors: Alicia (Lucy) Cameron, Senior Research Consultant, CSIRO;
Kelly Trinh, Data Scientist, CSIRO

FED Lifts Rate As Expected

The FED has lifted the federal funds rate to 1.5% after their two day meeting – the third hike this year. The move was expected and had been well signalled.  This despite inflation still running below target, though they expect it will move to 2% later.  More rate rises are expected  in 2018.  This will tend to propagate through to other markets later.

Information received since the Federal Open Market Committee met in November indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Averaging through hurricane-related fluctuations, job gains have been solid, and the unemployment rate declined further. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters. On a 12-month basis, both overall inflation and inflation for items other than food and energy have declined this year and are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Hurricane-related disruptions and rebuilding have affected economic activity, employment, and inflation in recent months but have not materially altered the outlook for the national economy. Consequently, the Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will remain strong. Inflation on a 12‑month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-1/4 to 1‑1/2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

Voting for the FOMC monetary policy action were Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Patrick Harker; Robert S. Kaplan; Jerome H. Powell; and Randal K. Quarles. Voting against the action were Charles L. Evans and Neel Kashkari, who preferred at this meeting to maintain the existing target range for the federal funds rate.

UK Banks Not Doing Enough To Combat Online Fraud

The UK House of Commons Committee of Public Accounts has published an important report on The growing threat of online fraud (Sixth Report of Session 2017–19).The key observation is that Banks  do not accept enough responsibility for preventing and reducing online fraud and there is no data available to assess how well individual banks are performing. Unless all banks start working together, including making better use of technology, there will be little progress on tackling card fraud and returning money to customers.

  • One key issue is that unlike credit cards, where transactions are automatically refunded in case of dispute, payments made by customers via online banking on their instruction (“authorised push payments”), to a fraudulent destination is not.  It has been estimated that between 40% and 70% of people who are victims of scams do not get any money back. Banks are reported to be holding at least £130 million of funds that cannot accurately be traced back and returned to fraud victims, an amount that UK Finance said was probably a conservative estimate.
  • As the proportion of payments made by digital means continues to rise, stronger safeguards, and clearer account abilities should be placed on the banks.  This is not a topic the banks want to discuss.  Indeed, in evidence, individual banks know how they compare with others, but told the committee that banks did not publish individual numbers because then the fraudsters would target the ‘weakest’ of the banks. Of course, it might be in the banks’ own interest not to be transparent and publish individual data, as it could deter customers.
  • They found card not present fraud was significant, and needed to be reduced.
  • Finally, there was a need for better consumer awareness.

We suspect the situation in Australia is somewhat similar.

In summary, Online fraud is now the most prevalent crime in England and Wales, impacting victims not only financially but also causing untold distress to those affected. The cost of the crime is estimated at £10 billion, with around 2 million cyber-related fraud incidents last year, however the true extent of the problem remains unknown. Only around 20% of fraud is actually reported to police, with the emotional impact of the crime leaving many victims reluctant to come forward. The crime is indiscriminate, is growing rapidly and shows no signs of slowing down. Urgent action from government is needed, yet the Home Office’s response has been too slow and the banks are unwilling to share information about the extent of fraud with customers. The balance needs to be tipped in favour of the customer.

Online fraud is now too vast a problem for the Home Office to solve on its own, and it must work with a long list of other organisations including banks and retailers, however it remains the only body that can provide strategic national leadership. Setting up the Joint Fraud Task in 2016 was a positive step, but there is much still to do. The Department and its partners on the Joint Fraud Taskforce need to set clear objectives for what they plan to do, and by when, and need to be more transparent about their activities including putting information on the Home Office’s website.

The response from local police to fraud is inconsistent across England and Wales. The police must prioritise online fraud alongside efforts to tackle other sorts of crime. But it is vital that local forces get all the support they need to do this, including on identifying, developing and sharing good practice.

Banks are not doing enough to tackle online fraud and their response has not been proportionate to the scale of the problem. Banks need to take more responsibility and work together to tackle this problem head on. Banks now need to work on information sharing so that customers are offered more protection from scams. Campaigns to educate people and keep them safe online have so far been ineffective, supported by insufficient funds and resources. The Department must also ensure that banks are committed to developing more effective ways of tackling card not present fraud and that they are held to account for this and for returning money to customers who have been the victims of scams.

Commonwealth Bank files response to AUSTRAC claims

Commonwealth Bank (CBA) today filed a response to the civil proceedings commenced by AUSTRAC on 3 August 2017.

CBA contests a number of allegations but admit others, including the allegations relating to the late submission of 53,506 threshold transaction reports (TTRs), which were all caused by the same single systems-related error.

The Defence focuses on key factual and legal matters in the claim. CBA confirms that in our Defence we:

  • agree that we were late in filing 53,506 TTRs, which all resulted from the same systems-related error, representing 2.3% of TTRs reported by CBA to AUSTRAC between 2012 and 2015;
  • agree that we did not adequately adhere to risk assessment requirements for Intelligent Deposit Machines (IDMs) – but do not accept that this amounted to eight separate contraventions – and agree we did not adhere to all our transaction monitoring requirements in relation to certain affected accounts;
  • admit 91 (in whole or in part) but deny a further 83 of the allegations concerning suspicious matter reports (SMRs);
  • admit 52 (in whole or in part) but deny a further 19 allegations concerning ongoing customer due diligence requirements.

Further detail can be found in CBA’s Concise Statement in Response.

We continue to fully cooperate with AUSTRAC in relation to our obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) and respect its role as a regulator.  The nature of the regime involves continuous liaison and collaboration with the regulator as risks are identified.  As such we are in an ongoing process of sharing information with the regulator.

AUSTRAC has indicated that it proposes to file an amended statement of claim containing additional alleged contraventions.  If an amended claim is served on us, we expect the court would set a timetable for CBA to file an amended defence. We will provide market updates as appropriate.

We take our anti-money laundering and counter-terrorism financing (AML/CTF) obligations extremely seriously. We deeply regret any failure to comply with these obligations. CBA is accountable for those deficiencies.

We understand that as a bank we play a key role in law enforcement. AUSTRAC’s former CEO has publicly acknowledged our contribution in this regard. We have invested heavily in seeking to fulfil the crucial role we play. CBA has spent more than $400 million on AML/CTF compliance over the past eight years. We will continue to invest heavily in our systems relating to financial crimes thereby supporting law enforcement in detecting and disrupting financial crime.

During the period of the claim, CBA submitted more than 36,000 SMRs, including 140 in relation to the syndicates and individuals referred to in AUSTRAC’s claim.

In the same period we submitted more than 17 million reports in aggregate, including SMRs, TTRs and in respect of international funds transfer instructions. CBA will submit over 4 million reports to AUSTRAC in this year alone.

CBA also responds to large numbers of law enforcement requests for assistance each year, including approximately 20,000 requests this year. Some of the information provided directly resulted in disrupting money laundering and terrorism financing activity and prosecuting individuals.

Any penalty imposed by the Court as a result of the mistakes we have made will be determined in accordance with established penalty principles. For example, the Court may consider whether any contraventions arise out of the same course of conduct and will assess the appropriate penalty for that conduct accordingly, as it recently did in the Tabcorp decision.

CBA’s submissions at trial will also highlight steps that we have taken since 2015 as part of our Program of Action to strengthen and improve our financial crimes compliance.

 

Program of Action

CBA has made significant progress in strengthening our policies, processes and systems relating to its obligations under the AML/CTF Act through our Program of Action.  While this is a continuing process of improvement, progress achieved since the issues concerning TTRs associated with IDMs were first identified and rectified in late 2015, includes:

  • Boosting AML/CTF capability and reporting by hiring additional financial crime operations, compliance and risk professionals. As at 30 June 2017, before the claim was filed, CBA employed over 260 professionals dedicated to financial crimes operations, compliance and risk.
  • Strengthening our Know Your Customer processes with the establishment in 2016 of a specialist hub providing consistent and high-quality on-boarding of customers, at a cost of more than $85 million.
  • Launching an upgraded financial crime technology platform used to monitor accounts and transactions for suspicious activity.
  • Adding new controls such as using enhanced digital electronic customer verification processes to supplement face-to-face identification to reduce the risk of document fraud.

The Program of Action has also addressed issues that AUSTRAC alleges were ongoing contraventions in its claim. For example, CBA recently introduced daily limits for IDMs deposits for CBA cards associated with a personal account. We understand CBA is the first major Australian bank to implement a control of this type.

CBA is committed to continuing to strengthen our financial crimes compliance and to working closely with regulators across all jurisdictions in which we operate to fight financial crime.

New Home Sales Slide

According to the HIA, New Homes Sales Report – a survey of Australia’s largest home builders – there has been a fall in the number of new homes sold in 2017. New home sales were 6 per cent lower in the year to November 2017 than in the same period last year. Building approvals are also down over this time frame by 2.1 per cent for the year.

The HIA expects that the market will continue to cool as subdued wage pressures, lower economic growth and constraints on investors result in the new building activity transitioning back to more sustainable levels by the end of 2018.

This is a smaller down-turn than we anticipated and bodes well in terms of the likelihood of a modest and orderly reduction in new house building.

The story is not consistent across all of the states with Western Australia and Victoria providing the book ends on five very different stories.

In the middle of the year it looked like Western Australia had turned the corner after a significant decline in activity over three years, but the new financial year brought even lower results as more restrictive first home buyer policies were implemented.

At the other end of the market in Victoria, the expected slowdown in building activity has not yet materialised. Sales of new houses increased by 6.3% for the 12 months to November 2017 and approvals rose by a further 8.7 per cent in the three months to November compared with the same period in 2016.

Property prices down across Australia: REIA

From The Real Estate Conversation.

The median house price for Australia’s combined capital cities fell 0.8 per cent during the September quarter, according to the latest REIA Real Estate Market Facts report.

Only Melbourne, Brisbane and Hobart recorded higher property prices during the September quarter, according to the latest REIA Real Estate Market Facts report.

With weaker markets in the remaining capitals, country-wide median averages were dragged into negative territory.

The weighted average median price for ‘other dwellings’, which includes apartments and townhouses, declined 2.6 per cent, according to the REIA data.

The weighted average median price for houses across the eight capitals dropped to $762,000, as median prices in five of the eight capitals – Sydney, Adelaide, Perth, Canberra and Darwin – decreased during the quarter. Darwin house prices fell the most sharply, falling 8.3 per cent during the September quarter.

The weighted average median price for other dwellings fell to $588,400, with median prices decreasing in  the same five cities – Sydney, Adelaide, Perth, Canberra and Darwin.

Over the quarter, again Darwin prices fell the most sharply, dropping 13.8 per cent.

REIA President Malcolm Gunning said, “It is usual for the September quarter to show a slight dip or at least a slowdown in the rate of change in prices, as buyers and sellers alike gear up for the traditional spring sales season.

“The September quarter figures also need to be interpreted against a background of sustained growth over a number of years, particularly in Melbourne and Sydney, and can be seen as an extremely active market ‘catching its breath’.”

Gunning pointed out that, over the quarter, median rents for three-bedroom houses increased or remained steady in all capital cities except for decreases in Perth and Darwin.

Hobart had the largest increase in median rents for three-bedroom house at 2.8 per cent.

Median rents for two-bedroom other dwellings also increased or remained steady in all capital cities, except for a decrease in Perth. Melbourne had the largest increase at 2.4 per cent.

“Vacancy rates declined in all capital cities except for Perth. Darwin had the largest decrease of 0.6 percentage points. Both Perth and Darwin continue to have high vacancy rates at 6.9 per cent and 5.9 per cent respectively.

“The weighted average vacancy rate for the eight capital cities remained steady on 2.8 per cent during the September quarter,” Gunning said.

REIA Real Estate Market Facts: State by State

Australian Capital Territory

Over the September quarter, the median house price for Canberra decreased to $640,000, a fall of 1.5 per cent over the quarter but an increase of 7.9 per cent over the previous year.

The median rent for three-bedroom houses in Canberra increased to $480 per week, an increase of 2.1 per cent over the September quarter and an increase 6.7 per cent over the previous year. The vacancy rate in Canberra decreased to 0.7 per cent, a decrease of 0.4 percentage points, over the September quarter.

New South Wales

Over the September quarter, the median house price in Sydney decreased to $1,176,567, a decrease of 2.0 per cent over the quarter but an increase of 9.0 per cent over the previous year.

The median rent for three-bedroom houses in Sydney increased to $510 per week, a rise of 2.0 per cent over the September quarter and an increase of 8.5 per cent over the past year. The vacancy rate in Sydney decreased to 2.0 per cent, a decrease of 0.1 percentage points over the quarter.

Northern Territory

Over the September quarter, the median house price in Darwin decreased to $495,000, a decrease of 8.3 per cent over the quarter and a decrease of 10.0 per cent over the previous year.

The median rent for three-bedroom houses in Darwin decreased to $478 per week, a fall of 1.2 per cent over the September quarter and a decrease of 6.5 per cent over the previous year. The vacancy rate in Darwin decreased to 5.9 per cent over the September quarter 2017, a decrease of 0.6 percentage points.

Queensland

The median house price for Brisbane increased to $516,900, an increase of 0.4 per cent over the September quarter and an increase of 3.4 per cent over the previous year.

Over the September quarter and over the previous year, the median rent for three-bedroom houses in Brisbane remained steady at $380 per week. The vacancy rate in Brisbane decreased to 2.9 per cent during the September quarter, a decrease of 0.2 percentage points

South Australia 

Over the September quarter, Adelaide’s median house price decreased to $450,000, a fall of 2.1 per cent over the quarter but an increase of 2.3 per cent over the previous year.

Over the September quarter and over the previous year, the median rent for three-bedroom houses in Adelaide remained steady at $340 per week.

Tasmania

Over the September quarter, the median house price in Hobart increased to $436,300, an increase of 1.5 per cent over the quarter and an increase of 13.3 per cent over the previous year.

The median rent for three-bedroom houses in Hobart increased to $370 per week, an increase of 2.8 per cent over the September quarter and an increase of 12.1 per cent over the previous year. The vacancy rate in Hobart decreased to 1.7 per cent during the September quarter, a fall of 0.3 percentage points.

Victoria

Over the September quarter, the median house price in Melbourne increased to $817,000, a rise of 0.7 per cent over the quarter and an increase of 12.7 per cent over the previous year.

The median rent for three-bedroom houses in Melbourne increased to $385 per week, an increase of 1.3 per cent over the September quarter and an increase of 2.7 per cent over the previous year. The rental vacancy rate in Melbourne decreased to 2.1 per cent over the September quarter, a decrease of 0.1 percentage points.

The RBA On Least Cost Routing

The RBA’s Tony Richards, Head of Payments Policy spoke at the Australian Payment Summit 2017 and discussed the vexed issue of Least Cost Routing for EFTPOS transactions, especially when using Tap-and-Go. Until very recently, acquirers have indicated reluctance to provide least-cost routing to their merchant customers. This is partly due to the expected systems work, including to reprogram terminals.  But pressure is mounting, as for example, the recent House of Reps report.

He says indications are that all four of the major banks are moving to providing least-cost routing if requested by merchants, though in some cases they have indicated this could occur on a fairly extended timetable.

So, merchants, do yourself a favour, and ask! You may save on your transaction costs!

Given that payment costs are a significant item for merchants, it is not surprising that merchants pay attention to them. Just as merchants are keen to hold down other business costs, they are also keen to hold down their payment costs. Recently, they have drawn attention to a particular issue that is driving up their cost of payments.

The majority of debit cards issued in Australia are now dual-network cards, which means that authorisation of cardholders’ debit transactions can occur through different networks – the domestic eftpos network or the debit networks of the international MasterCard or Visa schemes. If you look at your debit or ATM card, there is a good chance it will have an international scheme logo on one side and the eftpos logo on the other.

Traditionally, cardholders have determined how their debit transactions are processed, by pressing either the CHQ or SAV buttons for eftpos or the CR button for the international network, before entering their PIN. However, with the shift to contactless or ‘tap-and-go’ transactions, the processing of debit transactions has been shifting to the international networks. This initially reflected the fact that contactless payments were only available for the international schemes. Most cards and terminals are now also activated for eftpos contactless functionality. However, when card-issuing banks send out dual-network debit cards they are programmed with the international scheme as the first-priority network for contactless use and the eftpos network as second priority.

Most cardholders are indifferent about which network processes their contactless transactions. Both networks can link to the same debit account and cardholders do not directly bear the costs of the transactions. Moreover, there are typically no rewards programs associated with debit transactions, and customers receive similar protections from fraud and disputed transactions, based on the ePayments Code and the chargeback policies of the three schemes.

However, many merchants have a preference for transactions to be processed via the eftpos network, because it is typically less expensive for them. Accordingly, many merchants have been calling for their acquirer banks to provide them with ‘least-cost routing’, i.e., terminal functionality that sends contactless debit transactions via the lower-cost network. Terminals might be programmed to always send dual-network card transactions via a particular network or they might use dynamic rules which identify the lower-cost network for each transaction.

The Bank has had discussions with consumer organisations and staff from the Australian Competition and Consumer Commission (ACCC) as to how least-cost routing might be implemented. We consider that it would be desirable for a merchant implementing least-cost routing to disclose this to customers. Depending on how terminals were actually programmed, this could be by a sign that the merchant will typically send tap-and-go debit card transactions via a certain network, but noting that customers wishing to send transactions via a different network could insert or dip their cards and push the button or keypad for their preferred network. A sign such as this would provide consumers with the opportunity to override the merchant’s preferred network if they wished. Such a framework would seem to be a reasonable balance between the rights of merchants and consumers, and it is likely that consumers would quickly become used to the idea that their transactions could be sent via different networks at different merchants.

The Reserve Bank has taken an interest in dual-network card issues because of the Payments System Board’s mandate to promote competition and efficiency. As the Bank and other observers of the payments system have frequently noted, the nature of competition in the payment card market is often such that it tends to drive up costs to merchants, as schemes increase their interchange fees to persuade issuers to issue their cards. Merchants have typically had little ability to offset these pressures (in the absence of regulatory intervention to cap interchange fees or remove schemes’ no-surcharge rules). However, dual-network cards can potentially offset the pressures for payment costs to rise, because the merchant may be able to steer the consumer to use the lower-cost of the two networks on a card. Accordingly, the Bank has indicated that it supports the issue of such cards in Australia, because they are convenient for cardholders and allow stronger competition between networks at the point of sale, facilitating both consumer and merchant choice.

Some disputes over dual-network debit cards emerged between the debit schemes in 2012-13. However, after a series of discussions with the Bank, in August 2013 the three debit schemes made voluntary undertakings to the Bank that addressed some policy concerns. These included commitments:

  • to work constructively to allow issuers to include applications from two networks on the same card and chip, where issuers wished to do this;
  • not to prevent merchants from exercising choice in the networks they accept, in both the contact and contactless environments; and
  • not to prevent merchants from exercising their own transaction routing priorities when there are two contactless debit applications on one card.

As noted above, most terminals and eftpos cards are now enabled for tap-and-go eftpos transactions. Given the Bank’s views about the potential competition and efficiency benefits of dual-network cards, as well as the earlier commitments by the three debit schemes, the Bank has been liaising with a range of stakeholders over recent months to encourage the provision of least-cost routing functionality to merchants.

However, until very recently, acquirers have indicated reluctance to provide least-cost routing to their merchant customers. This is partly due to the expected systems work, including to reprogram terminals.

In addition, some merchants have expressed concern to the Bank that the international schemes might resist the implementation of least-cost routing. To the extent that transactions via the international schemes are currently more expensive to merchants, a possible outcome of least-cost routing becoming available would be for the international schemes to reduce scheme or interchange fees so that merchants have little incentive to send transactions via another network. However, some merchants are concerned about other possible responses, including that the international schemes might respond to a merchant’s decision to implement least-cost routing of debit transactions by increasing the interchange rates that apply to the merchant’s credit transactions. They have also noted that the international schemes might try to preclude least-cost routing by attempting to persuade issuers to stop issuing dual-network cards. The ACCC is aware of these concerns, and is closely monitoring the situation. With the passage of the Harper reforms, which came into effect in November this year, the ACCC now has even stronger powers to investigate and take action in relation to conduct by the international schemes that might hinder competitive conduct by a lower-cost provider.

The Payments System Board has discussed issues involving dual-network cards in recent meetings. At its 17 November meeting, the Board strongly supported calls from a range of stakeholders for acquirers to provide merchants with least-cost routing functionality for contactless transactions using dual-network debit cards. It requested the Bank staff to continue to engage with the payments industry on this issue, noting that ‘a prompt industry solution was preferable to regulation’.

More recently, the Review of the Four Major Banks by the House of Representatives Standing Committee on Economics has made the following recommendation:

“The committee recommends that banks be required to give merchants the ability to send tap-and-go payments from dual-network debit cards through the channel of their choice.

Merchants should be able to choose whether to route these transactions through eftpos or another channel, noting that consumers may override this merchant preference if they choose to do so.

If the banks have not facilitated this recommendation by 1 April 2018, the Payments System Board should take regulatory action to require this to occur.”

Recent indications are that all four of the major banks are moving to providing least-cost routing if requested by merchants, though in some cases they have indicated this could occur on a fairly extended timetable. We expect that some of the smaller acquirers may be able to move more quickly.

Accordingly, the Bank expects that by early in 2018 there will be concrete indications that a critical mass of acquirers are moving to provide least-cost routing and that the international schemes are not attempting to prevent this. However, if this expectation is not met, I expect that the Payments System Board will consider consulting on a regulatory solution that deals with all the relevant considerations. While of course the measures that could be consulted on will be determined by the Board, I can imagine that this could involve considering whether some or all of the following measures might be in the public interest:

  • a requirement that acquirers must provide merchants with least-cost routing functionality for contactless dual-network debit card transactions
  • a requirement for enhanced transparency in contractual pricing of acquiring services to merchants
  • requirements that schemes publish explicit criteria for any preferred or strategic interchange fees and that any such criteria may not be related to acceptance decisions relating to other payment systems
  • anti-avoidance provisions that ensure adherence to the spirit, as well as the letter, of any standard.