Category: Channel Usage

More On The Digital Banking Revolution and Fintech

We had great reactions to our earlier piece on the Digital Banking Revolution, and where Consumers fit in the Fintech Stack, following the release of our latest Quiet Revolution report.

Of particular interest was our Banking Digital Innovation Life Cycle analysis, as shown below, and includes a number of enhancements:

[Editors Note: Diagram above updated to include Distributed Ledger 27 Nov 17]

We have made a short video describing the approach, and discussing the elements in the diagram. We also highlight what we judge to be the top three most important innovations.

You can obtain a free copy of our Quiet Revolution report,”Time For Digital First“,  which includes our latest consumer research, and is discussed in the video.

 

Keep Me Posted calls on the industry to support the ban on paper fees

From KeepMePosted.

Are we finally heading towards the end of paper billing fees?

On Tuesday 21 November, Treasury launched the process that could see the end of paper billing fees for Australian consumers.

“There has been a significant shift away from paper billing in recent years,” Mr McCormack, Minister for Consumer Affairs, said. “Yet not every Australian consumer has the means to access digital billing and it is unfair to punish them for being unable to do so. Better outcomes and protections are needed for those consumers who do not have the option to transition to digital bills and who can least afford to be penalised.”

Keep Me Posted, which has been working tirelessly for the last 18 months to obtain legislative reform, worked with the Minister’s office in the lead up to the consultation and met with Treasury’s representatives on Thursday afternoon as part of the consultation process.

“We clearly stated Keep Me Posted’s position to support a total ban on all billing fees, which is option 2 of the consultation paper,” said Kellie Northwood, Executive Director, Keep Me Posted.

“We call on all Australians, industry stakeholders, interested groups and consumers to have their say and support the ban.”

Treasury’s consultation paper explores the costs and benefits of five (5) options, including the prohibition of paper fees, option 2. Keep Me Posted says it is the only option that can guarantee consumer protection against unfair and discriminatory charges.

Treasury is seeking submissions from consumers and consumer advocates, businesses and environmental groups. Individuals can leave an informal comment on the website or post a simple letter to Treasury.

According to Treasury’s estimates, the total annual cost of a ban would be between $80 and $93 million for the sixteen (16) Australian businesses with the largest customer base. As a comparison, it is expected that abolishing ATM fees, measure that was announced in September, will cost the big four banks $500 million a year. The relative cost to businesses doesn’t seem very high compared with the financial pressure that is put on vulnerable consumers.

Keep Me Posted doesn’t accept the idea that electronic bills are a ‘free’ option for consumers to receive their bills and statements. “When you opt-in to electronic bills and statements it means you need to possess and keep an electronic device, pay for an internet subscription or for mobile data, and more often than not you pay to print the bill at home,” commented Kellie Northwood.

According to the World Economic Forum’s Global Information Technology Report 2016, with a rank of 100 out of 139 countries for fixed broadband internet tariffs, Australia lags way behind in terms of internet affordability. More, the latest Deloitte report into mobile usage shows that 43% of smartphone owners regularly exceed their data allowance with a collective cost of $300 million a year in extra charges.

Further, the ACCC reported that Australians lost nearly $300 million to scams in 2016, $84 million in losses being reported to Scamwatch and nearly $216 million to ACORN and other scam disruption programs. The majority of these scams, 43%, were delivered by electronic means while only 4.1% came in the mail. In October, ACCC revealed that False billing is one of the top three (3) scams that Australians are most likely to encounter online.

Tim Hammond, Shadow Minister for Consumer Affairs and vocal supporter of the ban welcomed Treasury’s consultation paper and urged Australians who don’t want to pay extra to receive a bill by post to make a submission. Tim Hammond also criticised the Government for not tackling the issue sooner. Back in June, Tim Hammond moved a motion in Parliament to ask the Government to restore consumer protection. “We’ve got to restore the playing field for those who don’t have easy access online to make sure they are not getting stung for paper bills,” Tim commented.

“For Australians consumers, we really want the issue to be solved as soon as possible,” concluded Northwood. “It’s time for Government to apply a bit of good old fashioned common sense and make it clear to super profit companies that hidden or added costs along the way are not acceptable.”

Australians have until Friday 22nd December to make a submission.

Time For “Digital First” – The Quiet Revolution Report Vol 3 Released

Digital Finance Analytics has released the latest edition of our flagship channel preferences report – “The Quiet Revolution” Volume 3, now available free on request, using the form below.

This report contains the latest results from our household surveys with a focus on their use of banking channels, preferred devices and social media trends.

Our research shows that consumers have largely migrated into the digital world and have a strong expectation that existing banking services will be delivered via mobile devices and new enhanced services will be extended to them. Even “Digital Luddites”, the least willing to migrate are nevertheless finally moving into the digital domain. Now the gap between expectation and reality is larger than ever.

Looking across the transaction life cycle, from search, apply, transact and service; universally the desire by households to engage digitally is now so compelling that banks have no choice but to respond more completely.

We also identified a number of compelling new services which consumers indicated they were expecting to see, and players need to develop plans to move into these next generation banking offerings. Many centre around bots, smart agents and “Siri-Like” capabilities.

We have developed a mud-map to illustrate the journey of investment and disinvestment in banking. The DFA Banking Innovation Life Cycle, which is informed by our research, highlights the number of current assets and functions which are in the slope of decline, and those climbing the hill of innovation.  A number of current “fixtures” in the banking landscape will decline in importance, and in relatively short order.

We are now at a critical inflection point in the development of banking as digital now takes the lead.  Players must move from omni-channel towards digital first strategies, where the deployment of existing services via mobile is just the first stage in the development of new services, designed from the customers point of view and offering real value added capabilities. These must be delivered via mobile devices, and leverage the capabilities of social media, big data and advanced analytics.

This is certainly not a cost reduction exercise, although the reduction in branch footprint, which we already see as 10% of outlets have closed in the past 2 years, does offer the opportunity to reduce the running costs of the physical infrastructure. Significant investment will need to be made in new core capabilities, as well as the reengineering of existing back-end systems and processes. At the same time banks must deal with their “stranded costs”.

The biggest challenges in this migration are cultural and managerial. But the evidence is clear that customers are already way ahead of where most banks are in Australia today. This means there is early mover advantage, for those who handle the transition swiftly. It is time to get off the fence, and on the digital transformation fast track. Now, banking has to be rebuilt from the bottom up. Digitally.

Request the report [44 pages] using the form below. You should get confirmation your message was sent immediately and you will receive an email with the report attached after a short delay.

Note this will NOT automatically send you our research updates, for that register here. You can find details of our other research programmes here.

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The first edition is still available, in which we discuss the digital branding of incumbents and challengers, using our thought experiment.

Volume 2 from 2016 is also available.

Broker Boom Outpaces Loan Growth – MFAA

According to the MFAA, the boom in brokers may be unsustainable, given lower mortgage growth.  The snapshot, up to March 2017, shows that the number of brokers is estimated to be 16,009, representing 1 broker for every 1,500 in the population.  Overall brokers rose 3.3% but net lending only 0.1%. As a result the average broker saw a fall in their gross annual income. On these numbers, brokers cost the industry more than $2 billion each year!

Around 53% of new loans come via brokers, they claim.

They call out a mismatch between the number of brokers and new loans settled, and other than in VIC, volumes are down relative to brokers.

Here is their release:

The latest Industry Intelligence Service (IIS) Report has revealed that finance brokers continue to facilitate more than one in two (53.6%) of all mortgages written in Australia.

“This is a strong performance in the context of investor and interest only prudential measures imposed by regulators during the period, however, there are some warning signs that we need to be taking note of,” said Mortgage & Finance Association of Australia (MFAA) CEO Mike Felton.

The IIS Report has revealed the number of finance brokers in Australia has grown by 3.3% to just over 16,000 (in the six-month period October 2016 to March 2017), with more than 500 new brokers joining the industry in the reporting period.

This exceeded the growth in the value of new home loan settlements by brokers nationally (up 0.1% at $94.61 billion) and the number of broker-originated new loan applications which fell 4.5% to 303,300.

“Whilst the improved broker coverage is positive for consumers, these statistics should be seen as grounds for caution and need to be closely monitored. It is not a sustainable trend to have broker numbers continually rising faster than the value of new business written and could be part of the reason why the report shows the average income for brokers is down 6% nationally. When the pie stays the same size and there’s more mouths to feed, the slices inevitably get smaller. The report reveals that, on average, the sum of a broker’s up-front and trail remuneration is $133,500 per annum, before costs, which is down from $142,500 in the previous report,” he said.

“The data shows that on a state level, only Victoria appears to have a clear alignment, or a reasonable equilibrium between the growth in broker numbers and growth in new lending,” he said.

The report also reveals that Australia’s finance brokers are gradually utilising the services of a more diverse range of lenders and diversifying the types of loans they are writing as well.

“This report is showing a shift in the broker use of loan products from majors and regionals aligned to majors to specialist lenders, international lenders and broker white label products,” Mr Felton said.

“Greater diversity is good news in that it strengthens the broker proposition and competition within the mortgage market,” Mr Felton said.

The MFAA’s Industry Intelligence Service (IIS) Report provides reliable, accurate and timely market intelligence for the mortgage broking sector. It is designed, produced and delivered by Comparator, a CoreLogic business and a recognised provider of performance benchmarking, market diagnostics and ad-hoc investigative services to the retail financial services sector in Australia and New Zealand.

ACCC and Fee Free ATM Services in Very Remote Areas

The ACCC has issued a draft determination proposing to grant re-authorisation to parties to provide fee free ATM services in very remote Indigenous communities for 10 years.

Under the arrangement, participating banks and ATM deployers provide fee-free ATM withdrawals and balance enquiries at up to 85 selected ATMs for customers of those banks. The ACCC previously authorised the arrangement in 2012 for five years, which expires in December.

“The arrangement co-ordinated by the Australian Bankers’ Association has resulted in significant public benefits over the past five years, which are likely to continue for the next ten years,” ACCC Commissioner Roger Featherston said.

People living in very remote Indigenous communities can often pay high levels of total ATM fees, due to frequent ATM usage and a lack of access to alternatives.

“High ATM usage and fees intensifies the financial and social disadvantage found in very remote communities. Enabling Indigenous people in these communities to have the same access to fee-free ATMs that other Australians enjoy in less remote parts of the country lessens this disadvantage,” Mr Featherston said.

The proposed conduct allows for additional banks and ATM deployers to be added to the arrangement.

The communities to benefit from this project are located across the Northern Territory, Queensland, South Australia and Western Australia. The full lists of ATM locations and participating banks are attached to the draft determination, available on the public register.

The ACCC is now seeking submissions on the draft determination by 16 November 2017 and expects to release its final determination in December 2017.

Brokers burned by customer-driven channel conflict

From The Adviser.

Home loan conversion rates are plummeting as borrowers attempt to secure a mortgage by making multiple applications across different channels, new research has found.

Data from Digital Finance Analytics (DFA) shows that in recent months, the number of mortgage applications which are made, but which do not lead to a funded loan, is on the rise.

Back in 2015, the ratio was around 80 per cent. Now it has dropped to around 50 per cent.

DFA principal Martin North said that the data, which is based on 52,000 Australian households, shows that more multiple applications are being made to a portfolio of lenders in an attempt to get a single approved loan.

“Essentially, they are backing both horses,” Mr North explained. “They are talking to brokers and potentially putting applications in via brokers but also putting applications in themselves.

“It is creating a lot of noise in the system. That means there is a much lower probability of an application a broker is handling translating into a funded loan.”

The analyst believes that a number of factors are contributing to the rise in multiple mortgage applications being made by the same client across different channels. The ease of applying for a mortgage online, driven by comparison websites and digital platforms that enable a DIY approach, is believed to be a major factor.

In addition, Mr North points out that consumers understand that credit has become tighter following the introduction of macro-prudential measures.

“They understand that the hurdles are higher now,” the principal said. “They don’t necessarily trust one channel over another, but they will try this portfolio approach and see what turns up. The fact that the processes are far simpler now than they used to be is making it easier.”

The DFA data shows that younger borrowers under the age of 40 are making multiple applications more than any other age groups. Mr North said that this is not surprising, given their digital literacy.

He believes that the findings shift the conversation about mortgage channels and pose significant challenges for banks and brokers.

“I bet nobody asks whether the borrower currently has a mortgage application in the system,” Mr North said. “Perhaps, that’s a questions banks and brokers need to start asking.”

ANZ Alerts Customers They Are Turning Off Paper Statements

ANZ customers are receiving emails advising that the bank will turned off paper statements, unless customers click on the link to retain paper distribution. And there is a short cut off date beyond which you need to log into your account to set preferences. Asking to click on a link from an email is in my view inept, in the era of spam or worse, this is not good practice.

This forced migration may save the bank costs, and for some will be convenient, but for those who need physical statements for audit purposes, this is a problem. In addition, people who are not regularly online (yes there are still many who do not use email regularly, even if they are social media), may miss the change and discover an absence of statements down the line.

We wonder if the ANZ will start to charge for paper production later, we hope not, as this would be a further degradation of service.

It seems to me, the bank should have worded its communication more positively, because this comes across as a high-handed action, without taking customer needs into account. One more example of poor culture.

It is probably true that some would be too lethargic to make the switch to digital statements, without a prod, but this approach from the ANZ will be seen by many as just another example of them not thinking about things from a customer’s point of view. It shows that bank has a long way to got to win back customer favour.

A better way would be to incentivise people to switch by sharing some of the cost savings with their customers who elect to go for online statements.

 

 

What The Removal Of ATM Fees Really Means

The CBA led move last weekend to abolish foreign ATM fees, which was quickly followed by the other majors and Suncorp is a benefit to those using other banks ATMs to withdraw cash, and will be especially welcome in regional and rural areas, where travel times to own branch machines tends to be extended.

We showed that the volume of cash withdrawals is decreasing.

ATMs are now a legacy banking artifact, to be managed not for strategic advantage (replacing more expensive branches) but to reduce costs, as it is being replaced by electronic payments, pay waive and mobile devices.

The timing, I suggest, rather than being a deliberate attempt to distract from the BEAR proposals which were released by the Government a couple of days before; is more an outworking of recent discussions, centered on driving more cost savings from the ATM system.  The fact is ATMs are expensive animals to service, not so much from the technology point of view, but because the cash cartridges need to be physically replenished, which requires a small army of security guards, vans, and a supply of fresh notes. Remote ATMs are especially costly to service. Many are outsourced.

We examined the Point of Presence Data from APRA which includes counts of ATMs, listed by bank, and other provider.  This annual report is helpful when exploring distribution strategy, though the format will be changed this coming edition. We have data to 2016.

It shows that between 2014 and 2016 there was a 3.5% fall in the number of ATMs operating, with a total count of 14,293. We lost net, net around 500 machines in 2 years.

We then looked at the major banks, and Suncorp. Suncorp was responsible for a net 152 reduction, followed by Westpac 88 and ANZ 43. NAB grew their fleet by 45 and CBA by 7.

The state by state data shows that Queensland lost the most machines, down 165, then NSW 118, WA 98 and SA 76.  By bank, CBA, NAB and ANZ grew their footprint in NSW, while WBC and Suncorp cut machines significantly there.

Now, the point of all of this is that given falling transaction volumes, we expect the number of ATMs to continue to fall.  The removal of “foreign” ATMS fees allows consumers to use any ATM within reach. As a result, banks can with some justification say that therefore multiple ATMs in a location are no longer required. As a result I expect a rush of closures, with the aim of not being the “last man standing” effectively holding the community service obligation in a given area.

So, in my view the ATM fee story is more about managing down legacy systems and costs than providing customer benefit.  Think of it as a utility service.  The Banks should consider formalising this in my view!

You could argue, provided you can still get cash, you may not care, but of course if there is a single machine in town, it is also a point of single failure, especially over a long weekend!

As always, there is more behind the PR than first appears….

 

 

 

 

 

Suncorp removes ATM fees

Suncorp will remove fees for all non-Suncorp customers so that no  customer pays an ATM fee anywhere in Australia.

Suncorp Executive General Manager Deposits & Investments, Bruce Rush says the change will deliver greater value to all banking customers while increasing the availability of fee-free ATMs across the country.

“Suncorp supports fee-free ATMs and we will implement this change in early December to coincide with other positive changes, including updating technology and enhancing customer experience which is already planned for our ATM network,” Mr Rush said.

“It is great to see all Australians benefit and we are especially pleased for Suncorp customers who live in locations where there are limited options to withdraw cash.”

… As Does Westpac

All the major banks have removed foreign ATM fees. The ABA welcomed the move.

Statement from Anna Bligh, Australian Bankers’ Association Chief Executive:

“The ABA welcomes the announcement from the major banks today to abolish ATM fees.

“It’s a boon for customers and makes banking more affordable for everyday Australians.

“This is the latest in a suite of initiatives by banks to create better products and services for customers and boost customer choice, including reducing interest rates on credit cards and offering fee-free transaction accounts.

“A competitive banking system is good for customers and good for the sector.”