Social Trends – Page 179 – Digital Finance Analytics (DFA) Blog

Government To Review Retirement Income Rules

The Treasury today announced a review seeking feedback on the types of products which would be appropriate for people approaching or in retirement with a focus on ensuring they do not out live their savings.

The Government’s superannuation election commitments include reviewing:

the regulatory barriers restricting the availability of relevant and appropriate income stream products in the Australian market; and

the minimum payment amounts for account-based pensions, to assess their appropriateness in light of current financial market conditions.

Given their interactions, this discussion paper Review of retirement income stream regulation forms the basis for consultation on both reviews.

In addition, on 14 December 2013, the Government announced it would not proceed with the previous government’s unlegislated measure to facilitate the provision of deferred lifetime annuities and that it would instead consider the proposal as part of the review of the regulatory arrangements for retirement income streams. This paper also provides a basis for consultation on extending concessional tax treatment to deferred lifetime annuities.

The Government welcomes views on this discussion paper, and written submissions will be accepted until 5 September 2014.

We believe there is opportunity to create new products and services, provided they are fairly priced and transparent. In our review of the demand for annuity products in Australia, we found that many were concerned about these issues, and of course the UK just moved from a mandatory annuity structure to allowing retirees complete freedom to save and spend as they please. They had a major mess previously. DFA believes that households should not be forced to take a particular solution, but products correctly structured and priced would be of significant help. We know from our household surveys that many are not saving sufficient to support their expected life in retirement. Indeed many had no clear expectation of how long they might live, and what they might need to have invested.

The Payments Revolution Around The Corner

The FSI Interim report, released earlier in the week, includes a section on how technology may disrupt payments, a critical domain in financial services.

The report says ” Advances in technology have reduced traditional barriers to market entry in payments, such as the need to construct a dedicated network. New entrants can leverage high levels of internet connectivity, penetration of smart devices and pre-existing networks to connect users to payments services more easily and cheaply than incumbents. The payment hub, being developed by eftpos Payments Australia Limited, and the New Payments Platform (NPP), an industry project being developed as a result of the Reserve Bank of Australia’s (RBA’s) strategic innovation review, may further reduce barriers to entry and drive competition. Incumbents in the Australian payments industry are facing competitive challenges from new market entrants, such as PayPal, POLi, PayMate and Stripe. Closed-loop pre-paid systems operated by companies outside the financial sector, such as Apple, Skype and Starbucks, are holding growing amounts of customers’ funds. Apple has also recently signalled its interest in mobile payments more broadly and recently developed fingerprint biometric authentication for its phones. Advances in cryptography and computer processing power have facilitated the development of virtual or crypto-currencies.

Today we look at the potential convergence of new payment mechanism, overlaid on smart devices, and in the context of customer centric thinking. Consider this, the ubiquitous smart mobile device is essentially a mobile wallet plus a payment instrument, a centre of interaction and potentially can provide secure identification.

You walk down a high street and receive a personalised messages from a retailer, based on your profile, as you pass. The offer is triggered by your proximity to the store. It is a deep discount on that item you were goggling last night, available for just 10 minutes. You decide to accept the offer, pay direct from your phone using your secure wallet, and the deal is done. Rather than collect it, you choose to have it delivered to your home, later in the day. No human interaction, simply a combination of technologies to fundamentally change the customer experience.

Consider the disruptive impact of this, on the retail trade, the payments system, and human behaviour.

Is this far fetched? Not at all. For example, Apple has been working on iBeacon, which is “a new technology that extends Location Services in iOS. Your iOS device can alert apps when you approach or leave a location with an iBeacon. In addition to monitoring location, an app can estimate your proximity to an iBeacon (for example, a display or checkout counter in a retail store). Instead of using latitude and longitude to define the location, iBeacon uses a Bluetooth low energy signal, which iOS devices detect”. It is still early, but Apple has been testing it since December last year in its US retail stores. In the UK, Virgin Atlantic is also conducting trial of iBeacon at Heathrow airport, so that passengers heading towards the security checkpoint will find their phone automatically pulling up their mobile boarding pass ready for inspection. Paypay is experimenting with its own version of beacon – “hands Free shopping – the future in here”, they say.

In May, St. George revealed that is trialling iBeacon at three Sydney branches. When a customer walks into the bank, the iBeacon senses the person’s entrance and sends a welcome message and personalised information directly to the iPhone or iPad, according to Computerworld. George Frazis, CEO of St. George Banking Group, said in a statement the launch of the new technology forms part of an increased focus on delivering an innovative and customer-centric in-branch experience. “The future of business will be in the ability to anticipate customer’s needs, understand what matters to them and act on that knowledge to surprise and delight them,” he said. “Our investment in iBeacon will help us to achieve that — and it has the potential to dramatically change the service experience in Australian banking.”

The question is, what is the right regulatory settings to, on one hand allow innovations like this to flourish, whilst on the other hand, ensure that adequate protections are in place. That is the question posed, but not yet answered in the FSI interim report.

“Some submissions argue that firms performing similar functions should be regulated in the same way. This position is often made by large incumbent players concerned about the capacity of new players to operate around the edge of the regulatory perimeter. Failure to apply equivalent regulation may result in an uneven playing field and regulatory arbitrage. It may also incentivise those within the current regulatory perimeter to lower their own standards of compliance to compete. However, applying the full weight of prudential or conduct regulation to small players and new start-ups, regardless of the materiality of the risk they represent, may stifle valuable innovation unnecessarily.”

What is clear to me, based on our survey of households and their use of mobile devices, there is potentially a revolution round the corner, which will disrupt traditional payment mechanisms, retail behaviour and customer expectations. Actually many people are ahead of many of the incumbents, and are expecting to do ever more with their ubiquitous mobile devices. The real power is wedding the multiple technologies contained in the device, to create a seamless consumer experience, with smart analytics and segment data. The marketeers dream of one to one targetting is here. Unless people to select to opt out – if they can find the right tab. That may not be easy.

Building Approvals Fall Again In May – ABS

According to the ABS, in data released today, the number of dwellings approved fell 1.7 per cent in May 2014, in trend terms, and has fallen for five months. However, the seasonally adjusted estimate for total dwellings approved rose 9.9% in May after falling for three months. Approvals for units increased. The seasonally adjusted estimate for private sector dwellings excluding houses rose 27.2% in May after falling for three months. The seasonally adjusted estimate for private sector houses rose 0.5% in May after falling for three months.

Dwelling approvals increased in trend terms in the Northern Territory (8.2 per cent) and Tasmania (6.5 per cent). Dwelling approvals decreased in trend terms in the Australian Capital Territory (9.5 per cent), Queensland (3.2 per cent), New South Wales (3.0 per cent), South Australia (1.6 per cent), Western Australia (0.5 per cent) and Victoria (0.2 per cent). In trend terms, approvals for private sector houses fell 0.2 per cent in May. Private sector house approvals rose in Queensland (0.3 per cent), Victoria (0.2 per cent) and Western Australia (0.2 per cent). In trend terms, approvals for private sector houses fell in New South Wales (2.1 per cent) and South Australia (0.6 per cent).

The value of total building approved fell 3.3 per cent in May, in trend terms, and has fallen for six months. The value of residential building fell 1.1 per cent, while non-residential building fell 7.6 per cent in trend terms.

However, the seasonally adjusted estimate of the value of total building approved rose 26.1% in May after falling for four months. The value of residential building rose 13.5% after falling for three months. The value of non-residential building rose 59.5% after falling for four months.

So depending on your point of view, building approvals are either up or down in May! DFA’s view is that the seasonally adjusted data is probably a better read, indicating that the effects of low interest rates and the demand for property in a rising price market is stimulating approvals.

Care In The Community Growing

The Australian Bureau of Statistics today released some important data on how many people are being cared for informally in the community. They showed that in Australia, 12 per cent of people provide informal care to an older person or to someone with a disability or long-term health condition. There were 2.7 million people providing informal care in 2012 and around 29 per cent of these carers are primary carers. This has grown since 2003. Women were both more likely to be carers, and more likely to be primary carers. There were 1.5 million female carers, and of these 536,700 were primary carers, compared to 1.2 million male carers and 233,100 male primary carers.

They highlighted that the proportion of primary carers who were spending 40 hours a week or more providing care has also increased. In 2009, 35 per cent of primary carers were spending 40 hours a week or more providing care, for 2012, this has increased to 39 per cent, or about two in five. The greatest proportion of carers was a partner, and tended to be older. Those over 65 years were most likely to be caring. One in five primary carers spent between 20 and 40 hours per week and almost two in five spent less than 20 hours per week

Carers provided a range on assistance, from transport, to housework, mobility and healthcare.

The partner was most likely to provide these services.

The ABS report highlighted the personal costs incurred by the carer, including reduce job opportunity, lower income and reduction in well-being. Given the demographic shifts we expect to see an ever greater burden of caring responsibility on the shoulder of carers. The 2.7 million engaged in providing these services are an group which is not fully appreciated by the wider community, but consider the impact on the healthcare system if those being cared for informally were to be inserted back into full time institutional care. Demand for care influences property selection as we highlighted in our earlier post.

Consumer Payment Trends In Australia – Cash Is No Longer King

The RBA released an important report today on The Changing Way We Pay: Trends in Consumer Payments. Their paper contains the results of the third Survey of Consumers’ Use of Payment Methods which was conducted in November 2013. The survey used a diary and end-of-survey questionnaire to collect data on the use of cash, cards and a range of other payment methods, both at the point of sale and via remote channels (online, mail and telephone). They say that 2013 data show that cash and cheque use has continued to fall. The use of cards has risen significantly, and there has also been an increase in the use of PayPal. The growth in the use of cards and the reduction in cash use are evident across households in all age and household income groups. The strong growth in remote payments is one contributor to the observed change in the use of cash and cards. However, the main contribution is from the increased use of cards at the point of sale, which is likely to reflect both growth in the availability of card terminals at merchants and changing consumer preferences as authentication methods have evolved.

In an accompanying speech, The Way We Pay: Now and in the Future, Tony Richards, the Head of Payments Policy Department outlined the main findings from the report. Here are some of the main points. First, lower-value payments were typically made with cash, while card payments became more common for larger payment values and other electronic payments were typically used for only for higher-value payments. Over time, electronic payments have increasingly been used for lower-value payments.

Looking across age groups, cash is used more by older individuals than by younger ones. But the decline in its share of all transactions is evident across respondents in all age-groups. The decline is also fairly broad-based across different types of merchants. It can be partly explained by the fact that the mix of transactions in the economy is gradually shifting from in-person to online, where cash is essentially not used. However, it is mostly a function of the decline in cash use in the traditional point-of-sale environment and the development of newer electronic technologies that can match or surpass the convenience and speed of cash in some types of transactions and transfers.

The flip-side to the declining use of cash has obviously been the rise in the use of payment cards for transactions of all sizes. This has been associated with continuing growth in the number of card terminals in Australia (up by around 35 per cent over the six years to 2013), and advances in card technologies and authentication methods. The ongoing shift to the use of PINs in card transactions and the sharp pick-up in the use of contactless payments have both resulted in a reduction in the typical time needed to complete a card transaction.

In the latest survey, two-thirds of respondents reported that they had a card with contactless functionality and almost half of these reported a contactless transaction in the week of the study. Contactless transactions accounted for 22 per cent of all face-to-face card transactions. This share was significantly higher for payments under $20

The survey shows that there are significant differences in the use of debit and credit cards across demographic groups. Younger households are much more likely to use debit cards than credit cards, presumably reflecting reduced access to credit cards and a preference to ‘use their own money’. Lower income households also use debit more frequently than credit, most likely for similar reasons. However, those in the highest income quartile use their credit card significantly more than their debit card. This may well reflect the greater desire to get reward points associated with credit card use. The survey shows that an individual in the highest income quartile is six times more likely to have a premium credit card than a household in the lowest income quartile.

The survey shows a significant decline in the use of cheques. Around 80 percent of respondents reported that they had not written a cheque over the previous year. Cheque use is especially low in younger age groups. However, it is also declining significantly in older age groups. We can expect the decline in the use of cheques to continue as other payment methods became available to meet either the needs of households that currently still prefer to use cheques or the needs of businesses that find there are few alternatives for some specific uses.

The survey also provides evidence on the growth of some relatively new means of making payments or transfers.

For example, it shows that PayPal was used for around 3 percent of transactions in 2013, up from around 1 per cent in 2010. This mostly reflects an increase in the share of transactions occurring online and an increase in PayPal’s share of that market.
Smartphone payments are an area of strong innovation in the payments system. The survey shows that there is a shift toward making more person-to-person transfers using smartphones, with around 9 per cent of transfers to family and friends made via smartphone. However, the use of smartphones for payments was still low, at less than 1 per cent of consumer payments to businesses. It appears that, for the time being, smartphones are mostly a convenient alternative method of internet access, rather than a means of payment in their own right. This clearly has the potential to change as new near-field communications (NFC) or Bluetooth technologies for point-of-sale smartphone payments emerge.

So overall we see a significant and continued migration away from cash and cheques to cards and electronic payments. This is consistent with our recent research on consumer banking channel preferences, the Quiet Revolution. The UK is further ahead with new mobile payment mechanisms. Next time we will discuss the current initiatives in Australia to migrate payments onto a new payments platform (NPP) by 2016.

April Building Approvals Down – ABS

The ABS released the building approvals data for April 2014. They report that the trend estimate for total dwellings approved fell 1.6% in April and has fallen for four months. The seasonally adjusted estimate for total dwellings approved fell 5.6% in April and has fallen for three months. Looking at private sector houses, whilst the trend estimate for private sector houses approved rose 0.5% in April and has risen for 16 months, the seasonally adjusted estimate for private sector houses fell 0.3% in April and has fallen for three months. The trend estimate for private sector dwellings excluding houses fell 4.6% in April and has fallen for five months. The seasonally adjusted estimate for private sector dwellings excluding houses fell 14.0% in April and has fallen for three months.

Here is the national seasonally adjusted trend for all units and houses across Australia. Note recent fall in the number of units, and the sustained growth in houses nationally.

The trend estimate of the value of total building approved fell 5.6% in April and has fallen for five months. The value of residential building fell 1.8% and has fallen for four months. The value of non-residential building fell 12.8% and has fallen for five months. The seasonally adjusted estimate of the value of total building approved fell 17.4% in April and has fallen for four months. The value of residential building fell 7.4% and has fallen for two months. The value of non-residential building fell 36.6% and has fallen for four months.

Looking at the state data, we see some interesting variations.

In NSW there was drop last month in unit approvals, having seen run-away growth in the past year. The number of house approvals also fell slightly. But overall, more units and high density housing was approved than houses, reflecting investment demand and affordability issues.

In VIC house approvals is on the rise, and is still outpacing unit approvals.

In QLD, unit approvals have fallen away, an house approvals are down slightly.

In SA, house approvals are way ahead of unit approvals, though we see a slight fall in house approvals recently, and a slight rise in units.

Finally, in WA, we see growth in house approvals in recent months, but a turn down recently. Units are up slightly, but are significantly below housing approvals.

Overall then, with approvals down, we wonder about momentum in the property market. Maybe the demand supply gap is getting bigger. To meet the demand for property, and to help ease prices, we need greater supply. We estimate that over the next three years we will need more than 900,000 new properties to meet demand