FEBRUARY 2018 ISSUE
AUSTRALIAN RETAIL BANKER w www.rfigroup.com t twitter.com/RFiMediaGRB
Clara DurodiÃ© CEO, Cognitive Finance Group WOMEN IN LEADERSHIP 10
RFi GROUP INSIGHT
PAYMENTS & DIGITAL
06 GEN Y: Are you paying (enough) attention?
Interest-only lending on the decline
ING integrates voice biometrics
CONTENTS FEBRUARY 2018
RFi GROUP OPINION
RFi GROUP INSIGHT
Gen Y: Are you paying (enough) attention?
Will the New Payments Platform result in new payments behaviour?
New Zealand continues to see higher term deposit rates than Australia wage
32 PAYMENTS & DIGITAL ING integrates voice biometrics
Interest-only lending on the decline
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WOMEN IN LEADERSHIP
New Payments Platform set to launch late January
Australians spend more than $30 billion on credit cards in December
Westpac cutes rates on personal loans
SAVE THE DATE!
Key themes for 2018 include: • Automation vs Personalisation • Regulation and Capital • Housing Affordability • Property Market Outlook/Economics
• Brokers & Third-Party Distribution • Investment Lending Trends • Open Banking • Digital Innovation
RFi Group and AB+F are pleased to announce the 8th Annual Australian Mortgage Innovation Summit on the 22nd & 23rd of February in Sydney.
politicians and regulators discussing market predictions and forecasts for the year ahead.
Hear industry experts explore local and global case studies on mortgage innovation and the ever-changing housing market from 2017. And experience in-depth panels with economists,
For tickets, sponsorship and exhibition enquiries: James Harradine 02 9126 2616, firstname.lastname@example.org
Welcome to the February Edition of the Australian Retail Banker, a newsletter designed to provide updates on news and trends within the Australian retail banking market specifically in the areas of transactions, savings, deposits, mortgages, cards, personal lending, payments and digital banking. We begin this edition with Alan Shields’ Opinion Piece which dissects age, in relation to attitudes, behaviours and product holdings, while our Insight Piece - by RFi Group’s Kate Wilson, takes a look at the New Payments Platform (NPP) going live. This month’s Women in Leadership piece is a great interview with the very impressive business technologist, board member and executive leader, Clara Durodié. Clara is an internationally recognized speaker and in 2017 was named on The Powerlist Women in Fintech (globally) for the second year in a row.
In just a few weeks’ time, RFi Group will host its annual Australian Mortgage Innovation Summit and Australian Lending Awards on 22/23rd February 2018. The agenda is looking fantastic and we look forward to seeing many of you there! Our product news for the new year looks at Kodak’s blockchain risk, New Zealand’s higher term-deposit rates, Australian’s resorting to credit to combat the rising cost of living, Westpac’s rate cut on personal loans, ING integrating voice biometrics and interest-only lending on the decline. I hope you enjoy this edition and as always, wish you a great month,
Chloé James Editor / Group Media Director +61 (0) 451 790 929 email@example.com
RFi GROUP OPINION
ARE YOU PAYING (ENOUGH) ATTENTION? WORDS ALAN SHIELDS
t RFi we have recently been doing some work calculating the revenue represented by various consumer segments to retail banking organisations. Taking product penetration by age, overlaying it with average balances and taking into account net interest margins across the different types of banking products that consumers hold, we are able to not only look at current revenues, but how these will change over time. Age is always my favourite lens through which to assess consumer data. For all the fantastic segmentation that can be done across attitudes, behaviours and product holdings, age is often the only reliable variable on which banks can cut their own data; this therefore makes it the most relevant parameter.
Age is also something that we can all relate to as consumers. In particular, we are interested in and react to generational monikers and stereotypes more so than we do with other segment definitions.
So, what does the age lens tell us about how valuable our customers and potential customers are when it comes to retail banking? Letâ€™s start with definitions.
THE VARIOUS GENERATIONS ALIVE IN AUSTRALIA TODAY AND THEIR RESPECTIVE AGE GROUPS AND STEREOTYPES IN 2018 ARE:
CONSUMER VALUE INDEX By generation
Millennials are rapidly becoming more valuable to the retail banking sector. 2017 marks the point at which millennials surpass Baby Boomers in terms of value.
By 2024, Millennials will become the most valuable segment of consumers within the market.
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While Gen Z is only beginning to enter the market now, by 2043, it will become the most valuable segment.
RFi GROUP OPINION
Now that we all know which one we belong to and are happy/ indifferent/sad about that and the associated ‘descriptor’, let’s take a look at where we should be focusing our attention. RFi’s modelling tells us that on a per capita basis, Gen X is the most valuable segment for a bank to be focusing on and has been since 2009 when the group overtook Baby Boomers on RFi’s Consumer Value Index. Personally, as I enter my 41st year, I just think its nice to have some focus and attention, because Gen X always gets forgotten (see stereotype). However, this time in the sun is not going to last forever and inevitably Millennials will take over as our most valuable customer segment. The inflection point will come in the year 2024. Granted 2024 is six years away, but, according to PwC, that is only just longer than the tenure of the average Australian CEO at 5.5 years, which is why we see the smart firms focusing on how they are engaging the next generation. Importantly, Millennials will be the segment that drives retail banking revenues to a greater extent than any other from 2024 to 2043 – almost 20 years. This effectively means that pretty much every senior banking executive will be relying on targeting and engaging Millennials for their organisation’s success for the rest of their careers. In light of these factors, the question is, are banks doing enough to focus on this generation? Of course, the answer to that varies by bank, but on the whole, I would say that with a few exceptions, many are missing a trick. I still regularly hear the comment that “we aren’t a brand that appeals to the Millennial generation” and that is a very dangerous statement to make. If you don’t appeal to them now, then you have a limited window of opportunity to engage them before you lose out completely. Gen X may be great now, but after 2024, their revenue contributions will fall off a cliff. We don’t need to build a model to know what impact that will have on a bank that hasn’t thought ahead.
Couple this with the fact that RFi Research has shown time and time again, that when it comes to MFI (main financial institution) switching, the vast majority of consumers (more than 90%) will switch MFI before they are 35 years of age, but not afterwards. If you miss the window, then it's too late.
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RFi GROUP INSIGHT
WILL THE NEW PAYMENTS PLATFORM RESULT IN NEW PAYMENTS BEHAVIOUR? WORDS KATE WILSON
ith the New Payments Platform (NPP) going live in late January, Australians have now joined the ranks of consumers able to enjoy real time payments. Since the end of last year, we have begun to see commentators in the media proclaim that the NPP will be the final nail in the coffin for cheques, and perhaps even cash, with the ability to send payments electronically in real time expected to encourage more consumers to switch to electronic payments. Paying a tradesperson, buying goods off eBay, or even making a large purchase such as a used car should be made easier as consumers will be able to transfer money for the purchase and then wait just moments to ensure that the other party has received the payment. The NPP is also expected to displace cash for peer-to-peer (P2P) payments, reducing the need to get cash out to quickly pay someone back for a shared expense like dinner out or paying a portion of a bill. So while the NPP has the potential to support greater usage of electronic payment methods in Australia, will we see any significant effects on consumersâ€™ payments behaviour in the months immediately following the roll-out of the NPP? A key barrier to this is the fact that, at present, awareness of the NPP is low among Australians. According to RFi Group research, just 8 ARB - RFi MEDIA
15% of smartphone owners surveyed in December 2017 were aware of the NPP. Furthermore, less than half of those aware of the NPP understand it, with just 6% of smartphone owners believing that they have a very good understanding of the NPP (understanding rated as 8+/10). As the NPP rolls out we can expect that awareness and understanding of the effects of the new platform will increase, driven not only by the media but also by word-of-mouth. However, it is unlikely that we will see all consumers aware of the NPP in the near future, especially those consumers who are not currently using electronic payment methods. The low level of awareness and understanding of the NPP is important as unless consumers know about and understand the benefits of the NPP, and real time payments in particular, where is the incentive to switch from cash or cheque to electronic payments?. The good news is that while consumers may not have heard of the NPP, they already see the benefits of real time payments, with around one in three Australians indicating that the ability to make and receive payments instantly would have a highly positive impact on their lives.
RFi GROUP INSIGHT
Millennials are the most likely to believe this would positively impact their lives. With Millennials more likely than average to be using electronic payments, this suggests that those already using electronic payments are likely to shift more of their payments away from cash as a result of access to real time payments, but it may take more to convince low electronic payment users that real time payments are superior to cash or cheque. For consumers to realise the benefits of the NPP they will first need to trial it, and with low awareness levels we may find that the effects of the NPP on consumer payments behaviour will not be immediately obvious.
The good news is that while consumers may not have heard of the NPP, they already see the benefits of real time payments, with around one in three Australians indicating that the ability to make and receive payments instantly would have a highly positive impact on their lives.
BEFORE TODAY, HAD YOU HEARD OF THE NEW PAYMENTS PLATFORM/NPP? AND TO WHAT EXTENT WOULD YOU SAY YOU UNDERSTAND HOW THE IMLPLEMENTATION OF THE NEW PAYMENTS PLATFORM/NPP WILL IMPACT YOU? By age 50%
Source: RFi Group
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RFi GROUP WOMEN IN LEADERSHIP
Clara DurodiÃ© WORDS CHLOE JAMES 10 ARB - RFi MEDIA
RFi GROUP WOMEN IN LEADERSHIP
lara Durodié is a business technologist with Board level experience in wealth and asset management and an expert in applied artificial intelligence in financial services. In 2017 Clara was named on The Powerlist Women in Fintech (globally) for the second year in a row; Clara is an internationally recognised speaker more recently invited as an expert on applied A.I. in financial services by the World Economic Forum; Clara is the CEO of Cognitive Finance Group, a consultancy and investment company specialised in applied A.I. in financial services for the correct adoption, selection and How did you get where you are today and what, or who, has been your greatest influence in business? Knowing when to say yes to opportunities is science more than anything else. But what isn’t science, is the ability to know what is your calling. When I was 12, I knew that I wanted to run my business so I wrote my first business plan explaining how my business would make profit. At 21, I turned down a few job offers with global corporates, to start my own firm and lead a team of 8 electrical engineers at a time when being an entrepreneur wasn’t the flavour of the month. My early inspiration was my family. My grandparents owned successful businesses in 1910s -1930s and I used to hear those great stories during family meals. My father would always encourage me to dream big and know that nothing can stop me from achieving what I wanted. He would never raise gender as an issue. My father would always encourage me to learn how to fix things around the house, how to use a hammer or an Allen key. Taking up helicopter flying lessons and boxing lessons have always been rated as normal in my family. So, I grew up always thinking that gender cannot be a stumbling block in my life’s direction. I have also been exceptionally lucky to have strong female roles models in my family: my mother and grandmothers. All strong, courageous, classy and sassy women with articulated vision and determination. They built their own path by running a business, going to war or building a career in the medical field. This is the set-up of my early life. It shaped how I identified and build my own dreams, it formed my thinking and my general vision of life. However, the long-lasting influence has been the people close to me, the company I keep.
implementation of A.I. systems. Clara is also mentor at leading incubators, and advises Fintech start-ups on go to market strategy and partnerships. Before establishing Cognitive Finance Group, Clara had started scoping the research for her PhD which sits at the intersection of neuroscience, artificial intelligence and wealth management and looks at how episodic memory informs how people save and invest. Clara is a member of the Chartered Institute for Securities and Investment in London UK, has a Certificate in Investment Management and holds a Master’s degree from the University of Oxford.
I have always been drawn to work with people who are smarter than me, people who inspire me and whom I respect. It keeps one humble. Humility keeps a leader in check and is never in oversupply. In Cognitive Finance Group, the company I founded in 2016, I am grateful to the very special people I work with, people I deeply admire and respect and learn from every day. Collectively, they are my greatest influence in my business life: Michael is my daily inspiration to do better and be better, Kay is my source of sustainable vision, Ryan is my rock for clarity of thinking, Steve is my trusted ‘eyes’ for all things AI, Alex is my reliable support for tactical approach, Mike is my constant for business focus and wisdom, Greg is my compass of intelligence in wealth management, Tristan is my platform to navigate machine learning and philosophy with British humour, Natalino is my reason behind diving deeper into data science Italian style, Sabine is my motivation to inquire deeper and with German precision into Boards, Jay is my incentive to connect data science and social impact with South African crispness. What is the driving force behind your career goals/ aspirations? The driving force behind my aspirations is my genuine interest in applied artificial intelligence to solve real life problems for financial services and to help executives make the best decisions when selecting and implementing these systems. I possibly have the best job in the world: working on complex problems with incredibly intelligent people. Have you ever made a business decision you’ve regretted, and can you share it? And, what is your greatest
professional achievement to date? I believe in giving the young generation a seat at the Board. I am millennials’ greatest supporter. In 2017, I gave a mid 20s professional a seat on the Board of Directors. He disappointed me because his professional maturity wasn’t there yet. It was a great lesson for me. My greatest professional achievement is setting up Cognitive Finance Group with a clear agenda to drive the correct adoption of artificial intelligence (A.I.) in financial services. This means that we provide impartial advice on the selection and adoption of A.I. systems. We have already started to see positive results of our work. Our advice has already had a favourable and substantial impact at the Board level and executive teams in how they think about and adopt A.I. Our work challenges openly the traditional consultancy model which typically has a vested interest in the procurement stage. In simple terms, it works this way: the consultant advises the client to do X and recommends that the client buys Y system. Every time the client buys Y, the consultant gets a commission. So the consultant has vested interest to keep recommending a certain system. Therefore, their advice is not impartial. Cognitive Finance Group’s model is that our advice is impartial. We recommend systems only on merit and never charge a commission. That’s the measure of our commitment to our clients. In a world inundated with AI hype, the Boards need a trusted and impartial adviser on what they need to buy for their organisations. We are that trusted and impartial adviser.
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RFi GROUP WOMEN IN LEADERSHIP Do you mentor others? What have you learnt in the process?
What do you do to keep evolving your career, to ensure a fulfilling and successful longevity? I read a lot. I have always loved reading and thinking about thinking. The knowledge which I acquire helps me drive my business further. I also enjoy sharing my knowledge through my public speaking engagements. I am hugely excited to see those ‘Aha!’ moments in my audience. I like conveying complex problems in simple terms. Big words don’t always signal intelligence. Simple terms are only possible with mastery of a subject. Knowledge and intelligence will allows take me where I need to be in my career. Working in a fast-changing environment like technology, staying up to date is the meaning of staying relevant. How do you achieve a balanced life and what activities do you participate in outside of your working life, that you see contributing to your business success? It’s catch 22: a clear mind resides in a healthy body. A healthy body is controlled by a clear mind. I aim to live a balanced life, meaning I don’t entertain excesses. I root my internal peace in meditation and daily physical exercise and stable relationships with my business partners and associates. My internal peace secures clarity of thinking which is my prime focus in my business. My family is also a key contributor to my business success.
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I mentor younger generation. It’s our duty to share with them the lessons we have learned and to help them further their journey. I am a mentor for a couple of fintech incubators. However, my longest mentorship has been that of my 19 year old son, Alexander. I have always been interested in intelligence (human and artificial) and my son is my first ‘experiment’ in building human intelligence. Ultimately, this is what defines a mentor’s job. Alex’s successes are also a measure of my mentorship. My son has also been my best teacher. Through him, I learned a lot about myself, about my strengths and weaknesses. More importantly, I learned how to be comfortable with those weaknesses which I cannot transform into strengths. That is the meaning of being comfortable with who I am. This is a great lesson because of its simplicity. When you are genuinely comfortable with who you are, you stop trying to be someone else and start being you. That is an exercise in honesty. Honesty attracts Trust. What advice would you give to young women who want to succeed in the workplace and what do you see as the biggest challenge for future generations of business women? Now it’s a great time to be a young woman. My advice is: Fight complacency Do not ever take for granted what women have achieved so far. Let’s not forget that only 45 years ago Portugal recognised women’s right to vote! I was in Australia in 2017, when this young American woman told me that “this gender thing is redundant. Women have it all now and what’s the point of women only panels.” Strive for balance The world is a better place when women and men work together and respect each other. Respect comes from class, strength and warmth. Strive to act in such a way which calls for respect. Encourage chivalry Men know that we can open doors, fly
airplanes and do everything else which they are able to do. Chivalry is about being a true gentleman. This is a sign of respect men show us. Let’s encourage it. Stay classy Etiquette tells us that certain circumstances require certain manners and clothes. Being classy is precisely about recognising that match. It commands respect. What’s the best piece of advice you have received as a woman in a leadership role that you would pass on to others hoping to get there? I was in Oxford during my master’s degree. I asked the same question during a “Women in Business” session. The guest speaker was Dame Stephanie Shirley, a British business woman, Jewish child refugee in the 1940s who became a successful technology entrepreneur. She said that “leadership is about projecting strength and warmth”. It sounds like trying to mix water and oil, though. Strength is one’s ability to make things happen with abilities, knowledge of subject matter and force of will. Warmth is the sense that a person shares our feelings, interests and view of the world. The most difficult thing about strength and warmth is that it’s very challenging to project them at the same time. Projecting them at the same time is considered the magic ingredient of those who have gravitas and command respect, two attributes which are essential in a leader. My addition to this great advice is to make Trust the foundation on which you build your trust, strength and warmth. And it is not difficult to make Trust the core of your leadership.
More importantly, I learned how to be comfortable with those weaknesses which I cannot transform into strengths. That is the meaning of being comfortable with who I am.
Transactions WORDS DINETH WICKREMESINGHE
New Payments Platform set to launch late January
urrently expected to launch in late January, the New Payments Platform (NPP) will revolutionise how Australians make real time payments and will further reinforce the decline of cash and cheque payments. BPAY’s Osko is the first confirmed product created in response to the NPP, with banks expected to unveil Osko services once the NPP goes live. The NPP will allow Australians to make real time payments to customers of other banks and allow them to link bank accounts to phone numbers or email addresses. In addition to transforming the way money is transferred, the NPP is also be expected to foster innovation within the financial services industry and could impact the competitive environment by decreasing the dominance of the Big Four banks. Despite the transformational nature of this infrastructure, RFi Group data shows that only 15% of Australian smartphone owners have heard of the NPP. Meanwhile, 10% are aware of PayID and just 4% are aware of ‘Osko’ by BPAY.
WHICH OF THE FOLLOWING ARE YOU AWARE OFF? By age
Osko by BPAY
25 - 34
35 - 44
18 - 24
45 - 54
55 - 64
65 - 80
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Physical bank branches set to decline Research conducted by Morgan Stanley suggests that physical bank branches are transitioning into solely sales and advice centres. The acceleration of mobile banking services is part of the reason for this shift, with mobile banking services providing banks with opportunities for multi-billion dollar cost savings and new sources of differentiation. According to the investment bankâ€™s analyst, Betsy Grasek â€œwe see the adoption of smarter, smaller branch designs, reduction in branch count, and active guidance of customers to mobile self-serviceâ€?. RFi Group data demonstrates the shifting role of physical branches. The use of physical branches for account acquisition has declined from transaction account holders that used it for this purpose 5 or more years ago compared to those who opened the account more recently. Meanwhile, online channels are becoming more prevalent for acquisitions.
We see the adoption of smarter, or smaller branch designs, reduction in branch count, and active guidance of customers to mobile self-service.
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Kodak’s blockchain risk Kodak has joined a partnership with blockchain development company WENN Digital, to launch KODAKOne and KODAKCoin platforms by the end of January. Blockchain is a digital, decentralised ledger of transactions which allows all market participants to keep track of cryptocurrency transactions without central recordkeeping. KODAKOne will be an image rights management platform that allows users to archive and register their work, while KODAKCoin will be a digital currency that will allow photographers to instantly receive payments through a blockchain system. Since the announcement at the beginning of January, Kodak’s stock price has more than doubled. The partnership marks a significant milestone in the reemergence of Kodak as a technology company since filing for bankruptcy in 2012. After obtaining a rescue package from investment banks in 2013, Kodak has proceeded to reinvent and rebrand itself as a ‘technology company focused on imaging’. This new partnership is a furthering of this strategy, as Kodak strive to learn from their past mistakes and to not be made redundant by the innovation of their competitors.
Since the announcement at the beginning of January, Kodak’s stock price has more than doubled. The partnership markes a significant milestone in the reemergence of Kodak as a technology company since filing for bankruptcy in 2012.
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Savings New Zealand continues to see higher term deposit rates than Australia wage WORDS DINETH WICKREMESINGHE
he trend of New Zealand term deposit savers getting better deals than their Australian counterparts has continued into 2018. On average, term deposit savings rates in New Zealand are approximately 1.25% higher, with these savers also receiving higher premium to wholesale rates. Perhaps as a result of these higher rates, New Zealanders are more likely to hold a term deposit than Australians; RFi Group data indicates that 32% of New Zealanders have a savings account compared to only 21% of Australians. However, while New Zealanders do see higher deposit rates than Australians they also see higher mortgage rates. Deposits in New Zealand are also not backed by a government guarantee like in Australia.
RFi Group data indicates that 32% of New Zealanders have a savings account compared to only 21% of Australians.
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Interest rates on online savings accounts fall Following an earlier move from ANZ in December, CBA, NAB and Westpac have decreased rates paid on their online savings accounts. The changes come in response to changing market and economic conditions, with competition to attract deposits easing. All four banks have changed the rates offered on their online savings account by similar margins. CBA, ANZ and NAB have all lowered base rates while increasing introductory rates while Westpac lowered the introductory rate on its eSaver by 0.1 percentage points. RFi Group data suggests that these rate adjustments alone are unlikely to drive savers to switch to a new institution; with 32% indicating they would not change solely due to interest rates. WHAT WOULD THE DIFFERENCE IN INTEREST NEED TO BE FOR YOU TO OPEN AN ACCOUNT WITH ANOTHER INSTITUTION AND MOVE THE BALANCE TO A NEW ACCOUNT? Mar - 16
Jul - 16
Mar - 17
32% 30% 20% 10%
15% 9% 5%
0% An additional An additional An additional An additional An additional An additional An additional I would not 0.10-0.20% 0.30-0.40% 0.50% 1.00% 1.50% 2.00% 2.50-3.00% change based only on interest rates
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The number of people using part of their retirement savings to cover medical costs increased by five times over the past six years, from approximately 4,000 people in 2011 to about 22,0000 in 2017.
Australians increasingly using super to cover medical expenses An increasing number of Australians are using their superannuation to cover medical bills as healthcare expenses rise. According to data from the Federal Treasury, the value of super being released on compassionate grounds has increased from around $42 million, in 2000-2001, to $290 million in 20162017, with the majority of this being spend on medical expenses. Furthermore, the number of people using part of their retirement savings to cover medical costs increased by five times over the past six years, from approximately 4,000 people in 2011 to about 22,0000 in 2017. Australian Medical Association president Michael Gannon highlights that using super in this way could undermine the overall effectiveness and aim of the superannuation system. Gannon stated that “We don’t oppose regulations that allow the early release of superannuation on medical grounds under compassionate circumstances, but we don’t think superannuation is the appropriate safety net to subsidise inadequate health funding.” Meanwhile, Revenue and Financial Services Minister Kelly O’ Dwyer has urged Treasury to review the terms and conditions around the early release of superannuation. RFi Group data suggests that, in addition to dipping into super, Australians are also dipping into their savings, with around 3 in 5 savings account holders withdrawing money from their savings, with 29% doing so to cover unexpected expenses.
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Mortgages Interest-only lending on the decline WORDS JAPESH RAISINGHANI
n the most recent AFG Mortgage Index to December 2017, interest-only (IO) loans accounted for approximately a third of mortgages lodged in the last quarter of 2017 in Australia. This decline can be attributed to APRAâ€™s crackdown on IO lending last March when they decided to limit the number of new IO loans at 30%. The volume of IO loans has been declining over the past few years, from its peak of 59% in the last quarter of 2015 to 47% in the last quarter of 2016. RFi Group data shows that there has been a decrease in the proportion of borrowers making interest-only repayments on their most recent mortgage from 20% in March 2017 to 18% in December 2017. AFG CEO David Bailey noted that while there has been a lot of attention on Sydney house prices and mortgage volumes, mortgage sizes in Victoria are seeing the biggest increases. Bailey said that the average mortgage size has increased by 3.2% in the final quarter of 2017 sitting at almost $500,000, while the national average loan size has increased by 2.8% over the past year.
There has been a lot of attention on Sydney house prices and mortgage volumes, mortgage sizes in Victoria are seeing the biggest increases
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Australiaâ€™s own GFC on the brew? Professor of Economics at UNSW Business School, Richard Holden has likened Australiaâ€™s property market to that of the United States just before the 2008 Global Financial Crisis (GFC). Professor Holden noted some of these red flags include higher debt to income ratios, too much interest-only (IO) lending and deceiving loans. RFi Group data suggests that property owners who are not first-home buyers are taking on larger debts over the course of 2017 from about $350,000 in Feb-17 to $386,100 in Oct-17. With higher debt to income ratios, Professor Holden noted that the big Australian banks are willing to lend a quarter more for the same income level when compared to major US banks. This could result in risky borrowers finding it difficult to comfortably afford their loan repayments if mortgage rates were to rise or if wages remain plateaued.
Big Australian banks are willing to lend a quarter more for the same income level when compared to major US banks
Professor Holden also noted that there is too much IO lending in Australia. Borrowers on these loans could face mortgage stress when the IO period expires, and the loan reverts to its original principal with interest repayments that they do not have the affordability levels for. Professor Holden further cited a UBS survey of 907 Australians which said that an increasing number of borrowers were using false information about their incomes, assets and expenses to borrow more money than they would normally be approved for. This could result in overextension of their monetary ability to the point where they could face difficulties in making their repayments if market conditions were to change.
AVERAGE LOAN SIZES FHB
$500,000 $400,000 $300,000 $200,000 $100,000
Source: RFi Group
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First time home buyers in luck Despite property prices cooling slightly towards the end of 2017, taking out a home loan remains a financially strenuous task for many Australians, especially first-time home buyers (FHBs). SCU is looking to address this with a new 40 year home loan product designed to help FHBs take out their first loan. This loan is one of the few long-term loans currently available in the market and features a 3.77% variable interest rate. The loan will only be available to FHBs. Mozo Property Expert, Steve Jovcevski noted that with high property prices in many parts of Australia and an older retirement age, these long-term loans could become more common in the future. He noted said that young home buyers must pay close attention to the trade-off between making lower monthly repayments on one hand while paying more in interest over the longer life span of the loan.
High property prices in many parts of Australia and an older retirement age the long-term loans could become more common in the future. Steve Jovcevski
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Australians spend more than $30 billion on credit cards in December WORDS DINETH WICKREMESINGHE
f the spending patterns of Australians over the last three years hold, the Reserve Bank of Australia (RBA) estimates that nationwide December spending on credit cards would have exceeded $30 billion. Graham Cooke, the Insights Manager at Finder.com, believes a balance transfer to a card with an interest-free period could be a useful tool for cardholders seeking to reduce their interest charges. â€œA balance transfer could give credit card holders the chance to make more headway on their outstanding balance, especially if they're having difficulty making repayments," Mr Cooke explained. While balance transfers appear as an appealing option to help pay off credit card debt Australians are warned to still be wary. Gerard Brody, Chief Executive of Consumer Action, advocates that balance transfers can often compound debt as people are unable to payoff the balance before the interest free period ends. It would seem that Australians are aware of the pitfalls of balance transfers on credit cards as RFi Group data shows only 14% of credit cardholders have taken out a balance transfer and only 6% of credit cardholders identify their front of wallet card on a balance transfer.
A balance transfer could give credit card holders the chance to make more headway on their outstanding balance, especially if they're having difficulty making repayments Graham Cooke, Insights Manager, Finder.com
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New Year brings new reward offers
More than one in two credit card holders earn points on their most used card, with more than one in ten cardholders citing the rewards program as the primary reason they chose their most used card.
The beginning of 2018 has seen many major credit card issuers introduce new rewards deals and offers in an effort to attract new customers and increase their market presence. RFi Group Data indicates that more than one in two credit card holders earn points on their most used card, with more than one in ten cardholders citing the rewards program as the primary reason they chose their most used card. The majority of the sign-up deals centre around bonus Qantas points offers. American Express are offering 120,000 bonus Qantas Points for new cardholders who apply for the Platinum Business Card by the end of the month and meet the required expenditure criteria over the first few months. Their personal Platinum Charge card has a similar offer but with 80,000 bonus Qantas Points. The cards also earn three points per $1 spent on the personal card and two points per dollar on the business card. NAB, Westpac, St George and ANZ have also introduced new sign up offers and changes to the rewards programs of the Qantas Rewards Signature card, Altitude Black card, Amplify Signature Visa Card and Frequent Flyer Black Visa cards, respectively. The cards are all offering between 100,000 to 75,000 bonus Qantas Points upon signup, with varying expenditure requirements, dollar to point conversion rates, and fees.
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Australians resorting to credit to combat the rising cost of living Financial comparison site Mozo, has recently revealed that one in six Australians are paying for essential expenses such as rent and bills on credit cards. Furthermore, RFi Group data from December indicates that for two in ten Australians, keeping some expenses separate is the primary reason for holding a secondary credit card. Despite the obvious dangers of credit card debt, Australians entered 2018 with approximately $51.2 billion in credit card debt, with the RBA estimating that there are more than 16.7 million credit cards in circulation around Australia. For many Australians, relying on credit cards to combat the rising costs of living is borne out of necessity. According to Financial Counselling Australia’s Executive Director, Fiona Guthrie, the trend of putting fixed expenses such as bills and household expenses on credit is a cause for concern, “Credit cards can be quite a dangerous product because they are hard to keep track; you make lots of small purchases over a long time and you get a bill once a month.’’
Credit cards can be quite a dangerous product because they are hard to keep track; you make lots of small purchases over a long time and you get a bill once a month.
WHY DO YOU HOLD MORE THAN ONE CREDIT CARD? Multiple credit card holders - Top 3
I use a secondary card so that I can keep certain expenses separate
I get special bonuses, when I use my secondary card at particular merchants
0% I just keep a secondary card in case of emergencies
Source: RFi Group ACC Council, December 2017
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Personal Loans Westpac cutes rates on personal loans WORDS DINETH WICKREMESINGHE
estpac has launched a new unsecured personal loan product with a 1% discount on the regular annual interest rate, taking it to 11.99%. RFi Group Data from September 2017 indicates that approximately one in ten prospective borrowers consider Westpac as their first choice of institution to borrow from. However, CBA, ANZ and NAB are more likely to be the preferred first choice option for prospective borrowers. Despite the new discounted rate still being higher than some loans offered by the Big Four Banks, Westpac will be hoping that the rate cuts will increase the number of prospective borrowers that consider them. The productâ€™s introduction comes at an opportune time, with the beginning of a new year often bringing new financial goals and objectives for many Australians which a personal loan can help support.
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Approximately one in ten prospective borrowers consider Westpac as their first choice of institution to borrow from.
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Lodex aims to shift the power Lodex is a new fintech platform which began operating in Australia last November. Mic Phillipou, Co-Founder of Lodex, describes the platform as an, â€œAustralian-first loans and deposits marketplace that puts the power into the hands of the consumer. It's an agnostic exchange that allows financial services providers to come to you, the consumer, to compete for your loan or deposit.â€? The platform switches the typical process of a consumer searching for a loan. To initiate the process, the customer submits details such as the amount desired and the purpose of the loan. Lenders then return to the customer with the best deals they can offer. From the lenders perspective, this platform gives them access to a new customer stream.
Australian-first loans and deposits marketplace that puts the power into the hands of the consumer. It's an agnostic exchange that allows financial services providers to come to you, the consumer, to compete for your loan or deposit.
Martin North, of Digital Finance Analytics, believes the marketplace model is emerging and will develop into a positive tool for the financial services industry. RFi Group data from September 2017 indicates that 81% of prospective borrowers use online channels such as the websites of their current financial institutions, websites of different lenders and loan comparison websites to research a personal loan. These are all potential customers Lodex could target and endeavour to attract by shifting the bargaining power towards the consumer and reducing the research effort required to find the best deal
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Payday lenders putting customers at risk Payday loan providers such as Cash Converters, Nimble and Wallet Wizard could be putting their customers at risk by requesting sensitive information such as myGov login details and internet banking passwords as part of their approval processes. These lenders are legally required to access applicant’s recent benefit entitlements, however the contentious issue is that conducting this part of the process online exposes customers to increased security risks. Currently, Cash Converters uses a platform provided by Australian technology firm Proviso, which provides them with a ‘snapshot’ of data they require once the access details have been provided. According to Cash Converters terms and conditions, this information is used once
and then destroyed “as soon as reasonably possible", however the data may be kept on file for a period of up to 90 days. RFi Group data indicates that borrowers are uncomfortable with borrowing from payday lenders because of the associated costs and terms and conditions with their loans. Both Justin Warren, Chief Analyst and Managing Director of IT consultancy firm PivotNine, and Nigel Phair, Director of the Centre for Internet Safety at the University of Canberra, advise against disclosing myGov details or internet banking details to any third party as: "It's great to outsource certain functions, but you can't outsource the risk."
Putting their customers at risk by requesting sensitive information such as myGov login details and internet banking passwords as part of their approval processes.
It's great to outsource certain functions, but you can't outsource the risk
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PAYMENTS & DIGITAL
Payments & Digital ING integrates voice biometrics WORDS DINETH WICKREMESINGHE
NG customers can now use Siri, Appleâ€™s virtual assistant smartphone feature, to check their account balance. ING is the first institution to integrate this capability, with many more similar services utilising voice biometrics expected to become available to banking customers in the near future. Biometrics such as fingerprints, voice activation and iris scans are becoming more prevalent in the financial services industry and we may start to see customers requesting these advanced types of technology in order to perform their daily banking tasks. According to RFi Group data, 17% of all mobile banking app users would be likely to use voice biometrics to secure authentication for payments and transfers should the technology be made available to them. INGâ€™s head of digital innovation Chris Barwick believes that this particular advancement is a significant milestone towards making complete voice-transactional banking a reality.
7% of all mobile banking app users would be likely to use voice biometrics to secure authentication for payments and transfers should the technology be made available to them.
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PAYMENTS & DIGITAL
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PAYMENTS & DIGITAL
TradePlus 24 and Trade Ledger embark on strategic partnership WORDS DINETH WICKREMESINGHE Credit Suisse backed, Zurich based alternative lending company TradePlus 24 has selected Australian ‘deep tech’ start-up Trade Ledger as a technology partner as it prepares to ramp up its international ambitions and enter the Australian market. Trade Ledger was chosen for its unique combination of capabilities; its platform automates the entire credit assessment process and can also access supply chain data of SMEs in real time. According to Trade Ledger CEO and Co-Founder Martin McCann, "By removing these technical limitations around documentary trade processes, and completely automating the credit process, lenders can significantly reduce the cost of loan origination, completely eliminate certain types of risk and fraud, and rapidly increase the volume of their loan book – all without adding extra staff”. RFi Group data supports McCann’s opinion, indicating that 25% of Australian SME’s, consider the ease and speed of the application experience to be one of the most important considerations when selecting a lender. McCann believes Trade Ledger offer a product which is scalable to a range of financial institutions, from global banks to local banks to alternative lenders. Now armed with the backing of TradePlus 24, they are embarking upon an international tour through the US, Europe and Asia to search for new opportunities and further expand their operations.
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Credit Suisse backed, Zurich based alternative lending company TradePlus 24 has selected Australian ‘deep tech’ start-up Trade Ledger as a technology partner as it prepares to ramp up its international ambitions and enter the Australian market.
PAYMENTS & DIGITAL
Westpac introduces its own wearable devices WORDS JAPESH RAISINGHANI On the topic of trends for 2018, NAB’s executive general manager of digital and innovation, Jonathan Davey, predicts that a key change for customers over the coming year will be the increasing availability of “chatbots” to perform banking tasks. According to Davey, Australians will soon be able to use chatbots to receive immediate results and quick solutions to problems related to their banking. Chatbots are increasingly becoming integrated into digital channels across a range of industries. As a result, Australians are becoming more comfortable using them for basic queries and it is likely that we will also see this trend in financial services. According to RFi Group data, the proportion of smartphone/ tablet owners who consider using a chatbot for banking enquiries appealing has been increasing slowly. However, consumers are currently more comfortable using live chat with a real person, with 39% considering using live chat with a real person highly appealing (score of 8-10/10) compare to 21% who could consider a chatbot highly appealing. Davey also foresees voice activated devices such as Google Home being used for banking tasks in the future, with an increasing number of Australians adopting voice-activated devices such as Google Home. “In the future we could see this turning into an experience where you can buy products, like groceries or a new TV, all by speaking to your voice-activated device, while you’re sitting on your couch”. HOW APPEALING WOULD YOU CONSIDER USING: Highly appealing (8-10 out of 10) Trended Mar-17
30% 20% 21% 21% 21%
“In the future we could see this turning into an experience where you can buy products, like groceries or a new TV, all by speaking to your voice-activated device, while you’re sitting on your couch”
0% Online live chat (real person) - helps you with your banking enquiries
Online live chat (automated bot) helps you with your banking enquiries
Online financial planner - gives you tailored financial advice based on your current financial status and other demographic information
Jonathan Davey, Executive General Manager of Digital and Innovation, NAB
Source: RFi Group
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ABOUT RFi GROUP
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Covering 44 key global markets with regional offices in San Francisco, Toronto, London, Singapore, Hong Kong and Sydney, RFi Group consistently provides clients with tailored advice and independent intelligence relevant to their specific markets and business needs. EXCLUSIVE FOCUS ON BANKING AND FINANCE RFi Groupâ€™s expertise and deep understanding of the banking and finance sector delivers high-value outcomes. Our areas of expertise include: Retail Banking Mortgages Transaction Accounts Savings Accounts Consumer Lending Cards and Payments
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G LO B A L D I G I TA L B A N K I N G CO U N C I L RFi GROUP’S GLOBAL DIGITAL BANKING COUNCIL IS A COMPREHENSIVE RESEARCH STUDY, PROVIDING INSIGHTS ON THE DIGITAL BANKING BEHAVIOURS AND PREFERENCES OF 1,000 CONSUMERS PER MARKET IN 10 COMPARABLE MARKETS ACROSS THE GLOBE – THE US, MEXICO, CANADA, UK, FRANCE, INDIA, HONG KONG, CHINA, SINGAPORE AND AUSTRALIA.
KEY INSIGHTS FOR FINANCIAL SERVICES ORGANISATIONS IN AUSTRALIA INCLUDE:
Adoption, uptake, consideration, sentiment and the role of the traditional bank
Banks v’s fintech’s v’s telecoms v’s government – Who do consumers trust with their finances and personal information and how is this changing?
Biometrics, chatbots, robo-advice, augmented reality or virtual reality – What will be the next big thing in banking?
Are we moving ever closer to a cashless society and via which route?
Key examples of banking innovation driving uptake and satisfaction with consumers globally
For further information, please contact Julien Wilson, Commercial Director – AU & NZ on email@example.com or +61 422 462 722 38 ARB - RFi MEDIA
An RFi Group publication