OCTOBER 2017 ISSUE
AUSTRALIAN RETAIL BANKER w www.rfigroup.com t twitter.com/RFiMediaGRB
CEO, MetLife Australia
RFi GROUP INSIGHT
PAYMENTS & DIGITAL
10 Broker-originated borrower: Impressing the unimpressed
18 ‘Two-Way’ Bitcoin ATMs set to launch in Australia
35 NAB moves towards virtual banking with chatbots
CONTENTS OCTOBER 2017
RFi GROUP OPINION
RFi GROUP INSIGHT
Credit cards - Rewards on the turn
Broker-originated borrower: Impressing the unimpressed
‘Two-Way’ Bitcoin ATMs set to launch in Australia
‘Not saving enough’ listed as biggest regret
PAYMENTS & DIGITAL
Equifax reassures Australians in wake of US scandal
NAB moves towards virtual banking with chatbots
WOMEN IN LEADERSHIP
Deanne Stewart, MetLife
Australian Treasurer to address major fintech summit
APRAâ€™s restrictions on interestonly loans a success
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Excessive credit and debit card surcharges banned
As the year ticks on, welcome to the October 2017 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 on credit cards rewards, while our Insight Piece - by RFi Group’s Benzir Siddiqui, takes a look at the mortgage broker channel and specifically broker-originated customers. Our Women in Leadership interview features the CEO of Metlife Australia, Deanne Stewart – ahead of her presentation at our annual Australian Insurance Summit, in just a few weeks’ time.
Our product news looks at digital currencies transforming the way Australian’s make purchases, younger Australian’s concerns about smartphones, APRA’s restrictions on interest-only loans, consumer advocates pushing for tighter rules on credit card limits, the appetite for payday loans remaining strong and NAB’s launch of virtual banking with chatbots for businesses. I hope you enjoy this edition and as always, thank you for your support of RFi Group. Have a great month,
Chloé James Editor / Group Media Director +61 (0) 451 790 929 firstname.lastname@example.org
RFi GROUP OPINION
WORDS ALAN SHIELDS, RFi CONSULTING
The $64,000 question is, what impact will devaluations have? ...37% say they will cancel their cards and find alternatives. Issuers be warned!
he credit card market has been an interesting space over the last few years, awash with innovation and regulation, which has resulted in fundamental changes. Recently, the changes brought about because of the Financial System Inquiry recommendations and resulting interchange caps have been a focus for almost everyone associated with the Australian cards landscape.
More than half of all credit cardholders have a rewards card as their front of wallet card, so understanding what these consumers think and value is critical. In conversation with issuers, the subject of how consumers are reacting to changes to earn and burn rates and to the prospect of the removal of Amex GNS cards has been a hot topic. The fact is that more than half of all credit cardholders have a
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rewards card as their front of wallet card, so understanding what these consumers think and value is critical.
Between December 2016 and June 2017, the proportion of credit card rewards earners aware of devaluation in the market jumped from 16% to 39%. RFi Groupâ€™s June 2017 survey of credit cardholders shows that awareness of devaluation of rewards earn rates is growing rapidly. Between December 2016 and June 2017, the proportion of credit card rewards earners aware of devaluation in the market jumped from 16% to 39%. It should come as no surprise then that satisfaction with rewards programs has dropped in the last quarter. Between March 2015 and March 2017, satisfaction with rewards
RFi GROUP OPINION
CARDHOLDERS AWARE OF EARN-RATE DEVALUATIONS Earn rewards
Do not earn rewards
Source: RFi Group
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SPECIAL DISCOUNTS FOR GROUPS OF CREDIT PROVIDERS AVAILABLE
CPD POINTS AVAILABLE FOR RESPONSIBLE MANAGERS AND LAWYERS
RFi GROUP OPINION
OVERALL SATISFACTION WITH CREDIT CARD REWARDS PROGRAM – CHANGE OVER THE LAST 2 YEARS Proportion who are satisfied (8-10 out of 10) Total
100% 80% 60% 43%
40% 20% 0% Mar-15
Source: RFi Group
programs on credit cards climbed steadily from 43% to 61%. However, in June 2017, this satisfaction dropped dramatically to 50%, effectively wiping out 18 months of positive movements. This creeping malaise has been felt across both direct and proprietary rewards cardholders, including Amex proprietary rewards. The one program seemingly immune from this drop is Flybuys, which now has the most satisfied credit card rewards earners (68%). The $64,000 question is, what impact will that have? Are those aware of devaluations going to stay where they are or move cards? The answer is that from an intention perspective, we’ve also seen a significant shift in June 2017, with the proportion aware of changes to their cards saying they will not react dropping from 50% to 37%. A further 37% say they will cancel their cards and find alternatives. Issuers be warned! Retention is clearly going to be key and effectively highlighting the relative benefits of the existing card to would-be switchers will be critical to succeeding in this endeavour. RFi research shows that if consumers are aware of the complimentary insurances they have on their cards and of the other benefits such as lounge passes, concierge, flight vouchers etc, then they are much more likely to value their credit cards. The table shows the reaction to the question “Do you get more or less value out of your rewards card than the annual fee
Do you get more or less value out of your rewards card than the annual fee that you pay? Significantly less value (0-2/10)
Significantly more value (8-10/10)
% of accounts
% highly satisfied
% intending to cancel in N12M
% aware of benefits (concierge, lounge access etc)
% aware of complimentary insurance
that you pay?”. The focus needs to be on the 7% that feel they get significantly less value – they represent 7% of all rewards cardholders, are highly likely to cancel and are much less likely to be aware of insurance or additional benefits that their cards offer. On the flip side, understanding more deeply the relative impact of these benefits and insurances on cardholders individually should be high on the radar of every issuer in the market looking to maximise value and retention.
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RFi GROUP INSIGHT
WORDS BENZIR SIDDIQUI, RFi RESEARCH
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RFi GROUP INSIGHT
he last few years have seen mortgage brokers thrown into the spotlight, with the channel becoming increasingly important as a means of mortgage acquisition for banks. According to APRA’s Quarterly Authorised Deposit-taking Institution Property Exposures Report, brokers accounted for around half of all new residential loan approvals by ADIs in the June 2017 quarter. One of the outcomes has been increased scrutiny from government bodies, including a number of reviews of broker-originated loans. This includes ASIC’s Review of mortgage broker remuneration and the Sedgwick Retail Banking Remuneration Review. From a banks’ perspective, one of the key avenues to explore is the impact the broker has on the customer and in turn the relationship between the bank and the customer.
When it comes to their brokers, customers gave an NPS of +28, with 47% being Promoters of their brokers. To examine this we looked at the advocacy of mortgage holders from RFi Group’s June 2017 survey of 2,000 Australian mortgage holders. The results show when it comes to their mortgage lender, direct borrowers gave an NPS score of +1; while brokeroriginated borrowers gave an NPS of -17, with 40% detractors and 24% promoters of their loan. In contrast, when it comes to their brokers, customers gave an NPS of +28, with 47% being promoters of their brokers.
NET PROMOTER SCORE (NPS) Detractors (0-6)
Recommendation of their loan 1
Recommendation of their broker 28
0% Direct borrowers
Source: RFi Group
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RFi GROUP INSIGHT
These numbers reiterate the strength of the relationships brokers can build with customers, which in turn may detract from the borrower-lender relationship. Brokers can ingrain themselves in the customers home purchase journey, negotiating on interest rate and guiding them through the application process. In fact 66% of broker-originated borrowers who took out their mortgage in the last year chose their lender based on their brokerâ€™s recommendation, making it the most influential driver of lender choice, followed by pricing (33%). In comparison, direct borrowers are primarily influenced by MFI relationship, with 33% of those taking out their mortgage in the last year choosing their lender because they were already their MFI. Relationships are a key element in the mortgage market and once a customer has established a trusted relationship with a broker, it can become a long term ongoing relationship. The NPS results illustrate that this could mean broker-originated borrowers feel their mortgage relationship is with their broker more than it is with their lender.
Once a customer has established a trusted relationship with a broker, it can become a long term ongoing relationship. The NPS results illustrate that this could mean broker-originated borrowers feel their mortgage relationship is with their broker more than it is with their lender. WHEN YOU REFINANCE YOUR MORTGAGE, WILL YOU? Highly likely (8-10 out of 10) to refinance in N12M Remain with your existing provider
I am not sure
Switch your home loan provider
0% Direct borrowers
Source: RFi Group
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The above has implications for attrition as well. Looking at the refinancing intentions of mortgage holders, 14% of direct borrowers and 18% of broker-originated borrowers are highly likely to refinance their mortgages in the next 12 months. However, half of these Direct borrowers expect to remain with their current lender. In comparison, a lower 38% of brokeroriginated borrowers looking to refinance expect to remain with their current lender - 33% expect to switch and a further 30% could go either way. There is a much greater risk of losing brokeroriginated borrowers.
In comparison, a lower 38% of brokeroriginated borrowers looking to refinance expect to remain with their current lender. So what can lenders do to impress broker-originated customers? The process starts with creating a great onboarding experience, setting the tone for the relationship. Borrowers who have a poor onboarding experience risk being dis-engaged with their lenders from the very beginning. The onboarding process should be used to establish a connection with customers, helping to seamlessly transition them to the bank. This can be the platform for lenders to engage with borrowers on an ongoing basis (maintain regular communication), thus driving better outcomes.
RFi GROUP WOMEN IN LEADERSHIP
Deanne Stewart CEO, MetLife Australia
WORDS CHLOÉ JAMES
n 12th October in Sydney, the Chief Executive Officer of MetLife Australia, Deanne Stewart, will present to her peers at RFi Group’s Australian Insurance Summit 2017. Deanne has over 20 years’ experience in the financial services sector and prior to MetLife, served as the General Manager for Super, Marketing and Direct for BT Financial Group; Managing Director, Head of International Private Client Businesses for Merrill Lynch Investment Management Inc and as Engagement Manager for McKinsey and Company in London. She has a Bachelor of Commerce, Finance & Marketing from the University of NSW, Australia, and an MBA from Yale School of Management, USA - Fulbright Scholar.
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RFi GROUP WOMEN IN LEADERSHIP
How did you get where you are today and what, or who, has been your greatest influence in business? I spent time reflecting on what type of career was going to give me the most satisfaction, was a good match to my skill set, and where I could make a difference. It was reflecting on each of these things that made me realise this type of role was perfect for me and that MetLife was the organisation at which I could do these things. I have been fortunate to have worked with a number of amazing leaders who have had a strong influence on my career and my leadership style. In the formative years, I was mentored by an amazing woman who taught me the importance of taking a global perspective, learning core leadership skills, such as problem solving, working well with different stakeholders, as well as how critical it is to have clear boundaries to ensure you remain balanced and bring your best self to work. When I was overseas working at Merrill Lynch, my leader, the COO, took a chance on me and gave me the opportunity to take a role that exceeded my experience level (and Iâ€™m not sure, I even felt capable of doing!) This taught me how important potential is and the power of believing in yourself. This learning applies to how I view my career and how I view others. I look for potential and not just performance in individuals.
Deanne Stewart, CEO, MetLife Australia
Being clear on my purpose has been instrumental in defining my career aspirations. What is the driving force behind your career goals/ aspirations? Being clear on my purpose has been
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instrumental in defining my career aspirations. For me, it comes down to three things. Firstly, I need to make a difference and have a positive impact on the lives of both my employees, customers and the broader community of stakeholders. Secondly, the ability to develop others is a real passion of mine. Working at an organisation, such as MetLife gives me the opportunity to develop and grow talent, as well as create an environment where people can feel safe, included and thrive. Finally, setting aspirational goals, and working as a team to achieve what we felt was barely possible is also critical.
I ensure I spend enough time reflecting and also gaining feedback (and being open to that) â€“ this is where I believe the greatest lessons of my career have come from. Have you ever made a business decision youâ€™ve regretted and can you share it? And, what would you say is your greatest professional achievement to date? When I was a young leader at Merrill Lynch I was very focused on the strategy and the work that I had to do, and I set out to get my team to do the same. In hindsight, a better approach would have been to take time out with the team to understand how to engage them in helping create the strategy and therefore feel far more connected and committed to it, before moving forward. My biggest achievement has been learning from this experience and adapting my leadership approach. I engage with my staff, get people to collaborate, and bring them along on the journey. At MetLife, we collectively come up with extremely aspirational targets and work to make the goals reality.
RFi GROUP WOMEN IN LEADERSHIP
As a leader, my role is to set the vision with the team, remove the barriers, and develop the team so they can achieve the goals. Seeing potential become a reality definitely gives me the greatest sense of achievement. What do you do to keep evolving your career, to ensure a fulfilling and successful longevity? I have a deep belief that, no matter what role you’re in, there is always more to learn. I make sure I take advantage of formal learning opportunities, such as seminars, reading articles and books that cover off areas I want to learn more about, including technical knowledge and leadership. However, I also believe that the best form of learning is the experience and lessons I am gaining as part of my day job. And this requires me to ensure I spend enough time reflecting and also gaining feedback (and being open to that) – but this is where I believe the greatest lessons of my career have come from. How do you achieve a work / life balance and what activities do you participate in outside of your working life, that you see contributing to your business success?
I am a firm believer in understanding and setting personal boundaries – what are the things that nourish you and allow you to bring your best self to work? I am a firm believer in understanding and setting personal boundaries – what are the things that nourish you and allow you to bring your best self to work? The clearer you are on these boundaries, the better you can perform professionally. The second step is being pragmatic and living this commitment to your boundaries. Women often
put their kids, their partner, and their organisation ahead of themselves and won’t stop to think about what their personal boundaries are. Men also tend to put work priorities before themselves. Remembering to prioritise and value yourself is key to work life balance and bringing your best self to work.
Remembering to prioritise and value yourself is key to work life balance and bringing your best self to work. Do you mentor others? And, what have you learnt in the process? Mentoring is never one way and I am very passionate about the role leaders have as mentors. Often, I am mentoring people significantly younger than myself and what I notice in those sessions is that, while I am helping them by imparting my experience and giving them different ideas and thoughts, what I gain from them is also invaluable. They tell me what is important to them as a millennial, as an employee, and show me how they look at things through a very different prism. Having an opportunity to see things from a different perspective helps me perform better as a leader and make better decisions for my team. 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? Believing in yourself and confidence is really important for women who want to succeed in the workplace. Body language, presence, eye contact, and tone all play an important part of imparting confidence. There is also an art of storytelling that is fundamental for those who want broader leadership roles.
The best way that we can build positive workplaces in the future is through having more balance and diversity in leadership roles. The more gender balance you have at the table, the more naturally balance flows through an organisation. A balanced workplace creates an environment that is supportive and inclusive for both females and males. 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?
Women tend to focus on credibility and sometimes lose sight of the importance of sponsorship and executive presence. Realising this was my “aha” moment. At a formative stage in my career, I couldn’t understand why doing a good job wasn’t enough for me to break through to general manager level. Through undertaking an amazing course at Harvard, Women in Leadership, I realised it’s about more than just credibility and doing a good job. It’s a combination of three things; credibility, generating sponsorship in the organisation, and executive presence – commanding attention when you walk into a room. Women tend to focus on credibility and sometimes lose sight of the importance of sponsorship and executive presence. Realising this was my “aha” moment and something I share with women all the time.
To read the full WIL series and all past Australian Retail Banker editions, feel free to visit the archive centre on our website or follow @RFiMediaGRB on Twitter.
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ARB - RFiareMEDIA IBM 16 and the IBM Logos trademarks of IBM Corp registered in many jurisdictions worldwide. A current list of IBM trademarks is available on the Web at “Copyright and trademark information” at www.ibm.com/legal/copytrade.shtml. © Copyright IBM Corporation 2017. All Rights Reserved.
AUSTRALIAN TREASURER TO ADDRESS MAJOR FINTECH SUMMIT WORDS CHLOÉ JAMES
rom October 27th to November 3rd, Melbourne will play host to FinTech Australia’s Intersekt Festival, of which RFi Group, is a proud Media Partner.
The seven-day extravaganza is set to be one of the most exciting fintech events held in Asia Pacific. It will bring together over 1,000 delegates, to reflect that Australia is in fact the world’s ‘intersection’ for fintech innovation. Highlights include a two-day Collab/Collide Summit, a threeday hackathon, two community days and a one-day blockchain event. The State Government of Victoria is Intersekt’s presenting partner, with other partners including York Butter Factory, Next Money, FinTech Victoria and RFi Group. As a part of our media partnership, our co-founder and Managing Director - Consulting Alan Shields, will be speaking on the Global Finance Disrupted panel, our Head of Client Insights, Kate Wilson will be moderating a main stage panel on Open Banking and our Group Media Director Chloé James will be MC’ing the two-day Collab/Collide Summit. The most recent addition, Australian Treasurer Scott Morrison, has also just confirmed he will address the Collab/Collide Summit, on 2-3 November at the Melbourne Convention and Exhibition Centre.
Mr Morrison is responsible for driving the government’s policy and regulatory reforms to support Australia’s fintech industry. This is part of a broader agenda to improve competition and boost customer outcomes from banking and financial services such as; • The proposed expansion of Australia’s fintech regulatory sandbox • A commitment to allow customers to more easily access to their own financial data • Steps to reduce barriers for fintech firms to become challenger banks • The release of draft legislation to extend the government’s crowd-sourced equity funding framework from public companies to private companies • The removal of double taxation on digital currencies, such as bitcoin; and • An announcement that the government will legislate a mandatory comprehensive credit reporting regime, if credit providers are not reporting at least 40 per cent of their data by the end of 2017 To find out more about the event, visit: www.intersektfestival.com
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Transactions WORDS CORINNE BARRETT
‘Two-Way’ Bitcoin ATMs set to launch in Australia
recent joint venture between two fintech firms – StarGroup and DigitalX will see up to 3,000 existing ATMs across Australia equipped with a technology aid that once fully functioning will allow Bitcoin enthusiasts to buy and sell the digital currency straight from the “two-way” ATM. According to Coin ATM Radar, there are only 16 existing Bitcoin ATMs in operation across Australia, predominantly spread amongst Sydney and Melbourne, which incur
conversion fees between 4% and 8% of the transaction value, and most of these are only one-way where users can only acquire Bitcoin. Currently it can take days for Bitcoin owners to convert the digital currency to cash, and with the adoption of Bitcoin slowly gaining traction, it is now at a stage where a roll-out of this scale is becoming feasible. According to RFi Group data, 12% of smartphone owners find services which allow them to use cryptocurrency at ATMs and/or shops highly appealing.
TO WHAT EXTENT DO YOU FIND A SERVICE WHICH ALLOWS YOU TO USE CRYPTOCURRENCY AT ATMs/SHOPS APPEALING? Highly appealing (8-10) Unappealing (3-4)
80% 60% 40%
Appealing (6-7) Highly appealing (0-2)
0% 18 - 34
35 - 44
45 - 54
Source: RFi Group Australian Digital Banking Council June 2017
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Bendigo Bank now offers Samsung Pay Samsung recently announced that its contactless payment service is now available for customers of Bendigo Bank with an eligible debit or credit card and a compatible Samsung device – including the Gear S3 Smartwatch and most recent Samsung phones. Bendigo Bank’s Chief Customer Officer Marnie Baker noted, “the app offers customers greater choice and flexibility in how they make payments.” According to RFi Group data, 9 in 10 transaction account holders currently own a smartphone and of this, over 1 in 10 have used their phone to make a mobile payment. With constant chatter about contactless payments displacing cash, RFi Group data shows the trend of decreasing cash usage globally as NFC mobile payments increase. Security consistently drives the preference for bank branded proprietary wallet with perceptions of trust and security being high, meanwhile the perception of wider acceptance continues to drive preference for third-party wallets.
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According to RFi Group, over 1 in 10 have used their phone to make a mobile payment.
Digital currencies set to transform the way Australians buy everything ASIC Chairman Greg Medcraft has predicted, “a traditional bank account may be unnecessary within a decade as central banks around the world begin issuing their own Bitcoin-style digital flat currency.” Bitcoin is already slowly revolutionising the way consumers are transacting, since its debut nearly 10 years ago. There is always talk surrounding the future of transactions, and one hot topic is consumers having the option of depositing their money with a technology company rather than into a bank account. With the federal government’s ‘Black Economy Taskforce’ handing down its final report within the next month, there is speculation on several topics, including reviewing the $100 note, cash payment limits, tracking chips, centralbank issued digital currencies, use of biometric data such as fingerprints and facial structures, targeting high risk sectors and greater consumer-focused action.
A traditional bank account may be unnecessary within a decade as central banks around the world begin issuing their own Bitcoin-style digital flat currency.
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Savings ‘Not saving enough’ listed as biggest regret for all Aussie generations WORDS KEVIN PHANG
WHICH OF THE FOLLOWING WOULD YOU SAY BEST DESCRIBES YOUR BEHAVIOUR IN REGARDS TO ACCESSING THE MONEY IN YOUR SAVINGS ACCOUNT? By age - generations Regularly withdraw money to help pay for day-to-day expenses
I sometimes withdraw money to pay for special purchases
I tend to withdraw money once I have reached my savings goal
I tend to just leave money unless I really need it but I don’t have a savings goal
0% Baby Boomers
Source: RFi Group Australian Savings and Deposits Council March 2017
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report entitled ‘Live the Dream – Money and Life’ was recently released by the Financial Planning Association of Australia (FPA). The report found that close to 1 in 3 Australians are stressed about their finances. It goes on to say that a low bank balance is the largest roadblock preventing them from achieving their desired lifestyle. This is underpinned by Aussies failing to save enough money – 37% of all Aussies cite this as their biggest regret. The regret of not saving enough is present across all the generations with Gen Y having the largest regret (42%), followed by Gen X (38%) and finally the Baby Boomers (28%). RFi Group finds that one of the reasons Australians may struggle with saving enough is that they regularly withdraw money to help pay for day-to-day expenses. Research from the Australian Savings and Deposits Council found that 44% of Australian adults regularly withdraw money to help pay for their daily expenses. This behaviour which is seen in all generations would make it difficult for Australians to save and grow their balance consistently. With interest rates in Australia remaining in historically low environment, it is understandable why most Aussies may feel that they are not saving enough. However, having a budget and being prudent in spending may help Australians avoid having to dig into their savings unnecessarily in order to meet daily expenses.
The report found that close to 1 in 3 Australians are stressed about their finances...This is underpinned by Aussies failing to save enough money – 37% of all Aussies cite this as their biggest regret.
Young Aussies more worried about smartphone than wallets WORDS CORINNE BARRETT
Younger generations have been immersed in innovative products their whole life, heightening their awareness naturally towards what’s on their phone rather than in their physical wallet.
A recent study has found that more than half of Gen Y Australians regard their personal mobile phone as being of higher importance than their wallets. This trend suggests smartphones are on track to one day replace the generic wallet and be used for nearly all transactions taking place. Younger generations were born into a technology era and have been immersed in innovative products their whole life, heightening their awareness naturally towards what’s on their phone rather than in their physical wallet. According to a recent review by CommSec, Australia is now the 25th cheapest place to buy an Apple iPhone 7, causing heightened concern amongst our younger generations of the cost of replacing their device. The report added that Gen X respondents’ main priorities were identity theft and cost while Baby Boomers’ were more concerned with contact details and cost. Given the tendency to live through one’s smartphone, the security of personal finance and banking applications are another major concern for Millennials, who are the most likely to place their whole lives online.
August financial wrap up WORDS CORINNE BARRETT August was no different to many of the current money trends over the previous months, with interest rates steady, property prices consistent and living expenses causing consumers to go down a different savings goal route. The pain of interest rates continued for Savers in the month of August with a variety of banks making cuts to savings account rates, including ME Bank’s ongoing bonus savings account rate declining by 10 basis points, altering the market-leading rate to the 3.00% offered by RAMS, AMP and Australian Unity.
pain of interest rates continued for Savers in the month of August with a variety of banks making cuts to savings account rates Not only had interest rates continued downwards, Mozo recently found that rewards value has reduced by 67% this past year, now offering only an average net value of $27 per year.
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Mortgages WORDS BENZIR SIDDIQUI
APRA’s restrictions on interest-only loans a success
ince introducing new restrictions on interest-only lending for ADIs in March 2017, where new interest-only lending must not exceed 30% of all new residential mortgage lending, APRA appears to be having success so far. To comply with these measures, lenders have introduced a wave of changes in the last few months, by introducing differential pricing between interest-only and principal and interest (P&I) loans to encourage borrowers to switch away from interest-only loans, as well as re-defining serviceability criteria for interest-only loans. The latest figures from APRA’s Quarterly ADI Property Exposures report show that interest-only lending accounted for 30% of new home loans in the June 2017 quarter, down from 36% in the March quarter. However, it is unlikely that lenders will become lax anytime soon given that lenders are continually re-assessing their ability to service interest-only loans. If even one lender in the market looks to place more restrictions on interest-only lending in their books this creates a ‘flow-on’ effect where borrowers will look to rush to the next lender, where that lender in turn may not be able to handle an increased number of interest-only borrowers in their books. This ‘flow-on’ effect results in continual restrictions on lending in the market. Hence, we will be likely to see greater levels of differential pricing between interest-only and P&I and stricter serviceability criteria implemented.
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Interest-only lending accounted for 30% of new home loans in the June 2017 quarter, down from 36% in the March quarter. However, it is unlikely that lenders will become lax anytime soon given that lenders are continually re-assessing their ability to service interest-only loans.
Westpac refines serviceability criteria In response to APRA’s restrictions on lending, Westpac Group has announced a series of changes on their mortgage serviceability criteria for the main bank as well as its other brands: St. George, Bank of Melbourne and BankSA. Serviceability of loans will now be calculated on a 20-year term (down from 30 years). Tax deductions on rental interest will now be calculated using an annual percentage rate and there will be increased scrutiny on tax deductions relating to mortgages held outside of the bank, with a closer examination of relevant documents such as bank statements and loan contracts. Furthermore, Westpac will also require the annual interest rate and the remainder of interestonly terms to be captured on all relevant mortgages in their back book. RFi Group data from June 2017 shows that the proportion of borrowers choosing a lender because they approved their loan when other financial institutions didn’t has increased slightly over the last 3 years. 11% of borrowers who took out their mortgage in the last year were driven by this compared to 6% of those who took out their mortgage 2-3 years ago. This is in line with restrictions on lending as a result of APRA’s actions in recent times. As lenders continue to re-assess serviceability criteria it is possible that this could drive lender choice going forward.
WHY DID YOU CHOOSE YOUR MOST RECENT LENDER? ‘They approved my loan when other financial institutions didn’t’ By tenure 30% 25% 20% 15% 10%
12% 10% 7%
5% 0% More than 5 years ago
Between 3 and 5 years ago
Between 2 and 3 years ago
Between 1 and 2 years ago
Within the last year
Source: RFi Group Australian Mortgages Council March 2017
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Mortgage aggregator to launch SME loan platform Mortgage aggregator Australian Finance Group (AFG) has announced it will soon launch AFG Business for SME lending. AFG plans to build a panel of up to 10 lenders at first and will provide training and accreditation for existing AFG brokers to offer lending solutions to SMEs. Data from RFi Groupâ€™s annual survey of mortgage brokers shows that the proportion of mortgage brokers selling non-mortgage products has continually increased over the last few years, with nearly 90% of brokers in Sep selling products outside of the mortgage. Furthermore, of these borrowers selling other products, 48% sell commercial loans and 47% sell equipment finance products to their mortgage customers. AFGâ€™s decision to launch an SME loan platform illustrates that as restrictions on mortgage lending could affect their business, aggregators are looking to increase their level of product diversification and assessing other opportunities, where their large broker networks and customer bases would be advantageous.
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The proportion of mortgage brokers selling non-mortgage products has continually increased over the last few years, with nearly 90% of brokers in Sep-16 selling products outside of the mortgage.
Cards Excessive credit and debit card surcharges banned WORDS HUW GRIFFITHS
rom September 1, small businesses will be banned from charging customers additional surcharges for those who pay via EFTPOS or credit cards. This ban on small businesses builds upon the same ban applied to large businesses from last year and applies to EFTPOS, MasterCard, Visa and American Express cards. The new rules states that small businesses owners are only able to pass on the cost of accepting the form of payment. “For example, if a business’s cost of acceptance for Visa credit is 1.5 per cent, consumers can only be charged a surcharge of 1.5 per cent on payments made using a Visa credit card,” ACCC deputy chairman Michael Schaper said. RFi Group data shows that credit card holders who are faced with surcharges are most likely to either use a different card (28%), pay with cash to avoid the surcharge (23%), or are willing to pay the surcharge but will not return to the merchant (20%). The reduction of excessive surcharges is a win for consumers with lower surcharges giving them more options when making card payments.
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Consumer advocates pushing for tighter rules on credit card limits WORDS KEVIN PHANG The government is seeking to tighten lending standards in the $52 billion credit card market as part of its agenda of addressing credit card debt traps. As a result, consumer advocates are pushing for new rules that would force banks to only issue credit card limits that customers could repay within three years. However, the banks have rebutted this proposition claiming that 10 years is a “reasonable” time frame for how long it would take a customer to repay their credit card debt. They further argue that only a trivial minority of consumers get into debt trouble with their credit cards. Reforms in this area would require banks to ensure they only issue credit limits that could be repaid within an unspecified period leading to debates surrounding what constitutes as “reasonable” period for paying off credit card debts. This is in contrast with current regulation which only states that credit card contracts need to ensure that customers can repay the loan without “significant hardship”.
RFi Group data states that the average credit card limit of a consumer’s most used credit card is just over $11,000. This reform come on the back of Treasury research finding a “significant minority” of cardholders being wrongly given credit cards which they then used in ways that caused a large burden on their finances and wellbeing. RFi Group data states that the average credit card limit of a consumer’s most used credit card is just over $11,000.
WHAT IS THE CREDIT LIMIT ON YOUR MOST USED CREDIT CARD? By age $20,000 $15,000
$5,000 $0 18 - 24
25 - 34
35 - 44
45 - 54
55 - 64
Source: RFi Group Australian Cards Council (ACC) June 17
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Bank Australia reduces Qantas frequent flyer points WORDS HUW GRIFFITHS Bank Australia has announced that it will slash the number of points its Qantas Platinum Rewards Visa credit card earns. The reduction will be 25%, with the number of Qantas points earned per dollar spent falling from 1 to 0.75 Qantas Points. In addition to the reduced earn rate, Bank Australia is implementing a new earnings cap. Customers can only earn up to 20,000 Qantas Points per month and after hitting this cap, no further points can be earned. The reduction and earnings cap is being imposed on Bank Australia card holders on October 1 and is in response to the interchange fee regulation from July. Data from RFi Group shows that 11% of credit cardholders chose their front of wallet credit card because it had the best rewards program. Bank Australiaâ€™s devaluation of its reward program may cause existing cardholders to consider alternate cards to ensure that are getting the greatest amount of rewards as possible and dissuade further uptake.
11% of credit cardholders chose their front of wallet credit card because it had the best rewards program. Bank Australiaâ€™s devaluation of its reward program may cause existing cardholders to consider alternate cards.
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Personal Loans WORDS CONNIE CHAN
Equifax reassures Australian customers in wake of US scandal but doubts remain
n the wake of its recent data breach scandal in the US, which saw the personal details of tens of millions of customers compromised, the Australian arm of global credit analytics firm Equifax was quick to distant themselves and reassure Australian consumers of the security of their data. â€œPlease be assured that we have found no evidence that personal information of consumers in Australia or New Zealand has been affected by the US cybersecurity incident.â€?
Cybersecurity experts however, remain unconvinced, with some warning that the breach could be replicated in Australia, whether at Equifax itself, or at any of the multiple similar companies in Australia. Cybersecurity experts, however, remain unconvinced with some warning that the breach could be replicated in Australia, whether at Equifax itself, or similar companies in Australia. Across Australia and New Zealand, Equifax helps to conduct credit checks on behalf of clients to ascertain the creditworthiness of consumers applying for loans, and has credit information stored on about 20 million individuals and 5.7 million commercial entities. According to RFi Group data, 42% of current personal loan holders are aware of their credit rating. Cyber-safety should be stepped up next February, with the anticipated passing of new legislation to force companies to report data breaches immediately instead of the current 28-day reporting window.
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Auto finance customers to get interest rate reprieve in further crackdowns on auto finance industry Last month, the ARB reported on the crackdown of unnecessary insurance being pushed upon auto finance customers by the Australian Securities Investment Commission (ASIC). It seems the regulator has not stopped there and has continued to increase pressure on the auto finance industry, this time focusing on the lucrative flex commissions paid to dealers. These flex commissions allow dealers to set exorbitantly high interest rates on car loans, and are not found in any other industry. Higher loan rates mean higher commissions for dealers; the interest rates being offered are on average 7 percent higher than the lowest available rate in the market, leading to consumers
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paying thousands more in interest over the life of the loan. This rate play by dealers is made alarmingly more dangerous by the fact that, according to RFi Group data, 31% of auto finance customers are unaware of the interest rate they are currently paying on their loans, meaning many customers are potentially being unknowingly ripped off. The reforms announced by ASIC will put the responsibility of setting interest rates on the lender rather than the car dealers, putting an end to flex commissions. Lenders will have until November 2018 to update their business models and implement the changes.
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Appetite for payday loans remain strong as Cash Converters announce $271.5 million in revenue Despite tougher market conditions and a regulatory crackdown on short-term lending, payday loan provider Cash Converters announced revenues of $271.5 million for the 2017 financial year. While down 12.4% from the previous year, this result is still above expectations considering the challenges faced by the industry. The challenges payday lenders faced within the last financial year included: a government review into payday loan laws, with the vast majority of its recommendations to be legislated either in part or in full later this year; a ban on direct debit fees for payday loans; a global payday loan ad ban by Google; and a rise in new online payday lending services. Last November, Cash Converters also had to refund more than $10 million in fees to borrowers and paid a $1.35 million penalty after a major investigation by the Australian Securities and Investment Commission. Despite all this, the appetite for payday loans does not seem to be diminishing, with the ABC finding that the payday lending industry has been booming, with a 20-fold increase in demand for payday loans since 2007. RFi Group data shows that comfort levels in borrowing from a payday lender amongst current personal loan holders have remained steady over the past year.
Despite the challenges, the appetite for payday loans does not seem to be diminishing...RFi Group data shows that comfort levels in borrowing from a payday lender amongst current personal loan holders have remained steady over the past year.
% HIGHLY COMFORTABLE (8-10 OUT OF 10) BORROWING FROM A PAYDAY LENDER Trended 20% 15% 10%
Source: RFi Group Australian Consumer Lending Council June 2017
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PAYMENTS & DIGITAL
Payments & Digital WORDS AARON TAN
NAB moves towards virtual banking with chatbots for businesses
AB is launching “virtual bankers” in the form of chatbots to assist customers with simple administrative tasks and questions. This reconstruction of processes is expected to save the bank hundreds of millions of dollars. This would reduce the need for call centres, with NAB expecting to save about $16 million by 2020 in business banking due to the amount of calls currently received about topics that can easily be addressed by chatbots. About 200 customer queries can currently be answered by the chatbot, with administrative questions relating to business credit cards being the first area of focus for the chatbot trial. While there is concern that chatbots may result in significant job displacement, chief operating officer Anthony Cahill said that bankers would simply have more free time, allowing them to speak to clients or think about designing new products and services.
HOW APPEALING DO YOU FIND AN ONLINE LIVE CHAT Highly appealing (8-10 out of 10) Trended
The move towards increased automation is not only about cutting costs; customer research shows that there is a preference for self-service with certain simpler, low-value tasks from a customer perspective. RFi Group data shows that around 1 in 5 smartphone/tablet users consider automated chatbots to be highly appealing.
10% 0% Dec-16
Source: RFi Group Australian Digital Banking Council 2017
The move towards increased automation is not only about cutting costs; customer research shows that there is a preference for self-service with certain simpler, low-value tasks from a customer perspective. According to Anne Bennett, NAB’s executive GM of business transformation, the program has currently resulted in a $27 million per year equivalent in savings from employee time saved and other changes.
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PAYMENTS & DIGITAL
ANZ leads the way with mobile banking voice identification ANZ is the first Australian bank to enable voice identification for mobile banking to improve convenience and security for customers making higher value transactions. Previously, ANZ customers would need to start the transfer through internet banking and move to the ANZ Shield app to obtain a one-time code, which is then entered into the internet banking account to authorise the transaction. The voice ID-activated payments, developed with biometrics company Nuance, allows ANZ customers to make ‘Pay Anyone’ transactions of more than $1,000 on their mobile without having to log into internet banking or visit branches. This is particularly useful for ANZ’s small business customers, who make payments of over $1,000 on a regular basis on the go. Voice ID can be used to make BPAY payments of more than $10,000 via mobile as well. Compared to legacy authentication methods, voice biometrics has five to ten times the security points of methods such as fingerprint verification. According to RFi Group data, 26% of smartphone/tablet owners consider fingerprint login to be an essential feature. Nuance’s technology is sophisticated enough to differentiate between identical twins, and can detect when voice recordings are used. This technology is used by other banks in the UK such as Barclays, HSBC and RBS. The Australian Tax Office also utilised Nuance voice biometrics with its mobile app in 2015.
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Compared to legacy authentication methods, voice biometrics has five to ten times the security points of methods such as fingerprint verification... 26% of smartphone/ tablet owners consider fingerprint login to be an essential feature.
PAYMENTS & DIGITAL
The future of voice-activation and open banking with ING Uday Sareen, ING’s Australian chief executive, predicts that voice-activated banking environment will be a reality within the next five years, and that voice biometrics could be a disrupter for the future.
15% of smartphone/tablet owners consider apps which consolidate information across all their bank accounts for budgeting purposes to be highly appealing. Uday Sareen
ING has invested €800 million in digital transformation, which includes an “aggregation dashboard” called Yolt. This dashboard shows users their balances in accounts held with various banks, and analyses their spending patterns; the dashboard is available to both ING and non-ING customers. According to RFi Group data, 15% of smartphone/tablet owners consider apps which consolidate information across all their bank accounts for budgeting purposes to be highly appealing. Australian banks are concerned that open banking will result in global technology firms such as Google, Apple, Amazon or Facebook entering the market. They have accepted that open banking is inevitable, and most bankers believe that adaptation is essential to staying relevant in this technology driven economy.
ING is redesigning their platform to be integrated with other aggregators and financial brands, with the plan to bring some existing models to Australia from the developments currently taking place in Europe. ING is redesigning their platform to be integrated with other aggregators and financial brands, with the plan to bring some existing models to Australia from the developments currently taking place in Europe.
Natural language processing technology has improved quickly over the recent years, with a Business Insider report indicating that 18 million US consumers have made a voice payment in the past. ING’s experimentation with voice-driven AI technology is seen in a robot called Ginger, which is a Pepper model built by Japan’s Softbank.
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RFi Group’s syndicated research RFi Group is a global intelligence and media provider focused exclusively on financial services. We specialise in data and information gathering, customer based insight generation and business decision support for the world’s leading financial service providers. Our syndicated research is delivered via our Financial Councils model. Upcoming Australian Financial Council research includes:
COMING SOON 2017 September Australian Cards Council • Latest survey of credit card holder behaviour and sentiment 2017 September Australian Consumer Lending Council • Latest survey of personal loan holder behaviour and sentiment 2017 September Australian Mortgages Council • Latest survey of mortgage holder behaviour and sentiment
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