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SEPTEMBER 2017 ISSUE

AUSTRALIAN RETAIL BANKER w www.rfigroup.com t twitter.com/RFiMediaGRB

General Manager, Business Banking, ANZ

RFi GROUP OPINION

RFi GROUP INSIGHT

TRANSACTIONS

07 Mortgage debt: Building buffers for consumer understanding

10 Mobile wallets: Trend or norm?

18 Cards supersede cash for consumer transactions


CONTENTS SEPTEMBER 2017

07

10

RFi GROUP OPINION

RFi GROUP INSIGHT

Mortgage debt: Supplementing consumer understanding

Mobile wallets: Trend or norm?

18

22

TRANSACTIONS

SAVINGS

Cards supersede cash for consumer transactions

Battle between online saving and term deposits

32

37

PERSONAL LOANS

PAYMENTS & DIGITAL

Auto finance customers win

Amazon could be a big winner in an era of digital banking


12

15

WOMEN IN LEADERSHIP

RFi PERFORMANCE ANALYTICS OPINION

Tania Motton, ANZ

Learning from other industries

25

28

MORTGAGES

CARDS

APRA to regulate non-bank lenders

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15TH ANNUAL

AUSTRALIAN INSURANCE AWARDS 2017


Welcome to Spring and the September 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 looking at the consumer’s view of their own mortgage debt, while our Insight Piece - by Senior Research Analyst, Anne Yap takes a look at the current state of play of our mobile wallets. Our Women in Leadership Interview features Tania Motton, the General Manager for Business Banking at ANZ following her valuable participation at the Australian Business Banking Summit on 17th August. The RFi Group Analytics Piece of course dives in to data, this month, drawing interesting parallels with

the medical industry and Menzies Institute, making for an interesting read. Our product news looks at Citi adding Amazon.com to its rewards offering, the battle between online saving accounts and term deposits, a concerning rate of card fraud on the rise in Australia, the effects of cashless payments on consumers’ savings, NSW and VIC property refinancing transactions moving to digital and P2P and payday lenders seeing an increase in applications. 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 & PR Director +61 (0) 451 790 929 cjames@rfigroup.com


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RFi GROUP OPINION

MORTGAGE DEBT: BUILDING BUFFERS TO SUPPLEMENT CONSUMER UNDERSTANDING WORDS ALAN SHIELDS, RFi CONSULTING

O

ver the last couple of years, it is fair to say that regulatory scrutiny on the mortgage market has intensified considerably. The A-team (APRA, ASIC and ACCC) has been pawing over the banks’ portfolios and processes to ensure that we have a prudent, responsible and competitive mortgage lending market her in Australia. We now have speed limits on investor lending growth and restrictions on interest-only borrowing, which mean the lenders in the market have gone from needing to have a good handle on their forecast outcomes to needing to know with pinpoint accuracy what will happen in a more complex market in order to stay on the right side of regulation. In many ways, the challenge the lenders face reminds me

of that scene in Apollo 13, when all their systems have gone down and they are positioning themselves relative their target, using air jets and squinting through a small window in the side of a space capsule with the aerodynamics of a wine decanter (all while travelling at 40,000 kph). A little too much and they will overshoot (and die); not enough and they will burn up on entry (and die). This is the challenge of the lender in today’s market. When managing your portfolio you therefore want to have a good handle on the things you can control. One of those is the flex in borrowers’ servicing capacity. As a consumer research advocate, I always think it’s interesting to understand what consumer perceptions are of the current situation facing them. I don’t mean asking consumers what they understand

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RFi GROUP OPINION

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RFi GROUP OPINION

HOW LIKELY WOULD YOU BE TO REFINANCE YOUR MORTGAGE IN THE NEXT 12 MONTHS? Highly likely (8-10 out of 10) Investors

25% 20%

17%

18%

15%

15% 10%

10%

9%

15%

10%

5% 0% Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Source: RFi Group

about regulation as this is generally somewhere between nothing and complete misunderstanding. I am talking about their understanding of their borrowing situation and the implications of it.

choke on my coffee when I first saw it. Those consumers that had some idea, reckoned they had an average monthly repayment of $1,876, which doesn’t smell too bad relative to the average loan size and current interest rates.

One great example of this is the intention to refinance a mortgage loan. Go back to June 2016 and everyone was enjoying their very own personalised historically low interest rate. Intention to refinance among investors was sub-10%, almost as low as it has been at any point in the last ten years. Then investment lending speed limits were imposed, lenders began to price investment loans differentially and investors saw their repayments increase.

What we actually wanted to do was understand how much of a buffer consumers have, so we asked what sort of an increase in repayments they could stand, before they got into trouble. Do they have a good handle on their budgets? Should we worry about their ability to plan ahead? Well, for 51% of these people that’s difficult to say, because they couldn’t tell us! For the remaining 49%, the average buffer was $1,016; a 54% increase in mortgage repayments.

As a result they began to look around for alternative options and refinancing intention doubled. However, as most lenders (including the biggest) have now repriced and in some cases pulled back from investment lending, the options to refinance are significantly reduced. As a result, 9 months later, intention to refinance is starting to decline (as of June 2017). My point is that it takes consumers a while (9 months) before they truly understand what is happening and react accordingly.

That sounds great and very reassuring. However, if we go back to my original point, do consumers actually appreciate their situation? Can they forecast their expenses accurately? I would postulate that the average consumer only has a loose handle on what they spend each month and therefore predicting likely impacts of increased mortgage repayments is very hard. At first glance a 54% buffer sounds good, but if, as in the case of investor refinancers and rising rates, it takes 9 months for consumers to come to a full appreciation of their position, then at that point it could well be too late.

So, the $64,000 question is, ‘do consumers appreciate their level of indebtedness and the potential impact of rising rates?’. In a recent survey of mortgage borrowers, RFi asked owner-occupiers what their mortgage repayment was. Nothing should surprise me anymore when it comes to consumers, but one in three could not even guess and I did

Of course this lack of understanding would be concerning if lenders weren’t building in buffers for borrowers, taking into account rate rises and other debt servicing costs as well as applying income shading for uncertain income.

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RFi GROUP INSIGHT

WORDS ANNE YAP, RFi RESEARCH

To drive adoption, mobile wallet providers need to think beyond just offering something new and flashy.

T

he past couple of years have seen a number of institutions launching their mobile wallets in the Australian market. Kicking off with American Express in November 2015, followed by ANZ in April 2016; then by July 2016, Android Pay had partnered with over 28 banks. Fast forward to August 2017, now customers of credit unions and mutual banks, too, can partake in making mobile payments.

Frequent usage of mobile payments is low – amongst the 14% of users, only around 1 in 5 use it a few times a week and under 1 in 10 on a daily basis. Despite this proliferation, consumer adoption of mobile payments is low at 14% of the population (those who have tried it out), according to RFi Group data. Frequent usage of mobile payments is even lower – amongst the 14% of users, only around 1 in 5 use it a few times a week and under 1 in

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10 on a daily basis. This is in stark contrast to contactless payments, which has adoption rates approaching 60%. How is it that there such a sizeable disparity between the uptake of contactless payments and mobile wallets? The consensus is that consumers need a compelling reason to shift payment behaviour. As Zohar Steinberg, Founder/ CEO of token easily puts it, “In order for mobile payments to become more than hype, they have to appeal to people’s needs and address their concerns. We found out that existing solutions either focused on the merchant’s or financial institution’s needs -- or simply do not address any need, problem or concern at all. This explains the lack of mass consumer adoption.” This sentiment is reflected in RFi Group’s data which shows that 50% of smartphone owners have not yet made a mobile payment because they just do not see the need to. How then, can mobile payments move towards being the standard payment method? There are lessons in the adoption of electronic payments in the market. The 2017 RFi Payments Diary data indicates card payments have clearly overtaken cash to be the most used means of payment (45% of value


RFi GROUP INSIGHT

of transactions versus 37% for cash payments). Within this, contactless card payments have rapidly gained popularity – as mentioned earlier nearly 60% are now using contactless cards. However, one only needs to go back 5 years to March 2012: when just 14% of consumers indicated that they found contactless technology appealing, and 31% found it unappealing. Usage at that time was below 30% of the population. So, change can occur very quickly, given the right set of circumstances and incentives for usage.

One only needs to go back 5 years to March 2012: when just 14% of consumers indicated that they found contactless technology appealing, and 31% found it unappealing. Would something as simple as monetary incentives (rebates) on purchases be adequate to boost adoption of mobile wallets? Consumer views suggests it might help. According

to RFi Group data, half of those that have made a mobile payment could be encouraged to increase their usage frequency if there was some sort of reward attached. Context matters too – enabling mobile payments over the transport network à la Transport for London could also help. Usage of mobile payments increased rapidly in London as the transportation network there went open loop. Contactless payments (including via mobile phone) are currently being trialed on Sydney’s Manly – Circular Quay ferries. Other factors to consider include implementing additional features that differentiate mobile payments from contactless cards – linking loyalty cards, automated receipts, storing ID details in your mobile wallet all resonate with consumers according to RFi data. While it is early days for mobile payments in Australia, usage stats have been far from encouraging. To drive adoption, mobile wallet providers need to think beyond just offering something new and flashy. A combination of incentives, additional features and getting customers to try out mobile payments in the context where they are easier to use than contactless cards, are steps in the right direction.

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RFi GROUP WOMEN IN LEADERSHIP

Tania Motton General Manager, Business Banking, ANZ

WORDS CHLOÉ JAMES

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RFi GROUP WOMEN IN LEADERSHIP

I

n August, Tania Motton, the General Manager for Business Banking at ANZ participated on a panel at RFi Group’s Australian Business Banking Summit.

capital markets. Also we went back to fundamentals - the importance of capital, balance sheet management and liquidity.

Following the session, we had a chance to sit down and discuss her career and advice she would pass on to others in the industry – this is what she said…

What is the driving force behind your career goals/ aspirations?

How did you get to where you are today and what, or who, has been your greatest influence in business? If I am honest with myself, I would say that my journey growing up in a small regional town (Korumburra, Gippsland) to my current role as General Manager of Business Banking is due to a healthy combination of luck, taking the opportunities when presented and good management. As a qualified accountant, I’ve been fortunate to work with many inspiring people across banking, consulting and the natural resources industries in Australia, the US, Thailand and Japan.

The greatest professional influence was working with Mike Smith during the Global Financial Crisis. What I learnt was the genuine role of banks in the fabric of a country’s economy and it brought home the reliance Australia has on global capital markets. In that time, the greatest professional influence was working as the Chief of Staff to former ANZ CEO, Mike Smith during the Global Financial Crisis. What I learnt in that time was the genuine role of banks in the fabric of a country’s economy and it brought home the reliance Australia has on global

Two women from an early age had a significant influence on my values and aspirations: my mother and a close family friend, Gwen. Mum was open about the resilience – and humour – needed when she arrived in Australia in 1959 from Italy with her parents, unable to speak any English, and spent her childhood constantly moving around as my grandparents searched for work, adjusting to seven high schools over four years. Growing up, mum pushed me to never accept less than my best, she was supportive, she was involved, but demanded I get the best of what was around me The other highly influential person was Gwen, a family friend, successful small business owner and leader in the local community. She in-printed in my brain I could be whatever I wanted, but I had to work hard and make the most of opportunities when they presented. Together, they have shown me true resilience, humour and an unwavering determination to succeed. I don’t underestimate the impact they all had on me and how they help shape who I am today. Have you ever made a business decision you’ve regretted and can you share it? And, what would you say is your greatest professional achievement to date? I am sure I have, but something more notable for me was the regret of not believing in myself when I started in a previous role – feeling like an imposter – and the impact it had on how I led, how I was perceived and how lonely it felt. When I began the role, it felt like

everyone was watching and waiting to see if I failed. But the reality is, that was my own baggage. I was trying so hard to prove to everyone that I could do it but the bigger audience was me – I was proving to myself I could do it. In that first year, it was probably one of the loneliest times in my life, and the hardest as well. I now look back on the importance of putting the right infrastructure in place to enable me to thrive, which includes trusting others to help you succeed. Confidence is a massive part of being successful and you must believe in yourself and create the environment you want.

I now look back on the importance of putting the right infrastructure in place to enable me to thrive, which includes trusting others to help you succeed. My greatest professional achievement would be maturing as a leader to see the value and rich reward in helping develop my team members or those I mentor, to overcome both personal and workrelated challenges. Pinpointing one specific achievement would be the support shown to our agriculture customers as true banking partners after the devastating 2011 Queensland floods. What do you do to keep evolving your career, to ensure a fulfilling and successful longevity? Learning, challenging myself and continuing to develop are all really important to me. I am lucky (there it is again), that networking comes naturally to me – I consider what networking is to talking, hiking is to walking. To keep evolving, I make sure I connect and talk to people across and outside the bank to better understand the world around

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RFi GROUP WOMEN IN LEADERSHIP

me and how it does, or could, connect together. The human interaction to develop and build relationships is the most enjoyable part of banking. Travelling around the country hearing and learning from businesses and families about their stories built on passion, innovation and hard work are inspiring and keep me connected.

To keep evolving, I make sure I connect and talk to people across and outside the bank to better understand the world around me and how it does, or could, connect together. Staying focused on always surrounding myself with diverse and interesting people that bring a range of experiences and capabilities I think helps to create an environment for people to think differently. With such a changing landscape, de-coupling our thinking from the traditional past, and think of what we would do if we could start from scratch - this can be really powerful stuff and helps work on what comes next. 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 prefer to call work/ life balance balancing my choices and everybody’s choices are different. I prefer to call it balancing my choices and everybody’s choices are different. As a previously self-diagnosed workaholic,

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even though I love work, I’ve been more conscious owning those choices and better understanding why I love it so much and how that connects to my own self esteem. Family and health and well-being are really important to me and I am a much better leader because of it. I do Pilates, Barre and interval training to keep physically and mentally fit and I also have acupuncture and massage regularly. Balancing time between family/health and work is an ongoing commitment. As a leader, I demonstrate my commitment to finding balance to my team, working from home regularly when I am not travelling. I think it is really important to demonstrate “all roles are flex” and that includes role modelling it. The bonus, is it affords me genuine windows of time to think and plan. Do you mentor others? And, what have you learnt in the process? Having mentored many females both inside and outside of ANZ, some dealing with the challenges of a maledominated industries, I am passionate about helping develop people in their careers. In fact, it’s one of my highest achievements to date. As a mentor, I’ve learnt that when people take the opportunity to step-off the day-to-day treadmill and into a safe environment, they speak with honesty and walk away encouraged to be themselves with direction for the future. I also believe it is really important to also share from your own experiences – that can mean others can learn from your mistakes or achievements which are both great outcomes. 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? I always encourage young women to be

themselves and don’t be a light under a bushel. Importantly, learn to be proud, show pride in your achievements and, consistently with your own values, be prepared to talk about them.

Learn to be proud, show pride in your achievements and, consistently with your own values, be prepared to talk about them. We all have to understand who we are, what motivates us, what are we good at, what inspires us and what we want to achieve. 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? This is not a gender answer, it’s a leadership answer and it’s shaped who I am as a leader today. 1. Always try to stay calm in a crisis – people take their cues from their leader and it’s important to create calm in amongst all the noise; 2. Stay connected to your staff and customers – you have to get out and connect to the people that sustain your business; (a) insight into what they need and want; (b) to understand what they value; (c) feedback; and 3. Create an environment for people to be successful.

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.


RFi PERFORMANCE ANALYTICS OPINION

LEARNING FROM OTHER INDUSTRIES WORDS CHARLES HIGBY, RFi PERFORMANCE ANALYTICS

I

was recently honoured to be able to sit down with a number of incredibly talented individuals at the Menzies Institute. Their goal is to identify the factors that exacerbate and ameliorate the chances of developing diseases by analysing vast amounts of data. While in many ways the subject matter of medical research and finance are completely different I was surprised to find we shared common challenges. The first thing we had in common is that both fields are working with big(ger) data than they have used traditionally. RFi Analytics processes data sets that have literally billions of data points related to the portfolios of Australian

and New Zealand financial institutions. At its core, we are trying to understand as much about individual customers, portfolios and organisations as possible to gain actionable insights. Whilst financial institutions have a lot of data on individual customers it is a rounding error compared to the data associated with individuals used in medical research. As well as demographic factors about an individual, they have an individual’s mapped genome. The human genome contains about 3 billion base pairs of DNA that reside in every one of our cells. The resulting data set for a thousand-person study will have over 3 trillion pieces of core data to analyse even before derived data is taken into account. This is big data.

At its core, we are trying to understand as much about individual customers, portfolios and organisations as possible to gain actionable insights.

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RFi PERFORMANCE ANALYTICS OPINION

I was asked what I would do if I was asked to establish a system to analyse that sort of data. I must confess to being a little thrown, but the more we talked it through, the more potential solutions, approaches and technologies, presented themselves. Strategies we use in the world of finance of segmentation, clustering and sampling could all potentially assist; as could cloud platforms. This turned the conversation to data security.

Data governance, security and protecting the privacy of individuals in line with regulatory and ethical requirements, are front of mind in both fields. Data governance, security and protecting the privacy of individuals in line with regulatory and ethical requirements, are front of mind in both fields. We spent some time talking about how privacy concerns in both fields had historically hampered the adoption of cloud based platforms. I was able to share the journey RFi Analytics had been on and some of the techniques we use to mitigate and eliminate these risks. Techniques such as the judicious use of use of non-reversible hashes, military strength encryption of data at rest and in

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transit, two-factor authentication, never storing personal identifiable information and penetration testing to name a few. By simply talking through some of these I think we may have highlighted a potential approach that might allow the Institute to leverage cloud platforms in combination with their internal platforms that would meet or exceed their governance, privacy and security requirements. Both fields are seeing an increased amount of effort being expended on “data wrangling”. Data wrangling is the process of taking data from one or more sources and transforming and mapping it into a format that is appropriate for a variety of purposes such as analytics. This time-consuming exercise is not only necessary but often requires deep domain knowledge to ensure any resulting data sets and models are valid to help avoid erroneous conclusions. In this instance, our discussion got me thinking differently about how we identify and handle internal data anomalies. Both fields are coming to terms with new technologies such as machine learning, deep learning and artificial intelligence. We both shared a distrust of “black box” solutions and instead are using these techniques to identify the proverbial nuggets of insight gold that warrant further investigation using traditional statistical techniques. That said, these tools present a game changer as they dramatically speed up the identification of potential insights.


RFi PERFORMANCE ANALYTICS OPINION

We also spent some time talking through how we show the results of our analysis. The world of finance may not be a world leader in this field but we do tend to apply a lens of persuasion to any visuals - often resulting in a more engaging aesthetic. It was a lot of fun exposing some of the PhD students in the room to some of the more engaging and dynamic visual tools we have at our disposal. I could literally see the analytical cogs turning as they imagined how they would use some of the tools to present their latest findings.

We both shared a distrust of “black box� solutions and instead are using these techniques to identify the proverbial nuggets of insight gold that warrant further investigation using traditional statistical techniques. Something else we had in common was a shared belief that no matter how engaging the charts or presentation, the commentary is just as, if not more, important. The associated commentary provides the shading, context and expert opinion that helps the end user of the insight focus on what the

analyst has identified rather than being left to draw their own conclusions.

The associated commentary provides the shading, context and expert opinion that helps the end user of the insight focus on what the analyst has identified rather than being left to draw their own conclusions. This one short meeting spurred a couple of interesting ideas for all participants. By stepping outside the comfort of my domain knowledge I gave myself the chance to learn something new. The core data and analytics skills across both disciplines are very similar, but the differences in the data and objectives led to a surprising, challenging and genuinely interesting experience. I would like to take a few words to say thank you to the Menzies Institute for opening my eyes to the benefits of cross industry discussions around data and analytics and the potential benefit of hiring resources with the requisite technical skills from other industries. I hope they have every success in their pursuit to deliver internationally significant medical research leading to healthier, longer and better lives.

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TRANSACTIONS

Transactions Cards supersede cash for consumer transactions in Australia

T

he Reserve Bank of Australia’s triennial Consumer Payments Survey (CPS) studied information on close to 17,000 daily payments made by over 1500 participants during a week. The survey showed that cards were the most recurrently used means of payment, superseding cash for the first time, mainly attributed to the increasing demand of contactless tap-and-go transactions. Results from the survey showed that 52% of payments are now via card as compared to just 37% by cash. “This outcome isn’t surprising, given the digitally savvy nature of Australian consumers and the fact that penetration of digital point-of-sale terminals and contactless card payments in Australia are

among the highest in the world.” – Fintech Australia CEO Danielle Szetho. According to the RBA, despite these trends, cash still accounts for a significant share of consumer payments and is heavily utilized by some segments of the population. Fintech Australia has high hopes in the incoming New Payments Platform to further displace cash and build the fundamentals for upcoming innovation. This observation is consistent with RFi Group data which says that debit card payments during a typical month are highly used by mainly millennials aged 18-34. However, cash still accounts for a large share of the total payment methods especially amongst the older population.

AND WHICH OF THE FOLLOWING PAYMENT METHODS DO YOU USE IN A TYPICAL MONTH? Cash vs Debit card– By age 18-24

25-34

35-44

45-54

55-64

65+

Total

100% 80%

75% 77% 75%

80%

84% 83%

87% 79%

81% 73%

70%

75%

71%

76%

60% 40% 20% 0% Cash

Visa/Mastercard debit card

Source: RFi Group Australian Savings and Deposits Council March 2017

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TRANSACTIONS

Danielle Szetho, CEO, Fintech Australia

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TRANSACTIONS

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TRANSACTIONS

Indicator of increasing cashless times as Westpac branch closes? It is no hidden fact that Australians love their cashless payment options. Big banks seem to be hopping on the bandwagon as Westpac is closing several traditional branches whilst ANZ opens its first cashless branch in Brisbane.

Westpac has shut over 60 branches since 2015 and it is set to shut 2 more outlets in WA and VIC. “Our customers are embracing the digital changes we’re rolling out across our network as they continue to use cashless for everyday purchases,” said Catriona Noble, ANZ’s Australian Managing Director of Retail Distribution. The RBA released data in March that suggested more than ¾ of face-toface purchases over $10 are made

via cashless transactions, with most Australians only using physical cash for smaller transactions. This trend favouring cashless transactions may be having an impact on traditional bank branches. Westpac has shut over 60 branches since 2015 and it is set to shut 2 more outlets in WA and VIC. Instead, “cashless” bank branches have been sprouting across the country. ANZ’s Brisbane outlet will be the 7th cashless branch opened in Australia since March 2016 which has no traditional tellers or over the counter cash withdrawals. Instead staff at the branch will provide customers with assistance on using ATMs and advice on financial products. According to RFi Group data, 60% of people who pay for low value purchases such as coffee, snacks and newspapers, use cash instead of cashless transactions. This is consistent with the RBA data that says most Australians only utilize physical cash for smaller transactions.

Cashless payments damaging our savings? The RBA’s triennial consumer payments survey suggests that cards are now the most utilized payment method accounting for 52% of all transactions. Of these 52% card transactions, 60% were contactless. It is evident that cash is no longer king. Whilst cash is on a decline, so are our savings. Data from the University of Sydney has indicated that people tend to increase their expenditure by 40-50% in a transaction, especially on small items, when they use alternative payment methods to cash. He also said that using cards results in higher

impulse spending as if people do not exchange cash, they do not feel that they are spending real money. “Paying by cash is vivid, it is out there and in front of you, you can see money coming out of your wallet and the act of paying the transaction is coupled with pleasure of getting the product’’Associate Professor Anish Nagpal from Melbourne University. RFi Group data suggests that between May 2016 and May 2017, there has been a net shift of 10% away from cash and towards debit and credit cards.

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SAVINGS

Savings WORDS JAPESH RAISINGHANI

The battle between online saving accounts and term deposits (TD)

I

f one has a savings goal to buy a new car or place a deposit for a new house, one could try using either an online savings account or a Term Deposit (TD).

Benefits of term deposits TD remain a popular option amongst to-be savers, despite of a record low cash rate and current inflation levels. TD provide a certainty on the rate of interest one earns throughout the tenure, and require low maintenance; all the saver must do is wait for their investment to mature. This way, one’s savings are locked away, which also reduces the temptation to spend. However, the interest rate on the deposit will not increase if available market rates increase. Savers will also be penalized if they were to access their money before the TD matures. Benefits of online savings account With an online savings account, mobile banking can offer faster and a more convenient access to one’s accounts with the money being available to be used at any time. Furthermore, no minimum deposit is required and these accounts earn compounded interest. However, there is no uncertainty with how rates will perform in the future and it often requires one to have a linked transaction with the institution to earn bonus rates. RFi Group data shows that 43% of transaction account holders hold online savings accounts, and 18% hold TD.

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SAVINGS

ANZ increases longer term deposit interest rates for savers ANZ boosted their term deposit interest rates linked to their 1,2 and 3-year terms. This is indicative of the bank preparing for a higher cash rate environment.

RFi Group data shows that 43% of savers that hold an ANZ term deposit are highly likely to switch providers in the short run. Thus, this rise in interest rates could be a move by ANZ to retain customers.

ANZ also raised many rates across their Advance Notice Term Deposit products and their Term Deposits (TD) by up to 20 basis points. The most profitable term deposit rate offered by ANZ is their 3-year rate which sits a high point of 2.7%. ANZ’s decision to raise their longer TD rates have been quite contradictory to the trend this month. Mozo Data shows that the bulk of July’s term deposit rate increases were focused on short term TD’s ranging from 5-8 months. Mozo’s Product Data Manager Peter Marshall said that “looking at longer term deposit rates can sometimes function like a crystal ball, and what we’re seeing in this instance is a big four bank’s prediction of how interest rates will play out.” This ties in with RFi Group data which shows that 43% of savers that hold an ANZ term deposit are highly likely to switch providers in the short run. Thus, this rise in interest rates could be a move by ANZ to retain customers.

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SAVINGS

Cash savers are losing out by depositing cash in the bank Cash savers might be losing out if they are depositing cash in basic saving accounts, as current returns are barely enough to cover inflation and tax. Financial institutions have cut more than 35 savings account rates giving Australians measly returns on their earnings. Research from financial comparison site Mozo has shown that average income earners would require an interest rate of 3.11% to beat costs incurred by inflation and tax, but the highest rate on the market is below this at 3.05%. For the average Australian, earning an annual income of $80,000 a year, with $10,000 in savings earning the average interest rate of 1.83% would give them $185 interest in a year. However, they would lose $60 in tax on the interest earned and another $130 to inflation. Experts have advised savers not to panic and shift their savings into term deposit accounts or top savings accounts which earn a higher interest rate. “Interest rates on savings accounts are not like they used to be, you used to be able to track savings account interest rates along with the RBA cash rate,’’ – consumer finance expert Lisa Montgomery. RFi Group data is consistent with this observation, with savers saying that the average interest rate applicable to their largest savings account has declined since Mar-14, in line with the cash rate.

WHAT IS THE CURRENT INTEREST RATE APPLICABLE ON YOUR LARGEST SAVINGS ACCOUNT? Average

4.0% 3.36% 2.96%

3.0%

3.20% 2.67%

2.44%

2.42%

2.37%

Jul-15

Nov-15

Mar-16

2.15%

2.23%

Jul-16

Mar-17

2.0% 1.0% 0.0% Mar-14

Jul-14

Nov-14

Mar-15

Source: RFi Group Australian Savings and Deposits Council March 2017

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MORTGAGES

Mortgages One of the key concerns that APRA may have is the extent to which these measures has seen riskier lending flow towards the non-bank sector of the mortgage market.

APRA to regulate non-bank lenders

I

n addition to having oversight over Authorised Deposit Taking Institutions (ADIs), the Australian Prudential Regulation Authority (APRA) has had its powers extended to also regulate non-bank lenders in the Australian mortgage market, who up until now have been regulated by ASIC. Whilst it is highly unlikely that non-bank lenders will have to hold capital against their mortgage lending (given they are not ADIs), APRA may look to set limits on specific types of lending it deems risky. In recent years, APRA has been putting in new measures to curb systemic risk; namely requiring ADIs to hold more capital, to ensure new investment lending does not exceed ten percent annually, and most recently to ensure that interest-only lending does not exceed thirty percent of total new residential property lending. One of the key concerns that APRA may have is the extent to which these measures has seen riskier lending flow towards the non-bank sector of the mortgage market. Hence, APRA has now been granted $2.6 million over the next four years to collect data, monitor non-bank lenders and place restrictions on lending where necessary.

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MORTGAGES

All property refinancing transactions in NSW and VIC will now be digital Mortgage lenders in New South Wales and Victoria must now use Property Exchange Australia’s (PEXA) digital property settlement platform to process property refinancing transactions. Marielle Yeoh, CFO of PEXA says that “PEXA has managed to eliminate pain points in the settlement booking process”. She also added that “there’s not that last minute running around reporting customers with finding documentation, giving them advice around going to collect bank cheques and all that sort of stuff. A lot of that is eliminated because that work has to be done electronically ahead of a PEXA settlement”. Whilst many lenders have already integrated PEXA’s system into their existing back-end processes and customers might not notice visible changes first hand, the PEXA platform will nonetheless help to increase transparency around settlement, standardize the uploading of documents and reduce the amount of time required to settle a refinancing transaction. RFi Group data from June 2017 illustrates that ease of providing documentation may be a pain point for refinancers, with less than 1 in 2 Refinancers from the last two years indicating they were satisfied with this aspect of their application.

Ease of providing documentation may be a pain point for Refinancers, with less than 1 in 2 Refinancers from the last two years indicating they were satisfied with this aspect of their application.

HOW WOULD YOU RATE YOUR LOAN APPLICATION PROCESS EXPERIENCE FOR YOUR MOST RECENT LOAN ON THE FOLLOWING FACTORS? Loans taken out within the last 2 years Highly satisfied (8-10). Refinancers 100% 80% 63%

60%

61%

61%

56%

56%

52%

50%

50%

48%

40% 20% 0% Ease of obtaining a full approval

Ease of obtaining a pre-approval

Confidence in the mortgage product

Security/ privacy of your information

Customer service

Speed of the Communication/ Understanding Ease of application updates on of application providing process status process documentation

Source: RFi Group Australian Mortgage Council June 2017

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MORTGAGES

Non-majors launch new digital platforms to assist mortgage brokers Within a few days of each other, both Suncorp Bank and Liberty Financial have launched new digital platforms aimed at assisting mortgage brokers and customers. Suncorp Bank has begun to roll out a new banking platform to its broker network that will use Oracle’s mortgage origination, servicing and collections system. Suncorp Group CEO Michael Cameron says that their new platform will provide “A single digital experience that would assist brokers who are normally focused on one type of product with the aim at merely shopping around for the best deal�. Separate to this, Liberty Financial has launched Liberty IQ, a new loan tracking app that brokers can access via both web browser and mobile phone. Liberty IQ provides brokers with a range of new features including real-time updates on key points passed in the application process, automated SMS messages on application updates, a streamlined document management feature and the ability to contact BDMs, underwrites and settlements officers directly through the app. The mortgage market has been one where the Big 4 banks have for a long time dominated market share, given their extensive networks and large share of MFI customers. However, mortgage brokers play a considerable role as well. RFi Group data from June 2017 shows that broker recommendation has been the top driver of lender choice in the last year, with 31% of borrowers citing this. The launch of these new digital platforms illustrates that by making things easier for mortgage brokers, lenders hope to win more customers and market share through them.

RFi Group data shows that broker recommendation has been the top driver of lender choice in the last year, with 31% of borrowers citing this.

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CARDS

Cards WORDS KEVIN PHANG

ANZ joins Samsung Pay, gives customers access to all the major mobile payment platforms

A

NZ has added Samsung Pay into its options of mobile payments platform to choose from. This makes ANZ the only one of the big four banks allowing its customers to choose between its own app ANZ goMoney, Apple Pay, Android Pay or Samsung Pay. ANZ‘s Managing Director of Products, Bob Belan says that this move was about responding to what their customers have been asking for. He asserts that ANZ customers now have the best range of mobile payment services from which to choose from. As for the other majors, only Westpac

offers Samsung Pay. That being said, Westpac, NAB and Commonwealth Bank all offer Android Pay on top of their existing proprietary mobile payments technology. However, ANZ continues to be the only major embracing the Apply Pay platform. iPhone users of the other majors would need to purchase a PayTag in order to make mobile payments. RFi Group data shows that mobile payments usage continues to grow among credit cardholders every quarter. If this trend continues, having the right mobile payments platform may become a significant consideration for credit card customers.

MOBILE PAYMENT USERS AS A PROPORTION OF THE ENTIRE MARKET Actual usage

Forecasted usage growth (linear)

40% 30% 20%

25%

15%

16%

17%

Jun-16

Sep-16

Dec-16

21%

22%

Mar-17

Jun-17

27%

10% 0%

Source: RFi Group Australian Cards Council 2017

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Sep-17

Dec-17


CARDS

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CARDS

Citi adds Amazon.com to its rewards arsenal Citi has improved its range of rewards option to include eligible purchases on Amazon.com. Citi credit card users can now use their rewards points to pay either in full or pay for purchases in Amazon.com.

the preference for online shopping continues to grow, claiming that over 88% of Australians made purchases online last year amounting to an estimated $20.2 billion. Citi Australia’s Head of Cards and Consumer Lending, Alan Machet says the preference for online shopping continues to grow among Aussies, claiming that over 88% of Australians made purchases online last year amounting to an estimated $20.2 billion. He says the move is part of Citi’s way of rewarding their cardholders with offers and benefits they value. For now, Citi cardholders can only use their points through the US website. From a broader perspective, Citi’s collaboration with Amazon.com is an example of one of the ways credit card issuers are trying to overhaul their rewards programs after the recent Financial Services Inquiry changes. The changes to the interchange fee saw points value fall across rewards programs offered by issuers across the market.

RFi Group data shows that having the ‘Best rewards program’ is the primary reason why rewards cardholders chose their front-of-wallet card. As more cardholders become aware of the changes implemented on July 1st, the competitiveness of rewards program may become more critical especially among cardholders who are shopping around to look for another credit card. RFi Group data shows that having the ‘Best rewards program’ is the primary reason why rewards cardholders chose their front-of-wallet card.

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CARDS

Excessive interest rates are making cardholders cancel their credit card A survey of 2004 people from finder. com.au finds that 10% of credit card holders are thinking of cancelling their credit card because of the high interest rates they are charged with. It is possible that cardholders are unhappy with the high rates they have on their cards despite finding rates elsewhere in the country reaching record lows. It is estimated that there are more than 16 million credit cards in circulation in Australia, with RFi Group data showing that cardholders have an average of 1.6 credit cards. Given these figures, there could potentially be more than 1 million cards being cancelled. Responses in the survey indicate

that credit card customers are frustrated that standard card rates have remained above 19.5% on average since 2011 despite the official cash rate being lowered 12 times since, to a historic low of 1.5%. Although there have been card issuers that offer low rate products at various times, the median rate remains relatively high with finder. com.au statistics showing that the median purchase rate is still 18.99%. Considering the wealth of options available in the market now including 0% balance transfer options, even customers with existing debts on their credit cards can consider switching to another provider with a lower interest rate if they so wish.

The median card rate remains relatively high with finder.com. au statistics showing that the median purchase rate is still 18.99%.

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PERSONAL LOANS

Personal Loans WORDS CONNIE CHAN

Auto finance customers win as questionable insurance premiums are refunded

A

fter a detailed review into questionable insurance sold through car dealerships, the Australian Securities and Investments Commission (ASIC) announced that insurance giant QBE Group will be required to refund $15.9 million in insurance premiums to more than 35,000 customers. The regulator found the insurance policies sold were of “little or no benefit” to consumers. QBE has started identifying affected customers and will be reaching out to them to offer refunds over the coming months. According to ASIC deputy chair Peter Keller, “Insurance must meet the needs of the consumer first and foremost.” There are two types of add-on insurance cover sold to car buyers that ASIC believe provide “little or no benefit”: Guaranteed Asset Protection (GAP) insurance and Consumer Credit Insurance (CCI). The former covers the short-fall between the car loan amount and the amount a car is insured for if it is written off, and is considered unlikely to be needed as it overlaps with other insurance products which customers already hold. As for CCI, which covers car loan repayments if the borrower is left without an income source or dies, it was sold to young people without dependents, who are unlikely to need it. It would seem however, that consumers are becoming more aware when it comes to CCI, with RFi Group data showing that the proportion of car loan holders holding such insurance has declined in the past year from 15% to 11% this June.

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PERSONAL LOANS

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PERSONAL LOANS

P2P lender DirectMoney closes funding deal with 255 Finance Australia’s only listed peer-to-peer (P2P) lender, DirectMoney, has closed a funding deal with specialist finance business 255 Finance. The deal with see 255 Finance purchase $50 million worth of loans originated on DirectMoney’s platform, with more expected in the future, and 255 Finance to receive equity in DirectMoney. DirectMoney expects to see significant growth in both lending volume and operation performance as part of the deal, with executive chairman John Nantes revealing that DirectMoney is ‘very excited’ to close the deal as it will allow the company to focus on growing the business instead of supporting loan funding. A focus on growing the business would help to boost consumer confidence in the P2P sector, with RFi Group data showing 61% of personal loan holders are currently uncomfortable with borrowing from a P2P lender, largely due to the sector being relatively unknown to the average borrower. DirectMoney previously struggled to support loan funding, and in May 2016 issued a statement to shareholders that it was unable to fully fund loans.

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A focus on growing the business would help to boost consumer confidence in the P2P sector, with RFi Group data showing 61% of personal loan holders are currently uncomfortable with borrowing from a P2P lender.


PERSONAL LOANS

P2P, and payday lenders see increase in applications Over the past three years, while growth in the number of applications for personal loans at traditional institutions like banks and credit unions have remained stable, the number of applications to non-traditional lenders have increased two and a half fold. The research, released by consumer credit bureau Equifax, also reveal that personal loan applications with payday and P2P lenders have increased 18.4 percent over the year to June 2017. Credit cards in comparison, registered just a 2.3 percent increase. Senior general manager at Equifax, Angus Luffman, believes that the shift to non-traditional lenders will have more established lenders interested, with Equifax seeing an increased proportion of non-traditional lender inquires for credit checks made up of recently established lenders with niche offerings. According to RFi Group research, compared to traditional lenders, the appeal of non-traditional alternative lenders (such as payday and P2P lenders) for personal loan holders lie in these lender types offering them the loan amount they wanted, not charging early repayment fees and lending out funds in the form they wanted.

WHY DID YOU CHOOSE YOUR LENDER FOR YOUR MOST RECENT LOAN? By lender type Alternative lender

Traditional lender

50%

Compared to traditional lenders, the appeal of nontraditional alternative lenders lie in these lender types offering them the loan amount they wanted, not charging early repayment fees and lending out funds in the form they wanted.

40%

36%

30% 20%

22%

20%

18%

9%

10%

9%

0% They offered me the loan amount I wanted

They did not charge early repayment fees

It was the institution that gave me the funds in the form I wanted

Source: RFi Group Australian Consumer Lending Council June 2017

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PAYMENTS & DIGITAL

Payments & Digital WORDS JAPESH RAISINGHANI

Amazon could be a big winner as Australians welcome an era of digital banking

T

he physical bank branch is on its way out as Australians embrace digital banking rapidly. Transactional business in bank branches was dropping at approximately 10% a year due to the large upswing in electronic banking. This is further supported by CBA when they reported a decline in branch deposits and withdrawals from $100 million in 2007 to $50 million in 2017.

RFi Group data shows that branch usage has been declining with less than 50% of GenX and Millennials doing any of their banking with their main financial institution in branch.

Branches are not facing enough traffic and are being shut down or transformed because of this electronic shift. This does not come as good news for shopping centres as banks in the past have been a big producer of shoppers for many centres. A significant amount of Australia’s property investment wealth, especially so for smaller savers, is focused in shops in shopping centres. As people become more familiar with electronic banking, retailers expect a shift from physical retailing to online retailing and Amazon hopes to take advantage of this by timing its entry into Australia. RFi Group data shows that branch usage has been declining with less than 50% of GenX and Millennials doing any of their banking with their main financial institution in branch.

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PAYMENTS & DIGITAL

Are mobile phones the new bank branches? A report from App Annie showed that Australians have doubled their use of financial applications and these applications are outperforming the competition around the globe with the usage of these applications increasing by 100% since 2014. The Asia-Pacific Retail Banking report studied how mobile banking is transforming the way we look at our finances, and it showed that Australia’s usage of digital technology is wellestablished. It also showed that mobile banking applications are outperforming online banking. The report said that “customers are enthusiastically shifting to mobile apps, and many of the industry leaders attracting this audience aren’t traditional banks”. Using such applications permits bank customers to manage their savings and bank accounts, make payments, set spending restrictions on their cards, freeze stolen cards and even apply for personal loans or credit cards. According to the report, the big 4 banks had applications that were rated as the best banking apps of 2016, with Commonwealth Bank clinching the top spot. This ties in with RFi Group data which show that Big 4 customers tend to have higher mobile payments usage, with about 1 in 5 CBA customers using mobile payments at least occasionally.

MOBILE PAYMENTS USAGE SEGMENTS By MFI Unaware of mobile payments

Aware, does not use mobile payments

Aware and uses mobile payments occasionally

Aware and uses mobile payments weekly or more

100% 80% 60%

10%

9%

8%

6%

6%

6%

43%

45%

7% 8%

11%

11%

36%

36%

44%

45%

44%

43%

42%

CBA

ANZ

NAB

Westpac

Total

42%

40% 20% 0%

Source: RFi Group Australian Digital Banking Programme March 2017

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PAYMENTS & DIGITAL

Rate of card fraud on the rise in Australia The Australian Payments Network (APN) published a report indicating a rise in the rate of credit card fraud. The rate of card fraud rose from 66.9 cents to 74.7 cents per A$1000 over the course of 2016. Card-not-present fraud made up for 78% of all fraud on Australian cards in 2016. It has burgeoned from $363 million in 2015 to $418 million in 2016. The APN stated that the root cause of this was because fraud is steadily shifting online as chip technology provides concrete protection against counterfeit cards. The APN also stated that one driver for this rise in card-notpresent fraud is due to criminals using “ghost terminals�. These terminals appear to be real card readers but are not actually connected to the payments network. Countries that have yet to upgrade to more secure chip technology continue to be a target for card fraud.

1 in 3 smartphone owners consider reporting a debit or credit card as lost, stolen or damaged as their most important feature when they do their banking on a smartphone. In light of heightened credit card fraud, according to RFi Group data, it is great that 1 in 3 smartphone owners consider reporting a debit or credit card as lost, stolen or damaged as their most important feature when they do their banking on a smartphone.

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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:

RESULTS OUT NOW 2017 Global Digital Banking Council (NEW Study) • Global winning practice in consumer digital banking from 10 Key Markets 2017 August Savings and Deposits Council Transaction Survey • Latest survey transaction account holder behaviour and sentiment 2017 August New Zealand Merchant Payments Program • Latest survey of merchant payments behaviour and sentiment in New Zealand 2017 August Australian Broker Survey • Latest results monitoring broker sentiment and behaviour towards financial institutions

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Profile for Adelle Grisaffe

Australian Retail Banker - September 2017 Edition  

An RFi Group publication

Australian Retail Banker - September 2017 Edition  

An RFi Group publication