Banks bring themselves to account, in NZ

AUSTRALIA'S biggest banks have quietly developed a central clearing house designed to make switching accounts between banks easier. But the facility is only open to their customers in New Zealand.

By InvestSMART · 7 Dec 2010

By InvestSMART ·
7 Dec 2010

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AUSTRALIA'S biggest banks have quietly developed a central clearing house designed to make switching accounts between banks easier. But the facility is only open to their customers in New Zealand.

A new company backed by each of Australia's big banks was launched in New Zealand last week to streamline the process of switching accounts. A key part of the clearing house includes banks taking responsibility for transferring direct-debit agreements a sticking point for many customers attempting to change banks.

Ease of switching is expected to be a key goal of Treasurer Wayne Swan's banking reform package, which could be unveiled as early as tomorrow.

The Treasurer will ask banks and consumer groups to develop a system where consumers can complete a single form to change accounts similar to the NZ clearing company. It is owned by ANZ, Westpac, Commonwealth Bank, and National Australia Bank and backed by HSBC, Citibank and NZ-based KiwiBank.

Consumer Action Law Centre director Nicole Rich said the ability to switch accounts easily remained a factor in promoting competition between banks.

"For ongoing products and services, consumers must be able to switch to new suppliers if they find a better option," said Ms Rich.

"Barriers to consumers searching and switching are called search costs and switching costs these must be tackled in order to release consumers to drive competition."

The explosion in popularity of automatic direct-debt and credit authorisations is regarded as the main inhibitor of account switching in Australia, given the large volume of paperwork needed for such moves.

In addition to the switching changes, Mr Swan's banking package is expected to give help to smaller banks, building societies and credit unions, most likely by extending a government guarantee to their borrowings and also by guaranteeing their deposits, even after a government guarantee on all deposits expires late next year.

Broking analysts said any changes, while politically popular, were unlikely to lead to any long-term overhaul of the Australian banking landscape.

EL & C Baillieu's Stewart Oldfield said expected changes were likely to "take some of the heat from the political debate".

Even with measures aimed at strengthening credit unions, Deutsche Bank analyst James Freeman said they were unlikely to become a significant competitive threat to the banks.

Mr Freeman said the sector appears relatively well funded, with lack of distribution and points of presence its biggest hurdles.

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Frequently Asked Questions about this Article…

What is the new central clearing house the big banks launched in New Zealand?

Australia’s biggest banks have backed a new clearing-house company in New Zealand designed to streamline switching accounts. It’s owned by ANZ, Westpac, Commonwealth Bank and National Australia Bank, and backed by HSBC, Citibank and KiwiBank, with a key feature that helps banks take responsibility for transferring direct-debit agreements when customers move accounts.

How will the clearing house make switching bank accounts easier for customers?

The clearing house aims to reduce the paperwork and hassle of changing banks by having banks handle the transfer of direct-debit and similar authorisations on behalf of customers. That means fewer manual forms and a smoother move of regular payments and receipts when switching accounts.

Can Australian customers use this clearing house to switch accounts now?

No. The facility launched by the banks is currently open only to their customers in New Zealand. The Australian Treasurer has asked for a similar single-form system to be developed for Australia.

What is Treasurer Wayne Swan proposing to make switching accounts easier in Australia?

Treasurer Wayne Swan is expected to push for a system where consumers can complete a single form to change accounts—similar to the New Zealand clearing company. This is part of a broader banking reform package aimed at reducing switching costs and making it easier for consumers to move between banks.

Will easier switching lead to more competition between banks?

Easier switching should help competition: consumer advocates say reducing search and switching costs frees customers to choose better options. However, broking analysts caution the changes may be politically popular but are unlikely to produce a major long-term overhaul of the Australian banking landscape.

How will the banking reform package help smaller banks, building societies and credit unions?

The package is expected to give support to smaller lenders by extending a government guarantee to their borrowings and by guaranteeing their deposits — potentially even after a government guarantee on all deposits expires late next year. That backing is aimed at strengthening smaller providers.

Are credit unions likely to become strong competitors to the big banks after these changes?

Analysts such as Deutsche Bank’s James Freeman say credit unions are unlikely to become a significant competitive threat despite support measures. While the sector appears reasonably well funded, its biggest hurdles remain limited distribution and few physical points of presence compared with major banks.

Why are direct-debit and credit authorisations a major barrier to switching bank accounts?

The explosion in automatic direct-debit and credit authorisations has created a large volume of paperwork for customers who want to change banks. That administrative burden — needing to update many merchants and services — is one of the main inhibitors of account switching.