Sydney, March 27, 2007
The average Australian pays between $150-170 more each year in retail banking fees compared to UK and Canadian customers of similar services, according to the Fujitsu/JPMorgan Australian Mortgage Industry Report (Volume 5: March 2007). The report looks at retail banking fees across mortgages, transactional accounts and credit cards in Australia, New Zealand, the United Kingdom and Canada. Taking into account the mix of packaged business in each country, the report concluded that:
Australian mortgage fees are higher at all stages of the mortgage transaction lifecycle – The Australian mortgage application fee index averages 17.1 points compared to 15.3 in New Zealand, 12.8 in Canada and 11.6 in the UK, while the loan closure fee index is also higher at 13.3, compared to 10.9 (Canada), 11.1 (New Zealand) and 11.4 (UK). In contrast to the UK, where intense competition ensures low mortgage loan application fees, Australian consumers are not always presented a clear picture when assessing mortgage products.
Martin North, Managing Consulting Director, Fujitsu Australia and New Zealand said, “Australian banks are increasingly discounting from the headline rate, as opposed to advertising a lower headline rate, thereby not always providing a clear picture when consumers are assessing mortgage products,” said Martin North, managing consulting director, Fujitsu Australia and New Zealand.
“Banks have also taken to offsetting fees at the point of origination, replacing these with break fees and service fees, together with larger “claw-back” fees which are activated on refinancing. Characteristically these fees are less transparent because they are contingent on events, making it harder for consumers to make fair comparisons between different products and lenders,” continued Martin North.
Australian transactional account fees are higher for transaction and product types when compared to similar overseas markets – ATM withdrawal fees in Australia have increased considerably with the introduction of the ‘foreign’ ATM charge, charged when a customer uses an ATM terminal which does not belong to the issuer.
In addition, the counter withdrawal fee - which represents 4.9 in the fee index in Australia, compared to 3.5 in the UK, 3.2 in New Zealand and 3.1 in Canada – has acted as a mechanism for Australian banks to encourage consumers to use other channels. High counter withdrawal fees in Australia can be partly explained by the levy imposed on customers who make branch withdrawals rather than make use of alternative electronic channels such as ATMs, EFTPOS, telephone or internet banking.
Australian credit card fees are higher than international peers – Australian interchange and merchant service fees have been historically high but are improving subsequent to regulatory reform of the payments system. That said the foreign transaction fee index for credit cards is 5.1 points in Australia, compared to 3.2 in New Zealand, 2.8 in Canada and 2.6 in the UK. Similarly the charges for customers going over their credit card limit are higher in Australia than any of the other countries surveyed.
Martin North said, “UK regulators have intervened in credit cards to ensure fees correspond to the actual cost. For example, the fee for going over the limit on a credit card, which was typically £35, was significantly reduced to £12. In addition, recent attempts to raise mortgage exit fees from £60 to £280 retrospectively have been over-turned by the regulator.
“The question of whether these outcomes could apply to the Australian market remains to be seen. In Australia there is no specific supporting legislation while further issues arise regarding who would hold the jurisdiction to regulate. To date, there hasn’t been sufficient momentum behind the issue to press it any further, however with a federal election looming the increased “politicisation” of bank fees is a virtual certainty.
“Regardless of what happens on the regulatory front, we believe there is significant opportunity to reduce fees further in Australia. Which, given the challenges of margin compression already impacting the industry, means lenders need to reduce origination costs significantly to maintain profit ratios,” concluded Martin North.