Banking Review

What do consumers think about reduced competition in banking?

Retail Banking Review/CoreData has just released the findings of a revealing poll on competition in Australian banking.

It seems one in six (16.7 per cent) BankWest customers and 7.4 per cent of St George customers plan to vote with their feet and leave the bank as a result of the merger/takeover of their bank.

CoreData polled 842 consumers, including 453 who consider BankWest, CBA, St George or Westpac to be their main financial institution.

It found nearly a quarter – 23.3 per cent of BankWest customers and 24.1 per cent of St George customers – report that the merger/takeover has negatively affected their level of satisfaction with the bank (score 0-4 on a 10 point scale).

The results reflect concerns from customers that the new parent of their bank will raise fees or move to offer less competitive rates.

There is a high level of cynicism among Australian bank customers right now, which means any move by the banks to take advantage of reduced competition will be met with the ire of their customers.

Banks that choose not to pass on interest rate cuts from the Reserve Bank could also be seen to be taking advantage of their increased market power.

The Retail Banking Review/CoreData poll found more than half (57.1 per cent) of those surveyed were concerned the merges/takeovers would result in less competitive interest rates (scored 7-10 on a 10 point scale), and 56.9 per cent felt it was likely the mergers/takeovers would result in increased fees.

Nearly half (47.4 per cent) were concerned the mergers/takeovers would result in reduced competition, and 45.8 per cent thought the mergers would result in a lowering of service quality.

Interestingly, customers of the banks not involved in mergers/takeovers were more concerned about the impact of mergers/takeovers on competition, while Westpac and CBA customers were less concerned about the impacts.

Some customer comments included:

“I have noticed a change in staff at my local branch. The staff previously was fantastic. The level of service has now dropped.”
Female, aged 33, St George Bank customer, NSW

“Worried that the commonwealth bank will influence the cost of banking at bankwest.”
Female, aged 51, BankWest customer, WA

“I like Westpac’s environmental awareness so happy with merger.”
Female, aged 38, St George Bank customer, NSW

“A little unhappy – you choose a bank for a reason. Don’t know yet how the takeover will affect the level of service and access. But at the same time I would rather a bank merge than run into trouble. Didn’t like it when bank of scotland bought bankwest in the first place, so at least it will be Australian owned again.”
Female, aged 29, BankWest customer, WA

“It’s a worry when I have a lot of affairs with this bank and I have received no letters to alleviate my concerns.”
Male, aged 47, BankWest customer, WA

For now, the majority of customers of the newly acquired St George and BankWest businesses are giving their new parent the benefit of the doubt. Stability continues to triumph over competition and this has become the Government’s default position when asked about mergers.

Mergers will be back under the spotlight soon however when the Senate Standing Committee on Economics reports later this month on its inquiry into bank mergers. Topics up for discussion include the economic, social and employment impacts of the mergers, and the impact of mergers on consumer choice.

People will also start asking questions if they see banks raise fees for easy profit. NAB’s decision to continue to charge customers 50 cents on top of new direct ATM fees is one example, and consumer group CHOICE says it is seeing pockets of behaviour, in particular for exit fees, that are unacceptable for consumers.

The ball is now in the industry’s court. A few badly timed moves could see the customer satisfaction improvements made in 2008 quickly wiped out in 2009.