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Australian Central Bank Remains Reluctant Regulator Of Electronic Payments System

NeilMc — Mon, 15 Mar 2010 04:32:53 +0000

The Australian central bank, The Reserve bank of Australia (RBA) says it remains a “reluctant regulator” of competition in the electronic card payments system space. The RBA says it prefers competition as the mechanism used to contain fees, and would like to take a step back instead, however RBA assistant governor Malcolm Edey says it is not quite ready to do so.

The central bank has reviewed competition within the electronic fund transfer space for quite some time now, and is particularly interested in interchange fees, fees that are applied to credit and debit cards.

“We’d prefer to see fees being held down by competition than by direct regulation. We believe there’s been good progress in promoting competition over recent years, but it’s not yet clear whether that will be sufficient.” Mr. Edey told the Cards & Payments Australasia 2010 Conference today.

Mr. Edey says he could not comment or indicate to the sector, whether the central bank’s position would change in the immediate future.

Currently the industry is overseen by the Payments System Board, which is chaired by RBA governor Glenn Stevens.

“I know that many of you involved in the industry would like me to give some predictions or clues about what the board’s next decision on these matters might be. I’m not in a position to make that kind of prediction today.” Mr. Edey said.

In 2008 the RBA undertook a review, the results of which suggest that reforms of the system had delivered the benefits of lower cost to merchants and enhanced competition. The review also suggested however that there was a need for further improvement.

“The first possible approach would be to step back from interchange-fee regulation, if it could be reasonably satisfied that this was not going to result in the fees going back up again,” he said.

In August 2009, the central bank deferred its decision on additional reform, stating that it preferred allowing additional time to see whether competition would result in changes in the industry automatically.

Mr. Edey said that the market for charge and credit cards was extremely concentrated, and cited the fact that just two credit card schemes constitute more 80 per cent of all transactions.

“One of the consequences of the industry structure that I’ve just described is that competitive discipline on interchange fees has been weak,” he said.

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NAB Optimistic Over AXA APH Acquisition

Sharat — Mon, 15 Mar 2010 03:38:10 +0000

Steve Tucker, chief executive of MLC, the wealth management unit of Australian banking major National Australia Bank (NAB) says he is confident that the lenders $13.2 billion bid for AXA Asia Pacific Holdings (APH) will ultimately be successful, despite the fact that the ACCC on Friday deferred its ruling on the proposed deal.

“I think the ACCC is going through a very robust process, scoping views and opinions from far and wide. But we don’t believe there are any issues on fundamental competition grounds.” Mr. Tucker said.

The ACCC had previously said it would rule on the two rival bids by NAB and AMP for APH by March 17th. However on Friday it revealed that it was deferring its ruling, and would pass judgement on AMP’s $12 billion bid on April 1st and pushed back its NAB ruling to the 22nd of April.

AMP has made the argument to the regulator, that an NAB acquisition of AMP would stifle competition within the financial advisory business, but has said nothing about whether it planned to table a more generous bid.

The regulator in its initial summary has noted that NAB’s proposed acquisition of Axa APH raised a “higher level of concern than AMP’s”.

MLC’s Tucker says he accepts the need for the regulator to assess the implications of the acquisition, but sought to downplay any potential problems.

“There have been some concerns raised in regards to investment platforms and the share we will have and whether or not we will be in a position where we can exert influence on things like price. We don’t think that should be a concern at all. If you look at the platforms market, clearly is it is only one segment of a pretty diverse investment system. There are new entrants into the platforms market all the time.” Mr. Tucker said.

Mr. Tucker rejected the notion that NAB’s acquisition of APH would result in stifled competition, something that the regulator is very concerned about, voicing doubts that a deal may result in higher fees for the consumer.

“There are 18,000 financial planners out there, we might end up with 3000 or so aligned to us, hardly an overwhelming market share in terms of advice. The good news, thinking from a consumer point of view, is that we are the leading organisation when it comes to championing improvements in quality of advice, openness and transparency and being the first to move to the fee model and providing products that have been commission free since 2005.” Mr. Tucker said

The competition regulator is also assessing the probability that AMP itself may become a potential acquisition target if it fails to acquire APH, and whether it was possible that a merger between AMP and APH could yield a fifth pillar and new competitive force in Australian financial services, currently dominated by the Big Four lenders.

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RBA Says Major Australian Banks Profiting At Expense Of Customers

Sharat — Fri, 12 Mar 2010 05:00:22 +0000

The Reserve Bank of Australia says that Australia’s major lenders are using higher funding costs as an excuse to profit at the expense of mortgage borrowers and businesses.

The RBA found that the tendency by the majors to increase their interest rates beyond that of official interest rates has meant that they have managed to offset their higher funding costs by at least 25 basis points.

Though the central bank failed to define exactly how much additional profit the major banks have reaped as a result of their rate rises, some analysts estimate it to be in the region of hundreds of millions of dollars.

Last December Westpac controversially increased its standard variable home loan interest rate by 20 basis points higher than the official rise in interest rates.

Citibank estimates that the move allowed Westpac to reap as much as $400 million in additional cash profits.

All of its Big Four rivals have cited higher funding costs as the reason for their decision to increase their rates in excess of the official rise in interest rates.

The central bank released its analysis during its monthly bulletin, which also found that the majors had lower funding costs than their smaller regional rivals.

This reinforces the accusation that the big banks have used their market power to price gouge an additional $20 billion in additional profits.

According to a research paper from the Australia Institute titled A licence to print money: bank profits in Australia – it is claimed that approximately $20 billion of the majors nearly $35 billion in 2009 profits were made as a direct result of the majors monopoly of the payments system.

“With a 90 percent share of the lending market banks are immune from competition which means there’s little to stop them from passing on or increasing costs for customers and growing even more profitable over time,” said David Richardson, a senior researcher at the Australia Institute.

The Australian Bankers Association rejects the claim.

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Australians Spend 22 Per Cent Less On Credit Cards In January

NeilMc — Fri, 12 Mar 2010 04:17:01 +0000

Australians spent nearly 22 per cent less on charge and credit cards during the month of January compared with the previous month according to new data from the Reserve Bank of Australia.

According to the data which is not seasonally adjusted, Australians spent $17.18 billion on charge and credit cards compared with the $22.02 billion that was spent during December.

The level of spending usually falls in January following frenetic spending in December in the run up to Christmas, however a decline of 22 per cent this year was the largest monthly fall since January 2005.

The total value of outstanding charge and credit card balances fell by 1.6 per cent to $46.152 billion.

Despite the fall, balances outstanding over the last twelve months increased by 5.0 per cent, which is still lower than the average annual increase of 11.0 per cent for the preceding five years.

The average credit card account balance decreased by 1.9 per cent to $3,188.87 in January from $3,250.44 December.

Despite the monthly fall, the average credit card balance has still grown when year on year figures are compared and increased 2.9 per cent from a year earlier, still lower than the average annual five year growth rate of 5.5 per cent during the 5 years to January 2009.

People paid down their debt far slower in January compared with December, with charge and credit card repayments falling 13.6 per cent to $18.593 billion in January.

The January repayment level was still 2.8 per cent higher than in the previous year, but still well below the 8.9 per cent average annual growth rate recorded in the preceding five years.

By value, credit card purchases decreased by 22.5 per cent to $16.322 billion in January from $21.072 billion in December but rose by 4.4 per cent over the year to January.

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Westpac Says Domain Name Sale Attempt Copyright Infringement

Sharat — Fri, 12 Mar 2010 03:33:32 +0000

An internet entrepreneur who purchased a domain containing Westpac in the URL has had his offer to sell the domain back to Westpac rejected by the lender.

Dominic Holland who also acquired a domain containing Qantas tried to sell the domains back to the two companies and has had both offers rejected.

“Westpac is not interested in engaging with Mr Holland, we believe his approach is opportunistic and unethical.” a Westpac spokeswoman said.

Mr. Holland, when contacted by The Australian bristled at the suggestion, and responded by saying Westpac’s claim that he is infringing on the lenders trademark has no basis in law.

“Westpac’s legal teams sent a bogus trademark claim to me which had no legal merit hence they could not lodge a formal complaint. Failing there, they chose to attack me on ethical grounds. If they wish to talk ethics then what about the billions in fees they raise in New Zealand and Australia alone which place them as a top 100 (global) company, when Australia and New Zealand’s population combined don’t rank top 10 globally.”

Mr. Holland says he acquired the domains for 40 Euros or $60, and that both domains had been available for sale for years.

“Not one person with the innovation or creativity at Westpac was there to register this domain.”

Mr. Holland added that big businesses which levy their customers with unfair fees should realise that their “monolithic approaches to business need a revamp to survive in this age. if not, they face situations like this”.

Mr. Holland claims that last week his domain Qant.as attracted a top bid of $1.3 million during a private auction.

Mr. Holland also owns the domain Westp.ac, and it appears that Mr. Holland’s strategy is one of stitching together brand names with separate country domains.

The .as suffix in Mr. Holland’s Qant.as domain comes from American Samoa, whilst the .as suffix in Mr. Holland’s Westp.ac domain comes from the Ascension Island.

Mr Holland remains resolute that Qantas and Westpac have no legal standing, despite both parties issuing letters alleging trademark infringement. “Qantas sent through a letter of demand for the domain (Qant.as) stating trademark infringement,” he said.

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Banks Fail To Pass On Interest Rates Cuts To Australian Credit Card Borrowers

NeilMc — Thu, 11 Mar 2010 04:56:41 +0000

New data analysing the movement in credit card interest rates over the last two years shows that Australian bank’s have been the main beneficiaries of interest rate cuts, having kept 85 per cent of the savings resulting from the central bank easing interest rates.

Despite lenders passing on the majority of interest rate cuts to their mortgage borrowers, data suggests that the big four lenders kept an average of 85 per cent of the net gains in interest rate movements, instead of passing those savings on to their credit card borrowers.

In spite of the fact that the Reserve Bank of Australia cut interest rates by 350 basis points, a comparison of credit card interest rate movements show that standard and low rate credit cards saw their interest rates cuts by an average of just 50 basis points.

ANZ, Westpac, and CBA cut their credit card rates 50, 51 and 25 basis points respectively.

By March 1, the interest rates charged by the three stood at 18.24 per cent, 18.59 per cent, and 19.74 per cent respectively.

NAB was the worst offender, and after promising its customers that it would engage in “more give, less take”, actually charges more interest on credit card debt than it did two years ago.

NAB credit card borrowers face an overall rise of 0.14 per cent on its standard credit card debt.

NAB credit card borrowers pay an interest rate of 18.74 per cent today, compared with 18.6 per cent two years ago. NAB raised interest rates on credit cards by 85 basis points during the December 2009 quarter.

By March 1 the three other major banks charged 12.49 per cent on standard credit card debt.

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Consumer Sentiment Rises As Australians Feel Increasingly Secure

Sharat — Thu, 11 Mar 2010 04:06:41 +0000

Australians feeling increasingly secure in their jobs due to the rapid decline in unemployment rate over the last few months has helped them deal with the pain of tighter interest rates.

The results of the latest Westpac-Melbourne Institute consumer sentiment index in March shows that consumer confidence continues to rise despite interest rates being hiked for the fourth time in six months at the start of the March.

The index rose 0.2 per cent during March, which Westpac called a “solid result”, and suggested the reason for the increase was the decline in unemployment rate from 5.4 per cent to 5.3 per cent, which lessened the blow of tighter interest rates.

The unemployment rate peaked at 5.8 per cent last year.

Phillip Lowe, assistant governor of economics at the Reserve bank of Australia said it was hard to “escape any other conclusion” that the labour market was strong.

Speaking during a conference in Sydney, Dr. Lowe said that the issues confronting Australia were very different from those faced by most other developed economies.

“Elsewhere, the challenge is to get private demand to grow on a sustainable basis so that it can catch up with the supply potential of the economy, in contrast, for Australia, the main task is to expand the supply side of the economy so that demand can grow solidly without causing inflation to rise.” Dr. Lowe told the Urban Development Institute of Australia National Congress.

As the government rolled back its more generous first home buyers grant, and the central bank raised interest rates, the demand for new mortgages has declined.

The number of new mortgages declined 7.9 per cent in January compared with the previous month, representing the fourth such consecutive decline.

The percentage of loans given to first time buyers declined to 20.5 per cent in January, compared with 21 per cent in the previous month. A record peak of 28.5 per cent was set last May.

Westpac chief economists Bill Evans warns that interest rates may reach a level where there will be significant impact on consumer sentiment.

“History suggests seven per cent is a significant threshold mortgage rate for consumers,” Mr. Evans said.

All the big banks matched the latest increase, which lifted the average standard variable mortgage rate to 6.9 per cent.

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Australian Car Loan Demand Still Well Below 2009 Levels

NeilMc — Wed, 10 Mar 2010 06:42:30 +0000

Despite the recovery in car sales, Australian car loan demand has declined to below levels seen a year ago, and the up-tick in sales is painting a false picture of recovery.

According to new data released this week, the demand for auto finance suggests that recovery is on two tracks, with demand for new cars robust, whilst demand for second hand vehicles crashing as much as 49 per cent in February compared with the same month in the previous year.

The data, which was compiled by Veda Auto suggests that auto sales for both new and second hand vehicles is 9 per cent below the same period in 2009, as the economy was reaching rock bottom.

“We’re definitely at a lower base level, everything is still trending backwards a little bit ” the head of Veda Auto, David Scognamiglio, said.

Mr. Scognamiglio said he was encouraged that despite the decline in private demand, business demand had not fallen off a cliff as the Federal government tax breaks cease and the decline in lending began to take effect.

He added that it would be May before demand for auto finance exceeded the level it was at in 2009.

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NAB Remains In The Running For RBS UK Branch Network

Sharat — Wed, 10 Mar 2010 05:57:03 +0000

Australian banking major National Australia Bank (NAB) and Virgin Money remain in the running for the acquisition of a 318 strong branch banking network owned by troubled British lender Royal Bank of Scotland (RBS), whilst Spanish banking giant Banco Santander remains the front runner, having hired Credit Suisse to advise on its bid.

After it was revealed that any buyer would have to meet a funding shortfall, fears began to emerge that RBS would fail to attract enough potential buyers with pockets deep enough to acquire the network.

Nearly ?3 billion of financial support extended by the British central bank, the Bank of England would need to be refinanced by the buyer of the network, according to a memorandum that was sent to possible buyers last week.

Beyond the refinancing, any buyer would also be required to cover a funding shortfall at the branch network between deposits taken and loans disbursed, estimated to be as high as ?2 billion.

People who are familiar with the sale process say that most buyers had expected a funding shortfall, with the deal known for its complexity.

RBS expects to close the deal next year, and indicative bids for the branch network are expected to be delivered in April.

An unnamed source told Dow Jones that if RBS is unsatisfied with the price, it may postpone the entire sale.

Currently the European Union is requiring that the troubled lender, which is majority owned by the British government sell the branch network over the next four years, so that it does not have an unfair advantage over rivals who have not received government aid.

According to the report in Dow Jones, NAB, which owns both the Clydesdale and Yorkshire Bank’s in the UK continues to remain interested in the network, and may either table a standalone bid, or tie up with a private equity firm.

The source suggests however that NAB has approached a number of firms for a potential deal, but many firms have opted not to proceed as they seek less complex deals elsewhere.

The person, however, said the number of private-equity firms that NAB is in contact with is falling, as the firms focus on less-complex deals elsewhere.

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Property Investor Demand For Mortgages Highest In Six Years

NeilMc — Tue, 09 Mar 2010 04:41:59 +0000

A survey conducted by a leading mortgage broker suggests that investors returning after their summer holidays took the largest share of the home loan market since 2004.

The survey commissioned by Australia Finance Group (AFG) suggests that property investors constituted 34.1 per cent of all mortgages the company arranged nationwide during February. The highest level recorded since the company first started compiling data.

AFG claims it arranges finance for over 10 per cent of the Australian home loan market.

“Investors are now the driving force of the market, encouraged by rising property prices in recent months, and the longer term view that a housing shortfall will continue to underpin future price growth as well as rental yields,” AFG’s general manager sales and operations Mark Hewitt said

Despite strong growth in property investment, AFG says the total value of loans it arranged was still below the level it was a year ago. The broker arranged $2.275 billion of new mortgages in February, compared with $2.674 billion in the previous year, a decline of 15 per cent.

The number of loans AFG arranged also declined by 18 per cent over the last 12 months to 6,294 from 7,673.

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