Treasurer Wayne Swan announced yesterday that he would fast-track regulatory changes to make it easier for consumers to move their banking business from one institution to another.
Swan was prompted to speed up a process of negotiation with finance industry stakeholders after the Commonwealth Bank revealed that it would lift home loan rates by 0.05% on top of the 0.25% announced by the Reserve Bank of Australia.
“We want to have a competitive banking market out there, and those institutions that seek to increase their margins at this time I think will be judged very harshly by Australian families and by the Government,” Swan says.
“And that’s why I made the point a month or so ago that we wanted to put together a package that made the market much more competitive and gave people the capacity to switch their banks if they didn’t think they were getting a fair go with their existing bank.”
The changes are expected to increase the information consumers receive about exit fees and require banks to reconnect direct debit and credit facilities when a person opens an account with a new bank.
Dennis Orrock, the managing director of independent finance information provider Infochoice, says while Swan’s objectives are good, question marks over effectiveness will remain until the detail is revealed.
“You’d hope it would succeed in making banks become more competitive – changes to direct debits and credits will reduce a barrier to switching, but in retail banking in Australia don’t underestimate the power of inertia; that is a key reason why such a high number of people bank only with the big four institutions,” Orrock says.
There is also a risk that banks will simply pass on any costs incurred in complying with Swan’s package in the form of higher fees or prices in other areas.
“If you take away one revenue base then that could translate into increased fees for other products,” Orrock says. “Once again it comes back to whether there will be sufficient competition – if some people start shifting away from the majors then that could keep a lid on any increases.”