Parliamentary scrutiny - and the spectre of a royal commission over bank conduct - combined with more demanding customers and the threat of fintechs have ensured a challenging year for Australia’s major banks. But there are plenty of indicators that the sector is strong by international standards and committed to a range of reforms in 2017. Andrew Starke reports.
The outgoing chief executive of the Australian Bankers’ Association (ABA), Steven Münchenberg, proved himself a master of understatement in a September speech titled Conduct Risk Culture & Regulation in Financial Services. He argued that the people who lead the banks - the senior executives, the CEOs, the Boards - want to be leaders of an industry whose contribution to society is understood, acknowledged and appreciated and whose institutions, the banks, stand as pillars of trust, integrity and respect.
“I think it is fair to say that neither the bank employees on the train or bus on their way to work, nor the executives in their corner offices looking out across the city feel the banking industry is where they want it to be,” he said. “For that matter, nor does the general community. I think Australians yearn to trust and respect their banks, but unfortunately are more likely to feel that there has been a long history of being let down.”
Letting down customers is one thing and systematically ripping them off is quite another, as several members of the Standing Committee on Economics were quick to remind the big four bank CEOs when they fronted the parliamentary inquiry in October. But are politicians necessarily more trustworthy than major bank executives and is bank behaviour really at such a low point for the community that it warrants being a top priority for government?
“If you pick up a newspaper, listen to the radio news or browse news websites, you would easily be convinced that the banking industry is a major issue for the community,” said Münchenberg. “Actually, this is not the case … what Australians actually want the government to deal with are people’s concerns about the health system and its costs, the performance of the economy, the education system, and employment, or put more simply, jobs and job security.”
While Australian banks have not met their own - let alone the community’s - expectations, Münchenberg has a theory that this is part of a growing reaction against the ‘established order’.
“That sounds dramatic, and it is,” he said. “The same force that is behind Brexit and the rise of populist figures in Europe and the US is at work in Australia. At its core is a growing mood of frustration and anger in many parts of the community that the current system, the ‘established order’, is failing to deliver. This reaction is directed at the long established political parties, at corporations and their leaders, and at many other institutions of long standing, all of which are seen to benefit from the established order, while increasing numbers of people feel, often with justification, that no matter how hard they try, they are going backwards"
Banks in Australia are therefore prime targets for this growing community frustration, because many in the community already see the majors as more concerned with their own profits than with good customer outcomes. And it is the community’s view of banks that determines how the banks are viewed politically.
Münchenberg also noted that people tend to hold vastly different views of banks depending on their relationship with them: they are often quite happy as customers of their own bank while viewing banks as a collection of institutions or ‘the banks’ far more negatively. While this is undoubtedly true globally, RFi Group research recently set out to examine how well Australia’s banking industry held up to international comparison. To do this it chose markets that had comparable competitive landscapes dominated by a few very large organisations - the UK, Singapore, France and Canada.
“When all is said and done, the Australian banks came second out of these markets in customer satisfaction (and indeed it was the same for net promoter score),” the research found. “In total 68 per cent of Australians are very satisfied with their main banking relationships, this result is behind only the Canadian banks on 70 per cent.”
Banking customer satisfaction in the UK was a little behind Australia at 64 per cent, while the French and Singaporean banks lag behind with average satisfaction scores of 51 per cent and 53 per cent respectively. Drilling down into the major banks in each market, the Australian Big Four also compared favourably with a combined satisfaction of 65 per cent, just 3 per cent behind the market average, placing them second behind the equivalent Canadian banks at 67 per cent and again well ahead of the UK, French and Singaporean major banks.
“Australian banking customer satisfaction stacks up very well on a global scale,” concluded the RFi Group research. “Further, the fact that its consistent across both the major banks and their challengers is also important. Do we have a problem with customer experience? I would say not.”
So what would appear to matter is how banks are perceived and, to return to Münchenberg’s point, banking is a ‘grudge purchase’. If people want to get paid, or borrow money or put their savings somewhere safe, they have to deal with a bank, a credit union or a building society.
But while people understand that it is important to have strong banks occupying a privileged position in society they do expect something in return - greater responsibilities to society than other corporations. This is obviously both a challenge and an opportunity for banking as a system, something that works in and through customer’s lives and the broader economy.
“Here people see banking as an enabler – something that allows them to ‘tap and go’ in making small purchases, that helps them make bigger purchases, like buying a car or house, or paying for a holiday. Something that keeps their savings safe. And something that helps people set up and grow a business and create jobs,” said Münchenberg. “People have positive views about banking as an enabler, but these views lie buried behind their negative views of banks as a collection of privileged institutions. So does any of this matter? Haven’t people always been down on the banks? And aren’t we reminded by the politicians and media all the time that we have one of the most profitable banking industries in the world? Why should banks care if all they are interested in is making money? They seem to be doing a fine job of that.”
A further point is that any industry as out of step with the community as some detractors claim the major banks are faces political and regulatory risks, through new rules and requirements and more intense and changing demands from regulators. There is competitive risk; if banks are not trusted and respected, this just makes it easier for new players to win customers away from the banks. For Australian banks though the equation should now be easy: they know what the issues are and need to take immediate action. Since the time when much of the poor advice, poor conduct and poor behaviour occurred, we have seen major regulatory improvements in the industry, such as the previous Government’s Future of Financial Advice reforms.
“We expect the next stage of financial advice reform, focused on lifting the education, competency and professional standards requirements for financial advice, to be legislated soon by the current Government,” said Münchenberg. “We have seen the biggest inquiry into the financial system in decades, the Murray Inquiry, which has made carefully considered recommendations, including to enhance the powers of the regulator, ASIC. The banks accept these recommendations.”
In October, the ABA welcomed the release of Ian McPhee’s report which found banks have made good progress on a range of reforms in response to community concerns. The report said it was encouraging to see the steps being taken by the industry within the first six months of the planned 18 month development of the various measures. It was further encouraged to see the “initiative shown by some banks to take early steps to adopt industry positions, in some cases in advance of the development of the industry policies, to address the industry’s goals.” The report goes on further to state that “it is apparent that the words of chief executives are being backed with actions.”
“Importantly, Mr McPhee has recognised that banks are taking actions to deliver meaningful change for their customers and are taking steps to ensure those initiatives requiring additional effort and resources are given the necessary attention,” said ABA executive director – retail policy, Diane Tate.
“We have made a lot of progress already to help customers when things go wrong. Following extensive consultation with consumer representatives and regulators, the ABA has released guiding principles on how banks can improve the way they handle customer complaints by establishing a new dedicated customer advocate role. A number of banks have already announced the appointment of their customer advocate, and we’re expecting further announcements over the coming months.”