One in three isn’t bad when it comes to banking reform

Only one of the three big reform ideas flowing from the bank parliamentary hearings looks set to pass muster.

Illustration: Sturt Krygsman

Only one of the three big reform ideas flowing from the bank parliamentary hearings looks set to pass muster in the industry, with the smaller banks baulking at key changes.

Day two of the hearings saw ANZ’s Shayne Elliott bending over backwards to be helpful; committing to attending more hearings; agreeing to look at cutting credit card interest rates; and promising all the information the committee could have hoped for.

Elliott told the committee he was hauled before it “because as an industry we have lost track of customers and been too internally focused”.

Put another way, the taxpayer-subsidised big banks have lost the trust of their customers through sheer arrogance and using customers as a source of funds to boost their own revenues and pay packets, sometimes at the expense of people’s savings.

This reality also explains why the parliamentary process will help maintain momentum and discipline on changes already happening in the industry, like removing volume-based incentives for front-facing staff like bank tellers.

Elliott was able to say that bank salaries were lower, having followed Mike Smith into the chair with his $85 million cash haul from eight years in the job.

What he didn’t explain is why for the last four years executive bonuses were judged “at target” when staff bonuses were “below target”.

Elliott was a good witness and he even dodged some bullets when the Greens’ Adam Bandt missed the mark while questioning him on controversial Malaysian Bank AmBank.

Elliott served on the bank’s board until being nominated last year as the new ANZ chief executive, so was more than aware of what was going on at the bank — which has been linked to Malaysia’s 1MBD scandal — but if there was an issue Bandt missed it.

The three big reform ideas being drilled by committee chair David Coleman are a bank tribunal to hear complaints, bank account portability, and positive credit reporting.

Coleman knows more than most about competition issues in the industry, having served on the board of Yellow Brick Road prior to being preselected in 2013.

The bank tribunal is a no-brainer. The other two reforms, while eagerly supported by the big banks, are not so widely endorsed.

In late November the government is also due to hear from Kate Carnell in her report on bank treatment of impaired loans and other regulatory reforms.

Elliott several times made out like a “little guy”, saying he had only 16 per cent market share, but in reality the next placed is Bendigo and Adelaide Bank with 3 per cent, so there is a fair gap.

Bank account portability is not as easy as phone numbers because they come in all sorts of shapes and sizes and you need the right systems to change them.

In any case, the banks will tell you they already make it easy to change banks and Elliott said yesterday from his end it would take just 24 hours.

Positive credit ratings is the big push by the fintech sector. It will be resisted from the banks, who argue they have spent a lot of money building up customer knowledge. And with their grip on the payments system already under threat, given mobile phones now serve as bank tellers, this is one more competitive edge to go.

In reality the banks should lose this fight because individuals should have the power over their own data.

Loosening bank minimum capital rules is another suggested reform that the fintech sector supports, but then again, it’s their investors who do their money when a loan goes bad while a bank has to take the loss on its own books.

APRA would also have something to say on this issue, and would not support the change on paper.

Elliott’s willingness to cut credit card rates took the rest of the sector by surprise, given he had rightly argued for the need to charge rates through the economic cycle.

Westpac boss Brian Hartzer drove the Kingswood to Canberra last night ahead of today’s appearance, shunning the private jets that got US car company bosses into trouble a few years back when they visited the US Congress.

Telstra guards its patch

November will mark the third anniversary of talks between Vodafone and Telstra over attempts to get mobile coverage over the Telstra network in remote areas.

So far, Telstra has refused to deal, which explains why Vodafone has run to the regulator, the ACCC, in an attempt to achieve some kind of result.

It is a familiar tale. Especially given that one reason why the country is spending $49 billion on the NBN is Telstra’s dominance of the fixed-line network and its refusal to deal with rivals on how to fast-forward fast broadband.

Telstra of course is getting $98bn in subsidies from the Federal taxpayer for losing its fixed-line monopoly.

Vodafone figures about Telstra’s dominance of the local market show it collects 93 per cent of total industry free cash flow against 86 per cent for its Spanish equivalent, 71 per cent in Germany and just 49 per cent for BT in Britain.

Even before the NBN handout, according to Vodafone’s figures, its free cash flow per customer for its existing services totals $234, against Vodafone, which serves 443 million people across 26 countries and earns $4 per customer.

Telstra does OK.

It also has a history of protecting its patch, which is what it is doing in this debate.

Optus’s David Epstein told the ComsDay Summit yesterday: “Tampering with roaming appears to be losing sight of the wood for the trees just because one party is loath to invest or increase commercial roaming agreements.”

Epstein added: “I think a case can be made for the ACCC to consider subordinating its roaming inquiry into a constituent part of its wider market review of the telecommunications sector.”

The ACCC’s Rod Sims has made clear he plans to deal with the roaming issue separately with a draft report due early in the new year and a final report soon after.

Vodafone has a limited domestic roaming contract with Optus that is about to expire and Telstra has so far refused to deal.

Vodafone claims it is uneconomic for it to build a new tower in, say, Dubbo and it would make more sense if it paid Telstra or Optus to roam on their networks. This would provide more competition and better services in the bush.

Many in the bush have no choice of supplier because Telstra is the only company with a nationwide network covering 99.3 per cent of the population.

It allows virtual operators access to 98.5 per cent of this coverage, which is basically what Optus covers, but won’t deal with Vodafone.

Telstra said it was still talking but even it would recognise that three years of talks doesn’t seem like a great negotiation.

Telstra argues that if Vodafone gets access to its network, it would stop spending — and so would Telstra because the incentive would disappear.

Enforced mobile roaming operates in France, the US and Canada, all markets like Australia with wide distances and disparate populations.

If Vodafone is prepared to pay a fair rate to get on to the regional network, then it makes sense for Telstra to let them on.