This article is from the Australian Property Journal archive
FEDERAL Treasurer Jim Chalmers has confirmed that the federal government will review the Australian Competition and Consumer Commission (ACCC) home loan price inquiry recommendations following the 2020 review of the mortgage process.
The ACCC Retail Deposits Inquiry final report was released on Friday and contained several recommendations aimed at improving outcomes for consumers and the operation of the retail deposits market in Australia. The recommendations include continued monitoring of prices and market competition, increased transparency in pricing and customer outcomes, proactive notifications and prompts for consumers and steps to improve comparison of the different products on offer.
The corporate regulator received a total of 51 submissions from consumers, advocacy groups, industry associations, as well as market participants.
“Increased interest on savings should be a silver lining from the higher mortgage rates Australians are now experiencing,” Treasurer Jim Chalmers said.
“Just as we want Australians to get a good deal on their mortgages, we want savers to get the benefits of higher interest rates.
“We expect banks to treat their customers fairly when it comes to their savings accounts and I have asked Treasury to examine these proposals in conjunction with the outstanding recommendations of the 2020 ACCC Home Loan Price Inquiry.”
A government response will be released in 2024.
Among the findings of the ACCC’s final report was that while many banks offer retail deposit products, the sector is “concentrated with barriers to entry and expansion”, while consumers are disengaged and find switching products difficult.
The big four banks and and six mid-tier banks supply 89% of retail deposits, and a long tail of smaller banks supplying the remainder.
“Banks recognise their customers are ‘sticky’ and invest in strategies to increase customer stickiness. This enhances banks’ ability to respond to price competition selectively rather than through broader pricing changes which may trigger competitor responses that reduce margins.”
The report acknowledged that banks have greater discretion on how they set interest rates for retail deposits than they do for other funding sources, and “accordingly, interest rate setting is an important part of how banks meet their funding requirements”.
However, it said strategic pricing strategies lead to greater complexity for consumers and, for some, poorer outcomes.
“Banks typically seek to minimise their retail deposit funding costs but may use short-term and limited time offers such as term deposit specials and introductory offer products, which are relatively more expensive for a bank, to attract customers and their funds.
“Bonus interest rates and introductory interest rates can boost the headline interest rates consumers can receive, however the actual interest rates received by many consumers are lower.
“Further, the tactics banks use to retain or win higher value customers can be very selective and only a proportion of customers may benefit. Offers can be highly conditional to encourage ‘sticky’ behaviour in customers and establish a ‘main financial institution’ relationship. Alternatively, these offers are only available to specific segments of the customer demographic, such as those in early adulthood or those with larger deposit volumes.
“Banks’ strategic pricing at the product and customer level makes retail deposit rates opaque and adds complexity for consumers engaging in the market.”
The ACCC found consumer engagement is low and comparing products can be “challenging”.
“Key information on retail deposit products is available through bank websites and comparison websites, but can be too complex, not always easy to locate, and is inconsistent between providers,” the report said.
Consumers also find it difficult to switch accounts, so most do not.
“Relatively few consumers switch deposit products, despite there often being a range of alternative products offering better interest rates and conditions.
“There are significant impediments to switching which take time and effort to overcome, and which occur at several points in the process. These include changing direct debits and other recurring payments, redirecting incoming payments and proving identity.”
The report said a number of initiatives have been ineffective at addressing both barriers to switching, and barriers in consumer engagement more generally.
“Measures that could reduce or remove these barriers have the potential to facilitate more widespread competition between banks and enhance consumer outcomes in the retail deposits market,” it said.
