Believe it or not, the cost of banking is falling
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Dr Kim Hawtrey |
It has been widely reported that banks are making record profits, but is it really at the expense of consumers? Recent research conducted by Macquarie University academic Dr Kim Hawtrey has shown that the average price of banking in Australia is actually falling.
Putting the figures into context
The research, commissioned by the Australian Bankers Association, showed that the growth of fee revenue is entirely due to increased number of customers as well as a larger number of transactions.
"Even if banks never put up their fees, the revenue would still increase because of the growth of the population and the rise in transactions," explains Hawtrey. "The headlines say that fee revenue has gone up but there is no context given. It looks like the banks are gouging the consumer. No account is taken of the fact that banks are providing so many more transactions."
Consumers exercising choice
One of the issues addressed in the research was whether customers have a real choice between banks and products. Consumers are in fact voting with their feet, moving away from expensive types of transactions like cheques and branch tellers and moving towards the newer, cheaper forms of banking such as ATMs, EFTPOS, Internet and telephone banking.
"There is real competition, there is real choice happening and that's why the cost of banking services to the customer has actually fallen," says Hawtrey.
Fees and low income earners
Hawtrey also showed that low-income households pay the lowest amount in bank fees - both in absolute dollar terms and as a proportion of household income.
"The incidence of fees falls more heavily on high income earners, that is, it matches people's capacity to pay," Hawtrey says. "The average amount paid in fees by low income earners is $1.40 per week. You can put that in context in a couple of ways, it is less than the average Australian household expenditure on gambling, a cup of coffee at a café, or the cost of a newspaper."
Why do there seem to be more bank fees?
Banks have two main sources of revenue, interest rates and fees. Twenty years ago revenue came only from interest rates and fees were hardly heard of.
"The cost of fees was hidden, effectively imbedded in the interest rate that we paid," says Hawtrey. "It wasn't transparent but during the recent decade interest rates have gone down and fees have been split out."
How can I minimise my bank fees?
According to Hawtrey there are a number of ways you can minimise your bank fees:
- use your own bank's network for transactions
- withdraw cash when you are making an EFTPOS transaction
- consolidate all your accounts
- use electronic forms of banking.
Undertaking research with Dr Hawtrey
Hawtrey has a number of research students looking into the banking and finance industry and is happy to welcome more. He also researches religious perspectives on economics and is keen to work with formally enrolled postgraduate students in this area.
For further information contact Dr Hawtrey: khawtrey@efs.mq.edu.au