EVERYDAY BANKING 2014 AWARD REPORT
EVERYDAY BANKING In this report we collate our research of 190 credit cards and 155 transaction accounts across 75 institutions to announce the Australia Everyday Banking award. IS CASH GOING THE WAY OF CHEQUES? As cheques continue to decline as a method of payment by Australians, many self-proclaimed financial futurists are going one step further and predicting the inevitability of a cashless society. Research by the Australian Payments Clearing Association (APCA) shows that cash is still the most common form of payment in Australia, ably supported by the almost 827,000 EFTPOS terminals and 30,5000 ATMs around the country. This is possibly about as true as the paperless office line we were all fed a decade ago. It hasn t happened. Sure, paper use has declined but it hasn t disappeared altogether. The same will happen with cash. Its use has dropped as a preferred method of payment but it will always have a place in household finances, at the very least as a default method if nothing else is available. Nevertheless, Reserve Bank of Australia (RBA) statistics indicate that the percentage of transactions involving cash is declining, as follows: Use of payment methods over time % of number of payments 2007 2010 2013 Cash 69% 62% 47% Debit, credit and charge cards 26% 31% 43% BPay 2% 3% 3% Internet or phone banking n/a 2% 2% PayPal n/a 1% 3% Cheque 1% 1% n/a (rounds to 0%) Other 1% 1% 2% The way we pay Source: RBA - The Australian Savings & Deposits Conference 2014 The 2013 (RBA survey) results indicate that many of the trends that we observed in the 2010 study have continued. Looking at the share of the number of all transactions, there has been a continuing decline in the use of what we have traditionally called the paperbased methods. While cash remained the most frequently used payment instrument, being used in 47 per cent of all transactions, its relative importance has fallen significantly since 2010. These trends have been mirrored by an increase in various forms of electronic payments, with a significant increase in the use of debit, credit and charge cards, and also an increase from a small base in the use of PayPal. Tony Richards - RBA Head of Payments Policy Department Source: RBA - The Australian Savings & Deposits Conference 2014 Everyday Banking
DIVING INTO THE DIGITAL ECONOMY The pace of decline of traditional payment methods, cheques and cash to a lesser extent, reflect the increasing uptake of electronic payments. Banking apps are quickly reaching a new level of sophistication, with smartphones linking to ATMs to enable cash withdrawal without the need for a card. Technological advances have provided new, convenient and cheaper ways of going about everyday banking activities. Contactless payment readers are appearing at more and more retail stores and petrol stations. Online shopping continues to be eagerly embraced and the once-humble mobile phone is now in the process of morphing into a mobile wallet. The Commonwealth Bank is leading the way in card-free ATM withdrawal and it won t be long before the others offer customers the same or better. The digital genie has been let out of the bottle and there s no going back now. Beware ATM fee complacency ATM fees were the talk of the town five years ago when reforms eliminated interchange fees, creating direct fees and foreign transaction fees. Direct fees were those charged when using your own bank s ATM, and foreign fees were charged when using an ATM that was not owned by your bank. The reforms highlighted the dollar differences in the levels of charging and gave customers the option to cancel an ATM transaction before proceeding, thus saving them money if they so wished. This new-found knowledge resulted in a marked shift in consumer behaviour away from foreign ATM use. Ways to waive ATM fees are independently set by the network operator, however CANSTAR s research indicates that the direct charge for withdrawals from most ATMs remains between $2.00 and $2.50 - although charges at foreign ATMs can be up to $4 in pubs and clubs. This means that consumers, particularly the young, should be mindful of incurring unnecessary fees. At the end of the day, these fees all add up. The banks, for their part, have worked hard to increase their networks of ATMs to help customers. It pays to know which bank or network of ATMs to look for in order to minimise fees. Alternatively, make a cash withdrawal when shopping with your card and keep your transaction fees contained. Most transaction accounts still have a monthly fee but there are ways to waive these fees goodbye. The most common are: Deposit fee waiver Deposit around $2,000 per month (which can include your salary). Balance waiver Based on retaining a minimum balance per month. Relationship waivers If you have a home loan or other large accounts at the same financial institution you may be eligible for a fee waiver. Concession cards Most banks will waive or reduce fees if you are a student or concession card holder. Open your mouth Sometimes it s as simple as asking! From the bank s point of view, waiving a fee is an easier and cheaper way of retaining a customer. September 2014 2
Team up with a good credit card If you re going to live with a credit card for any length of time, choose the right one. Don t be sweet talked into fancy rewards when you can t pay your card off in full each month. This is a disaster waiting to happen. On the other hand, if money s no object, look for flash travel rewards to save boredom from setting in with your credit card. For the best match choose your ideal credit card type first: Habitual Spender One who struggles to pay off the card and carries over the debt from month to month. Tip: Your best bet is to go for a low rate card with a very low or no annual fee. If you can get a suitable card that offers instant rewards or discounts at places you regularly use, that s even better. Beware: Don t be swayed by cards offering big rewards, as these usually come with big monthly interest rates and/or large annual fees. Occasional Spender A person who only uses the card for emergencies or seasonal spending such as Christmas shopping, holidays or sales, then spends the next few weeks or months paying off the balance. Tip: Try to find low rate card with a low or no annual fee or interest free days. Everyday Spender Big Spender A person uses their card for just about everything such as groceries and petrol, then pays off the balance in full every month. One who earns and spends a lot of money on the credit card and nearly always pays off the balance. Tip: Because you stick to a budget and are disciplined enough to pay in full, the interest rate is of little concern. Instead, look for a card that has a reasonable annual fee, has maximum interest-free days and a rewards program you re interested in. Tip: Look for a card that provides features and perks that you use frequently. These may include free travel insurance, concierge service and rewards program. Everyday Banking
WHO OFFERS OUTSTANDING VALUE FOR MONEY? The CANSTAR Everyday Banking award gives recognition to the institutions that provide the best combination of transactional products, including both deposit accounts and credit cards, across its relevant CANSTAR star ratings profiles, as well as providing online banking and close access to branches and ATMs. Once again this year, Bankwest and BankVic rose to the top of the scoreboard Bankwest for the Everyday Banking Award Bank of the Year and BankVic for the Everyday Banking Award Customer Owned Institution of the Year. These results indicate a consistency and competiveness of products and services exactly what customers want with their regular banking needs. BANKWEST Bankwest packs a punch in all areas, particularly with the wide choice of credit cards it offers. In fact, Bankwest is solid in most of its banking offerings, proving the merits of consolidating your core business. Products: The real hero for Bankwest continues to be its Hero Transaction Account with a $6 per month fee waive on a monthly deposit of $2,000 and a 3% interest rate up to balances of $5,000. Add to that full access to your money through an extensive network of Bankwest and Commonwealth Bank ATMs. A range of tailored credit cards makes picking the right card for you easier at Bankwest. Their credit cards have a 5-star rating in three of our profiles. In the Habitual Spender profile, Bankwest s Breeze Mastercard is the lowest rate card on the market. The Big and Everyday Spenders can now choose to save up more rewards or upsize to a Qantas Platinum card. Coverage : Bankwest has excellent coverage with fee-free access to more than 4,000 Bankwest and Commonwealth Bank ATMs. Over-the-counter service has not been forgotten either, with a good network of branches for customers wanting face-to-face service. For online customers, Bankwest provides userfriendly and secure mobile banking apps which cover both transaction needs and product application. September 2014 4
BANKVIC BankVic seems to be going from strength to strength as it gains more traction in the mutual bank market space. Catering to its core customers in the health, police, public and emergency services, BankVic offers competitive products and a level of service that s hard to beat. Products: A strong performer for BankVic is its Multipack transaction account with no monthly account-keeping fees, 10 free ATM transactions and 40 free EFTPOS transactions per month. If you use up these free transactions, you pay a reasonable $1.80 per ATM and 40 cents per EFTPOS transaction. In CANSTAR s High and Electronic transactor profiles, Multipack rates 5 stars and slightly less in the Low transactor profile. BankVic s Silver credit card is rated 4 stars in the Everyday profile and 5 stars in the Habitual spender profile. It s good value, with no annual fee and a low interest rate of 11.95%. The Gold credit card offers cashback rewards for an annual fee of $55. Coverage: Naturally, BankVic is Melbourne based, with four branches in the CBD and eastern suburbs. Online and phone services broaden BankVic s appeal across the country though and ATM service is generally not a problem. BankVic s arrangement with the Westpac group s ATM network eliminates the need to scour a location for an ATM. BankVic has also optimised its website for mobile devices to make the mobile banking experience easier. CANSTAR congratulates both Bankwest and BankVic for their back-toback wins and the service they offer consumers. Everyday Banking
BANKWEST Jason Chan, Bankwest General Manager, Products & Pricing, took the time to answer a couple of questions for us. QWhen it comes to different types of banking products, a transaction account is one that people can t avoid having. What should Australians look for in a transaction account? AAustralians should make sure they are choosing a transaction account that suits their needs. At Bankwest, we regularly survey our customers to identify the top attributes they want from a transaction account. Low or no monthly fees is an important attribute, with most transaction accounts in the market requiring a regular deposit to ensure these fees are waived. This can be achieved by making sure your salary is paid into your account. As a result, about 85% of Bankwest s everyday accounts customers have their account fee waived each month. Bankwest s Store and ATM networks, as well as 24/7 mobile and internet banking options, help ensure convenient access for customers. Importantly for mobile and internet banking, you need to consider access to functions like pay anybody, pay bills and transfer funds overseas. It s not just about looking at your own account balance and transferring money between your own accounts. We take these factors into account when designing our award-winning suite of transaction products. QYour Hero Transaction account really impressed the CANSTAR researchers. Has it proven to be a popular account with your customers? ABankwest s Hero Transaction Account is a key offering in our suite of products that provides customers with extra benefits from their everyday account. Since its launch in 2007, Hero has been a consistent performer for those customers wanting to ensure they earn interest on funds sitting in their account. The account appeals to customers who want the benefit of earning interest without having to shuffle funds between savings and transaction products, while receiving the key benefits they want from a transaction account. Hero still offers free and unlimited access to Australia s largest bank ATM network and no monthly fees if you deposit $2,000 per month. Jason Chan, Bankwest General Manager, Products & Pricing September 2014 6
BANKVIC We also spoke to BankVic s Melanie Dilges, Executive Manager, Marketing & Member Development QWhen deciding between a straight online savings account and a bonus saver account, what considerations should customers weigh up? AThink about your savings goal, and your ability and motivation to save. If a bonus feature gives you added incentive to save, this can help you reach your savings goal sooner. Open a separate high interest savings account e.g. a Bonus Saver, and set up a regular transfer (every pay day) from your transaction account. Even a small regular transfer adds up! Pay off your credit card on time every month Credit cards are useful, especially when you travel, but interest charges can add up. Check your payment due date and pay off the balance monthly on time if at all possible. ATM fees If your bank offers you free ATM withdrawals from the ATMs they own or a preferred network, try to avoid using other ATMS. It s amazing how quickly the ATM Operator fees can mount up. This can be especially helpful if you re saving for a specific purpose such as holiday, car or even a deposit towards a house. If your income is irregular, or you anticipate frequently dipping into your savings, it may be better to consider a regular online savings account. QThis is a great time of year to save for the Christmas holidays - can you suggest 5 savings tips for readers? Establish a regular savings plan EFTPOS withdrawals If you need to take out smaller amounts, try to get into the habit of using EFTPOS to make cash withdrawals instead of ATMs. They can be cheaper unless your bank offers unlimited free ATM transactions. Don t pay account keeping fees BankVic members don t pay any fixed monthly account keeping fees on transaction or savings accounts. Maybe you shouldn t either. Melanie Dilges, Executive Manager, Marketing & Member Development Everyday Banking
EVERYDAY BANKING METHODOLOGY DEPOSIT ACCOUNT STAR RATINGS AWARD METHODOLOGY What are the CANSTAR Deposit Account Star Ratings? CANSTAR s Deposit Star Ratings use a sophisticated rating methodology, unique to CANSTAR, which compares deposit products in Australia. CANSTAR star-rated products represent a shortlist of financial products. This shortlist narrows the search for consumers to products that have been independently assessed and ranked. The CANSTAR Deposit Star Ratings is a transparent analysis comparing all types of deposit accounts for an array of characteristics, such as: Interest rates Fees Free transactions Accessibility Rebates Features The results are reflected in a consumer-friendly five-star concept, with five stars signifying outstanding value offered by the product. Rising stars are those products that would be rated five-star or higher but have not been in the market for more than six months. Rising star products will be formally rated in the next period once more historical data is available. What types of products are evaluated for the Deposit Account Star Ratings? The following account types are assessed in the ratings: Personal transaction accounts Savings and investment accounts Online savings accounts Cash management accounts High yield accounts Children s accounts Products specific to certain groups or with restrictions on eligibility are not included in the ratings. Business deposits accounts are rated separately as part of the CANSTAR Business Banking Star Ratings. September 2014 8
How is the CANSTAR Deposit Account Star Ratings structured? CANSTAR recognises that deposit account users have different needs in terms of saving and transacting. Hence the CANSTAR Deposit Account Star Ratings methodology has been designed to reflect a range of transacting and savings styles. Specifically the ratings consist of the following sub-sections: Low Transactor High Transactor Profiles Electronic Transactor Bonus Saver Online Saver Cash Manager Profiles Junior Saver The star ratings methodology differs for each customer segment in terms of the relative importance placed on the fees and features of the products assessed. How does it work? How are the stars calculated? Each deposit account reviewed for the CANSTAR Deposit Account Star Ratings is awarded points for its comparative pricing and for the array of positive features attached to the account. These features include accessibility, conditions attached to interest payments and transaction security. Points are aggregated to achieve a Pricing score (P) and a Feature score (F) To arrive at the total score, CANSTAR applies a weight (w) against the P and F. This weight will vary for each customer profile and will reflect the relative importance of either costs or features in determining the best deposit account. This method can be summarised as: TOTAL SCORE ( T ) = PRICING ( P ) + FEATURES SCORE ( F ) Everyday Banking
Refer to Table 1 For breakdown of weightings Pricing 70-80% Refer to Table 3 For average balances Rates Historical rates over past six months 10-80% Fees Customer transaction scenario 20-90% 18-month total interest calculation (Online only) 0-50% Six-month historical average total rate 25-100% Six-month historical average base 0-25% Refer to Table 2 For transaction numbers and weightings Refer to Table 4 For feature weightings Rated across seven profiles Features 20-30% Branch/ATM coverage Number of people per branch/atm in best state 0-25% Product features Across seven categories 75-100% Account facilities 20-50% Specific conditions 20-45% Exemptions from fees and charges 0-5% Account design options 5% Mobile and online security 5-20% Exception fees 0-5% Junior financial literacy 0-25% September 2014 10
Bonus Saver methodology Six-month historical average base rate 20% Pricing 80% Rates Historical rates over past six months 40% Transaction fees Customer transaction scenario 20% Six-month historical average total rate 20% 12-month scenario Customer saving scenario 60% Bonus Saver Features 20% 12-month scenario - $5,000 initial deposit - $200 monthly deposit on day one of the next 11 months except month six, where no deposit is made - $100 withdrawal last day of month 12 Total score The Pricing (P) plus Feature (F) point scores are indexed and then tallied to provide the Total Index Points. Stars are awarded according to the Total Index Points. Profile weightings The factors described above are weighted differently for each customer profile. This is done in recognition of the relative importance of the different product components to each type of customer. The process considers each profile separately and assigns weights representative of that account type (see Table 1). TABLE 1: Deposit Account Star Rating components Profile Pricing Features High Transactor 70% 30% Low Transactor 70% 30% Electronic Transactor 70% 30% Cash Manager * 80% 20% Online Saver ** 80% 20% Bonus Saver 80% 20% Junior Saver 70% 30% Everyday Banking
Profile Rate Scenario Product features Coverage High Transactor 10% 90% 80% 20% Low Transactor 10% 90% 80% 20% Electronic Transactor 10% 90% 80% 20% Cash Manager 75% 25% 75% 25% Online Saver 80% 20% 100% - Bonus Saver 80% # 20% 90% 10% Junior Saver 80% 20% 85% 15% * Required to pay a minimum of 1% at $100,000 ** Required to pay a minimum of 1% at $25,000 # Split into 20% Historical Base Rate, 20% Historical Total Rate and 60% 12-month interest scenario Pricing score CANSTAR accounts for both current and historical interest rates in the calculation of the Pricing (P) component of each product s overall score. Current fees are also used in the calculation of P. P comprises: 1) Current pricing applying current fees to scenarios for each of the various transacting and saving profiles 2) Historical performance compares the products interest rate histories over the past six months. Interest rate tiers are taken into account. The scenario analysis is conducted using CANSTAR s unique transaction calculator, which incorporates essential transaction fees and charges, rebates and free transactions. The calculator interlinks the transaction behaviour of 500 hypothetical depositors with the pricing structure of the deposit accounts. The products with the lowest cost receive the highest score in the scenario analysis. The following table describes the number of transactions and channels used in the scenarios. TABLE 2: Deposit Account Star Ratings scenario description High/(Low) Transactor Electronic Transactor Cash Manager Bonus Saver Online saver Junior saver Average no. of transactions 35/(10) 25 10 5 5 2 Average balance $ 2,000 $ 2,000 $ 100,000 $ 25,000 $ 25,000 $ 1,000 Average deposit $ 3,000 $ 3,000 $ 10,000 $ 1,000 $ 1,000 $ 100 ATM withdrawal own network 20% 25% - - - - ATM withdrawal other network 5% 10% - - - - Branch cash withdrawal 5% - 20% - - - Branch cash deposit - - - - - 100% Cheque deposit 5% - - - - - Cheque withdrawal 5% - - - - - Direct credit - - - - - - Direct debit 5% 10% 20% - - - Eftpos transaction 35% 40% - - - - Internet transaction - - - 100% 100% - BPAY 15% 5% 25% - - - Internet pay anyone 5% 10% 35% September 2014 12
CANSTAR s methodology accounts for the tiered interest rate structure of deposit accounts. The tiers for historical rate calculations were applied in the following manner: TABLE 3: Deposit Account Star Ratings interest rate tiers Tier 1, $ Tier 2, $ Tier 3, $ Interest rate tier weighting 50% 35% 15% High/Low Transactor 1,000 2,000 5,000 Electronic Transactor 1,000 2,000 5,000 Cash Manager 25,000 50,000 100,000 Bonus Saver 2,000 10,000 25,000 Online Saver 5,000 25,000 50,000 Junior Saver 500 1,000 2,000 Feature score The Feature (F) component consists of the following sections: 1) Access takes into account the proportion of the population with access to a branch and/or ATM 2) Product features takes into account more than 100 product features with weights given to each relevant area. Examples include minimum opening deposit, minimum withdrawal and ATM facilities. Access The ratio of the total number of free ATMs and branches across all Australian states and territories (excluding ACT) against its respective population is calculated against a cap of 15,000 people per ATM and 30,000 people per branch. Any institution that exceeds the cap will receive full points for this category, with the remaining institutions being indexed against the caps. Access areas are weighted differently depending on the profile: Access point Low/High Transactor Electronic Transactor Cash Manager Bonus Saver Junior Saver ATM 50% 100% 50% - - - Branch 50% - 50% 100% 100 - Product features Online Saver Each of the product features is allocated points that are awarded for positive deposit account traits such as no fees or greater flexibility. As features are relatively static, they are not measured over time. The following table outlines the weightings of each of the feature categories per profile: TABLE 4: Deposit Account Star Ratings feature category weightings Category description Transactor Cash Manager Online/ Bonus Saver Junior Saver Account facilities 50% 40% 25% 20% Specific conditions 20% 30% 45% 40% Exception fees 5% - - - Exemptions from fees and charges 5% 5% 5% 5% Account design options 5% 5% 5% 5% Mobile and online security 15% 20% 20% 5% Junior specific - - - 25% Total 100% 100% 100% 100% Everyday Banking
Awards Each year CANSTAR runs two deposit awards to reward those institutions displaying excellence in both the transaction and savings markets. The awards are based on the price and features for a number of different product types with the winners being the best overall. All institutions that are rated in at least one of the product profiles are included in the awards calculations. The product scores used in the calculations come directly from the star ratings profiles, with an institution s best scoring product counting towards the award. Where appropriate additional institution factors are included in the awards. For these additional factors, information is taken from the details collected for some of CANSTAR s other ratings, such as online banking. Bank of the Year Savings Award Online Saver 40% Cash Manager 10% Term Deposits 35% Bonus Saver 10% Savings tools/calculators 5% Online Saver, Cash Manager, Bonus Saver and Term Deposits scores are an institution s best score taken from the individual product ratings respectively. The Savings tools/calculators information is taken from CANSTAR s Online Banking Award. This covers features such as online calculators, graphing tools and online tips and articles. September 2014 14
Bank of the Year Everyday Banking Award Electronic Transactor 40% Products 90% High Transactor 25% Low Transactor 25% Big Spender 20% Credit Cards 10% Everyday Spender 50% Coverage 10% Online banking 50% ATM coverage 30% Habitual Spender 30% Branch coverage 20% For the Everyday Banking Award, the High, Low and Electronic Transactor profile s scores are the best scores from individual star ratings profiles. Additionally, the Big and Everyday Spender scores are taken from the latest Credit Card Star Ratings. The coverage score information is taken from two different sources. The online banking score comes from the CANSTAR Online Banking Award. ATM and branch coverage comes from calculations using the latest APRA points of presence information. Does CANSTAR rate all products available in the market? We endeavour to include the majority of product providers in the market and to compare the product features most relevant to consumers in our ratings. However, this process is not always possible and it may be that not every product in the market is included in the rating nor every feature compared that is relevant to you. How often are all the products reviewed for rating purposes? All ratings are fully recalculated every six months based on the latest features offered by each institution. All awards are recalculated every year based on the latest ratings. CANSTAR also monitors rate changes on an ongoing basis. Everyday Banking
Does CANSTAR rate other product areas? CANSTAR researches, compares and rates the suite of banking and insurance products listed below. These star ratings use similar methodologies to guarantee quality, consistency and transparency. Results are freely available to consumers who use the star ratings as a guide to product excellence. The use of similar star ratings logos also builds consumer recognition of quality products across all categories. Please access the CANSTAR website at www.canstar.com.au if you would like to view the latest star ratings reports of interest. Account based pensions Agribusiness Business banking Business life insurance Car insurance Credit cards Deposit accounts Direct life insurance First home buyer Health insurance Home & contents Home loans Landlord insurance Life insurance Managed investments Margin lending Online share trading Package banking Personal loans Pet insurance Reward programs SMSF loans Superannuation Term deposits Travel insurance Travel money cards Youth banking DISCLAIMER: To the extent that the information in this report constitutes general advice, this advice has been prepared by CANSTAR Research Pty Ltd A.C.N. 114 422 909 AFSL and ACL 437917 ( CANSTAR ). The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. CANSTAR provides information about credit products. It is not a credit provider and in giving you information it is not making any suggestion or recommendation to you about a particular credit product. Please refer to CANSTAR s FSG for more information. The information in this report must not be copied or otherwise reproduced, repackaged, further transmitted, transferred, disseminated, redistributed or resold, or stored for subsequent use for any purpose, in whole or in part, in any form or manner or by means whatsoever, by any person without CANSTAR s prior written consent. All information obtained by CANSTAR from external sources is believed to be accurate and reliable. Under no circumstances shall CANSTAR have any liability to any person or entity due to error (negligence or otherwise) or other circumstances or contingency within or outside the control of CANSTAR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication, or delivery of any such information. Copyright 2014 CANSTAR Research Pty Ltd A.C.N. 114 422 909 The word CANSTAR", the gold star in a circle logo (with or without surmounting stars), are trademarks or registered trademarks of CANSTAR Pty Ltd. Reference to third party products, services or other information by trade name, trademark or otherwise does not constitute or imply endorsement, sponsorship or recommendation of CANSTAR by the respective trademark owner. September 2014 16