Retail banking fees have become a
hot potato across the world over the past two years. In Australia,
in particular, the issue continues to shape the country’s banking
industry, especially since the latest survey by the central bank
found that banking fees rose 7.9 percent

Two months after a critical survey of banking fees in Australia,
and a price war has broken out. The country’s banks had already
begun to compete on ATM fees under self imposed reforms spurred on
by the Reserve Bank of Australia (see RBI 605, 608). This
time, however, the fee changes are much deeper, and point to the
possible start of an ugly battle for market share. Australia bank service fee revenue

National Australia Bank (NAB), the country’s
fourth-largest by deposits, was the first to blink, announcing it
was cutting a A$30 ($25) overdraft account fee on all NAB personal
transaction and savings accounts. The bank says the move will
affect 700,000 NAB customers a year.

It added that “these fees generate the most
customer complaints to the bank of any bank fee and result in more
customer complaints to the bank than any other matter… For some
Australian banks these fees can be as high as A$40 to A$50 every
time a customer overdraws their personal transaction or savings

Westpac has also cut so-called exception fees
across credit cards, personal accounts and business accounts. Again
from October 2009, Westpac will reduce all its exception fees to
A$9. This includes account overdrawn fees, credit card missed
payments and ‘over the limit’ fees, and affects all of the bank’s 5
million personal and business customers.

Peter Hanlon, group executive of Westpac’s
retail and business banking, said in a statement: “This is the most
significant move on bank fees that the Australian banking industry
has seen for a number of years.”

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A few days after Westpac’s move, on 5 August
the country’s largest bank by deposits, Commonwealth Bank of
Australia (CBA), said it would reduce exception fees across a range
of personal and business transaction accounts, as well as
implementing a number of “safety nets” to help customers avoid
these fees in the future. It is cutting dishonour fees from A$35 on
business and personal transaction accounts to A$5, and overdraft
fees from A$30 to A$10. It will also reduce the late payment fee on
home and personal loans from A$45 to A$25.

A spokesperson for CBA told RBI that
the changes are expected to impact revenue and cash earnings for
the 2010 financial year (excluding the recently acquired Bankwest
franchise) by approximately A$200 million and A$135 million,

CBA also announced a new, no-annual-fee credit
card for its existing customers, provided that they spend over
A$1,000 per year on it. But the bank says it is not reducing
exception fees on credit cards, instead introducing tools allowing
customers to put their own stop on transactions that will exceed
their credit limit at the point of sale.

So-called ‘safety net’ initiatives include:
customers electing to not have over-the-limit transactions approved
(from October 2009); and a range of SMS/email balance alerts to
avoid exception fees altogether (scheduled to progressively rollout
in 2010).

ING Direct in Australia, which, according to
the Australian Prudential Regulatory Authority is the country’s
fifth-biggest deposit taker, is upping its game in the Australian
market – and is also putting fees at the front of its strategy.

A new ‘everyday’ account from ING

On 9 August, ING Direct soft launched
a transaction account called Orange Everyday, set for a harder roll
out in September, which will compete head-on with the established
banks in Australia. It comes with no account keeping or monthly
fees; no overdraft fees; no exception fees; free access to 26,000
ATM’s across Australia; and free, unlimited online transactions via
the BPAY and Pay Anyone services.

In turn, the established banks may look to the
internet to help them cut costs. A week after making its initial
announcement regarding its fee cuts, NAB launched a market-leading
online savings account under its UBank online brand.

The USaver account, paying 5.11 percent, comes
with a paperless application facility – people have the option to
apply online and have their account open “in as little as five
minutes”. It also comes with no account or dishonour fees

In May this year, an
annual survey by t
he Reserve Bank of Australia (RBA) stated
that banking fees in the country rose 7.9 percent year-on-year.
Over the 12 months to the end of June 2008, banks collected A$11.6
billion in bank service fee revenue from businesses and households.
Fee revenue from households alone, as opposed to businesses, was
A$4.85 billion, up 8.1 percent.

For the first time, the RBA report discussed
exception fees, which cover dishonour fees, late payment fees and
overdraft fees. According to the report, exception fees amounted to
A$1.16 billion, making up 10 percent of total bank service fee

The RBA survey, one of the most comprehensive
surveys of its type, also found that the proportion of household
spending relating to bank service fees had remained “very stable”
at 0.76 percent to 0.77 percent over the past three years.

In defence of the industry, the Australian
Bankers Association (ABA), in its Fees for Banking Services
2009 Report
, which is based on the RBA survey, said that an
estimated 33 percent of total fee revenue collected from Australian
households could be reduced if consumers changed their banking

David Bell, CEO of the ABA, said: “The fees
which could be avoided are A$954 million worth of exception fees
and A$640 million worth of foreign ATM fees.”