the mozo blog

Recently, Mozo announced the winning (and losing) financial providers in its 2nd annual Mozo People’s Choice awards. Over the past 12 months, we collated over 23,000 reviews and ratings covering more than 200 financial providers.

This represents the largest financial conversation in the country, and importantly provides Mozo with unique insights into customer satisfaction in personal banking in Australia. These insights are available in our Mozo Customer Barometer reports.

So, what has 12 months as a fly on the wall revealed?

Big 4 vs other banks versus mutuals

Mutual organisations rated significantly better than other groups of providers. Smaller banks were preferred over the Big 4. No surprises there!

The average overall rating of Mutuals was 8.18 compared with 6.87 for the Big 4 Banks and 7.49 for other banks.

Looking deeper than just the averages scores, we divide individual customer ratings into three bands:
Fan = a score of 8 or more
Fair = a score between 5 – 7
Fail = a score 4 or less

Just on 75% of all Mutual customers are Fans; only 50% of Big 4 bank customers are Fans. That’s a big difference, but even so it does mean that half of the customers of the Big 4 still rate their overall satisfaction at 8 out of 10 or more.

But the damage is done in the “Fail” ratings. Big Banks are three times more likely to receive a “Fail” score compared with Mutuals.

The Big 4 break-up

There has been a distinct shift in Big 4 ratings over the past 12 months.

On Valentines day this year, NAB officially broke up with the other Big Banks and is now pulling out in front as the only Big bank to rate an average above 7. One year ago, ANZ was the highest rated of the four.

The overall ratings for the big 4 are: NAB 7.09, Westpac 6.91, ANZ 6.84, Commonwealth Bank 6.78.

Customer Chatter

In addition to ratings out of 10, we also collect written reviews from bank customers. The following word clouds highlight the most commonly used words for customers who gave their provider a Fan or Fail rating. There are some very interesting differences between the two.

Like to know more?

If you’d like a free copy of our Mozo Customer Barometer (Personal Banking Overview) report, send an email to barometer@mozo.com.au.

We also offer Mozo Customer Barometer reports focusing on satisfaction within individual product areas, and can provide customised reports or data.

Last time I looked at my budget, I checked my bank statements to see how much I spent on bank fees. What jumped out was the $60 I spent in ATM fees in the past year – those “too lazy to walk to my own bank’s ATM” fees. Neither my accountant nor my personal trainer would be happy with that, so today when I went to grab lunch and found myself cashless I thought I’d make the effort.

I walked past Suncorp, Bank of Queensland and Westpac ATMs – and ignored 11 other closer machines in the opposite direction – in search of my nearest rediATM. The rediATM iPhone app tells me it is only 350 meters away, which seems a doddle, but it doesn’t know that pedestrians in Sydney need to make an application to cross the road and must then wait impatiently for a billion cars to pass before they are afforded the luxury. This can take a while.

Of course, when I got there the ATM was broken. (You knew that was coming, didn’t you?) But this was not your usual “This machine is not currently in service” kind of broken. No, I’m talking about the totally-dismantled-and-lying-in-pieces-all-over-the-footpath kind of broken. Innards out one side, screen missing, keypad on the ground, wires all over. According to the ATM technician at work on it, “Somebody head-butted it.”

If you know William Street in Sydney, you’ll know that this is not at all unlikely.

Anyway, it got me thinking about how I might avoid all this shopping around for cash. There are two particularly interesting options. ING’s Orange Everyday account actually rebates the $2 ATM fee from any ATM in the country, as long as you withdraw $200 each time. Or Bankwest’s Zero Transaction Account gives free use of any Big 4 ATM, as long as you deposit $2,000 a month into it. But both of these mean giving up the really good interest rate I get on my current product, and changing the way I manage my money. Another option for me would be to switch to Suncorp, whose ATM is practically next door, but that only works when I’m at Mozo HQ and is of no use at my local shops.

Everyone knows there’s no such thing as a free lunch, and it seems that perhaps there’s no such thing as free lunch money any more, either. Perhaps this is why that guy head-butted the ATM.

Rather than shopping around for cash every week (or hitting your head against a bank wall), ask yourself whether you might be better off spending some time shopping around for the right account. And the right account is different for everyone – which is where Mozo’s bank account comparison tables come in.

We’ve now started to see other banks’ responses to the Reserve Bank’s interest rate rise on Melbourne Cup Day – others apart from the astonishingly audacious Commonwealth Bank, who are clearly Determined to Break Profit Records.

Flying in the face of the majors’ insistence that interest rates “must” go up beyond the Reserve Bank’s increase, a number of smaller players have announced that they are passing on no more – and in some cases, even less.  By Friday we had heard from Newcastle Permanent Building Society, Greater Building Society and Laiki Bank – all announced a 0.25% increase.  ME Bank did the same for their super fund members’ loans, but passed on only 0.15% to their other customers.  And Yellow Brick Road, run by former Wizard boss Mark Bouris, have confirmed that they will not pass on any increases to their variable rates until February.

How can this be possible, if what the Big 4 are saying is true?  Well it seems the smaller players are taking a look at the whole picture, and realising that even if your funding costs have gone up it can make good business sense not to pass on the entire increase to your customers.  There is value to be gained in keeping prices down for existing customers in order to encourage them to stay.  There is value in keeping prices down for new customers in order to make it easier to get more of them and to keep the cost of acquiring them down.  And there is value in maintaining the standing of your brand in order that all of your other businesses remain strong.

For my sins, I have previously worked closely with the pricing boffins in large financial institutions.  I know that their pricing models are not very good at taking these other sources of value into account:  in the world of their models, if costs go up and the target return on equity remains the same then the only sure way to balance the equation out is to find costs savings elsewhere or to increase prices.  And I can tell you from personal experience that if you try to talk to them about the value to be gained from being nice to your customers, they look at you as if you are from another planet.

In some ways, getting banks to change their ways is a bit like the argument for putting a price on carbon.  If businesses place no value on CO2 emissions, then they have no incentive to take them into account in the decisions they make.  They can pollute away and we all suffer, and the only way to turn the tide is for governments to place an explicit cost on the emissions.  In the same way, if banks don’t place a value on how customers feel then someone must act to force them to.  And the most effective way of getting banks to place a real and large economic value on customer satisfaction is this:

If you don’t like your bank, leave them.  Vote with your feet.  If enough people do it, then the finance boffins will have to put it into their pricing model: when prices rise, people leave.  And only then will the bank chiefs take notice.

Don’t wait for Wayne Swan.  Or Joe Hockey.  Or GetUp, CHOICE or the ACCC.  You can make the difference.

And we hope that you’ll find all the products, rates, information and tools you need to find your new home loan, right here at Mozo.

Thank you Graeme Samuel. This past weekend, the ACCC chair was quoted as saying that the big banks’ action “borders on… misconduct” in the way they have been signalling their intention to increase interest rates. This is something that’s been bothering me for some time as well, and if I’d been a faster typist last week I may have beaten him to the punch on this very page.

The Big 4 have been publicly signalling their intentions for some time now, via statements from their PR people, in-house economists and their CEOs. These aren’t just signals to the public, or to the markets. These are signals to each other. Like Mr Samuel I’m not suggesting anything technically illegal here, but you don’t need to formally agree to fix prices to limit competition.

These signals received from each other through the public domain will very definitely impact the banks’ plans. Most banking observers will clearly remember the backlash from Westpac’s “almost double” rate rise in December 2009 (compounded by their banana smoothies analogy). And prior to that, July 2009 when Commonwealth Bank made a 10bp increase without any Reserve Bank moves and was berated by everyone from the PM down. But the banks will also recall April 2009 when all 4 majors failed to pass on the full RBA rate cuts. And they know that, if they act together or reasonably closely together, then the public reaction is a more generic bank bashing and not a PR nightmare targeted at any one of them. So these “I will if you will” signals are playing a very real part in the pricing deliberations within the banks. And that should concern anyone interested in genuine competition.

Competition is also the missing ingredient in the argument between the banks and everyone else about whether funding costs have genuinely risen. The point is not whether costs have gone up, but whether it necessarily follows that prices must go up too. The tone of the Big 4′s statements implies that it is their natural right to extract any cost increases directly from their customers. Of course it is a sensible business decision to attempt to recoup increased costs. But it is not automatic that it must be done. APRA and the RBA tell us that the banks are strong, so it is not necessary that they maintain margins for reasons of security. They are maintaining margins because they choose to and because they can. There is not enough pressure from customers and competitors to force them to make other choices. It is an oligopoly.

But it is more than that. It is an oligopoly that enjoys significant protection, via its central place in the economy and the benefits that flow from it – eg government guarantee on deposits in the GFC. There are other industries with the privilege of being protected oligopolies, but where the players are not allowed to exercise this kind of power without some restriction. Energy companies and health insurers spring immediately to mind: both of these have their pricing decisions heavily regulated. Perhaps the big banks should consider their position of privilege and treat it with respect, or they may find themselves subject to pricing restrictions of some kind. The Greens already have several policies relating to bank pricing regulation, on ATM fees for example. They are in a position to wield some influence. And wouldn’t the voters in the mortgage-belt marginal seats love it!

Customers do notice, and they do care. Mozo’s customer rate and review system saw a distinct reaction to the home loan rate rises in December 2009: Westpac’s interest rates went up 45bp and their customer ratings nosedived, ANZ and Commbank upped rates in the mid-30s and saw no real change to customer satisfaction, and NAB stuck to the RBA’s 25bp rise and extracted a small gain in how customers saw them. Homeowners may not have as many alternatives as they once did, and switching providers is still very time consuming, but there are cheaper providers. And the more the Big Banks erode their customers’ satisfaction, the more vulnerable they will become to challengers or regulators or both.

Compare home loans at mozo.com.au

Home-owners will have breathed a sigh of relief at the RBA’s decision this week not to raise interest rates. But have we really dodged the higher-repayments bullet for another month? Or are the big banks preparing to open fire — and raise their rates regardless of the Reserve Bank?

Despite reports from ANZ, Westpac and NAB that they’d follow the RBA in maintaining current rates, each bank has left a back door open on an out-of-cycle rate rise. Take ANZ’s carefully worded commitment: “Interest rates are always under review, but there is no immediate trigger at the moment for any change.” Could an immediate trigger at another moment change that tune — for example, a CBA rise next week?

ANZ chief executive Mike Smith has already hinted at his interest rate intentions, saying that with the increased cost of foreign funding, “something has to give”. CBA’s Ralph Norris put his additional funding costs at $1.2bn a year. And while the RBA has declared that bank profits are more than healthy enough to cover these costs – earnings are up and the banks are more profitable than they were pre-crisis – the Big Four aren’t known for absorbing increased costs for the benefit of the Australian home owner.

So the general feeling is that the big banks were less than impressed when the RBA defied market expectations and sat tight on a base rate of 4.5%. It’s one thing for them to slip a few extra points onto an RBA raise. It’s another for them to slap on an out-of-cycle rise.

Back to those bullets, however — and you can probably expect a Big Four rate rise in November, regardless of the RBA’s decision. Prior to that, any enemy fire is expected to come from the Commonwealth corner, as they have the largest mortgage book and the greatest exposure to increased cost of foreign funding. Also, because they’re yet to declare their immediate position.

And any rise from CBA will likely be met with moves from the other big banks. Don’t you just love an oligopoly?

To escape the firing squad — why not check out the home loan competition? Our rate chasers will be keeping track of any rate moves throughout the month so visit our Reserve Bank Interest Rate page for all the latest info.

And stay tuned for our Rate rise punt: the real Melbourne Cup Day odds.

Last night’s federal budget contained the very welcome news that interest on your savings will soon receive special tax treatment. From 1 July 2011, you’ll only pay half the tax on the first $1,000 of your interest income.

This is a big win for the banking industry. The measure only applies to income earned on bank accounts, savings accounts, term deposits, bonds and annuities. It will have the effect of pulling money into the banks from other investment vehicles — and from out of cookie jars and under mattresses. And it is Mr Swan’s hope – and mine, and I’m sure yours – that this extra leg up for banks will help them gather sufficient deposits to reduce the overall cost of funding their home loan products. Wouldn’t that be nice: better savings returns and cheaper home financing. Only time will tell.

But what’s it mean for you exactly? Well, at an interest rate of 5.85% (the best standard at-call interest rate in the market right now, at UBank), you’ll be able to save up to $17,000 and receive the full rate reduction. If your taxable income is between $35,000 and $80,000 then you’ll only pay an effective tax rate of 15% on interest: that means a saving of up to $150 a year. And of course the savings are even higher if you’re on a higher rate of tax.

But here’s a savings measure you can access right now. If you already have money that’s not getting the best rate in the market, you can make $150 or more by moving it. If your 17 grand is only earning 4.50%, say in an old BankWest TeleNet Saver account, then moving it to a rate of 5.85% makes you $150 — even after paying current tax rates. And you can do better yet with a Term Deposit, where plenty of providers offer well over 6% on your money for terms as short as 6 months.

If you’re not making the most of your savings, don’t wait for 2011. Mozo’s Rate Chasers have been out in the field chasing down the best rates – compare savings account and term deposit rates now.

RBA Governor Glenn Stevens has released the text of another speech, this time to business leaders in Toowoomba. And so it’s time for analysts, pundits, commentators and generally interested persons to pick over his themes, his words and the general vibe of the thing, to try and second-guess what the Reserve Bank of Australia will do to interest rates next month.

As always, there’s something for everyone. References to good economic news and references to risks and uncertainties. If you want to predict that rates will go up in May, you can quote him on the speed of the rate cuts in 2008/9 and suggest that he’s paving the way for faster rather than slower increases. If you want to predict that the RBA will pause in May and leave rates steady, you can quote him on the need to leave flexibility in how we respond to the way the recovery unfolds. And there’s plenty each way in his analysis of the global economic recovery.

But look closer. We’ve found an ingenious code hidden in the speeches of the RBA Governor. And an astonishing truth… unveiled at last!

He tells us that, when responding to the GFC, the RBA cut rates by 375 basis points over 5 months. And that so far, they’ve responded to the recovery by increasing them by 125 basis points over 7 months, “…which is still only about a third the pace of the earlier declines.” Now 375 over 5 equals 75, but notice that 125 over 7 is well short of a third of this – it is not even a quarter! Rather than a numerical error, this is actually a clue. To get to exactly one-third, you need 200 over 8… and a 75 basis point increase in May would do exactly that! Unbelievable!

A 75 basis point increase next month is a shocking conclusion, well outside what most observers predict, but one clearly supported by the clever trail of clues he has left. But, rest assured that this would be the final increase: his speech contains 3133 words, and 3+1+3+3 = 10, and 1+0=1, ie he’s telling us that there is just one last rate rise.

Silly? Yes, but it is no less scientific than some other predictions people make from picking apart his speeches for clues. The RBA has told us clearly that there is likely to be a little bit more to go, but that the timing is up in the air. That’s all the clues they are going to give us. Maybe May, maybe June, maybe both, maybe neither.

So instead of predicting what the RBA might do, here at Mozo we’ll keep our eyes on what financial providers do in response. Every month, Mozo’s Rate Chasers update Reserve Bank interest rates with information about home loan rate rises as it comes in. And of course, you can find everything you need in our extensive database of rates, fees and features, for home loans, credit cards, savings accounts, term deposits, personal loans and bank accounts.

mozo.com.au. we chase. you save.

Late last year, consumer group Choice won a significant victory in the conservative (ie stubborn) field of bank fees. NAB declared it would drop dishonour fees on overdrawn savings and transaction accounts following a backlash against the unpopular charges. And now businesses will reap the rewards, too.

The bank was pressured both by ongoing complaints and the Reserve Bank’s disclosure that the industry raised almost $1 billion in dishonour and exception fees. While the cause was taken up in defence of underprivileged account holders, small business will also enjoy the fruits of fee free accounts, which come into place this week.

At this stage, none of the other big banks have followed NAB’s move, but it’ll be interesting to see whether more consumer agitation drives changes that also benefit small business. We’ll keep you posted.

Compare banks accounts at mozo.com.au

The truth behind the comparison of banks and banana smoothies! Westpac tried to justify its interest rate increases by comparing themselves to a banana smoothie company. This video covers a few aspects that they forgot to mention…

I warned you.  Westpac were off the mark early on Tuesday morning with an aggressive term deposit rate, and I blogged that it would put pressure on home loan rates to increase beyond the RBA.  Bingo!  Westpac was first out with that announcement as well, so clearly they’d planned the whole thing: put out the term deposit good news first to take the sting off the home loan bad news.

St George are matching the Westpac term deposit offer, so no prizes for guessing what their home loan rates will do.

Now watch the other sheep follow the leader.

Compare home loans at mozo.com.au

Compare term deposits at mozo.com.au