the mozo blog

**The following blog has been updated. Please see comments below for more detail.**

We love a good personal crusade here at Mozo HQ. So when we recently received a passionate plea from a concerned citizen questioning why internet fund transfers aren’t in real time, we thought it was worth publishing and doing some number crunching to figure out what the delay adds up to.

Here is the full article:

All internet funds transfers should be in real time.

The Banks have a privileged position in the economy being a necessity for the flow of funds through the market. Their privilege is not matched by their overweighted focus on results for the shareholders as opposed to the better good of the country. Their protests that margins have to rise to keep the banks strong and therefore benefit the community are difficult to accept when there is likely greater benefit to the economy by their measured increases in rates similar to the RBA. The out of order rise from the CBA is more an indicator that that Bank got it wrong with their risk management and we are paying for it.

There is much comment lately about how the Banks need to treat the customer fairly. There are different ways this could be addressed. My crusade for fairness is to enable all electronic transactions to be real time. For example when you make a funds transfer on the internet to pay a bill or a BPay transaction to pay a bill it should not take 1, 2 or 3 days to arrive at the destination.

Let the Banks try that trick at the supermarket checkout! It could take several days to complete the shop because we would have to wait for the funds to arrive at the Woolies or Coles account. That is not going to happen.

The Banks have the systems to achieve this now. The real time gross settlement system will allow this. Oh I forgot, you can go to your bank and request such a transfer to another person’s account if you want to pay a fee of about $35.

EFTPOS transactions are immediate. The transfer is completed while we wait. Money has moved from my account to another account because I authorised it. Why does that not happen with internet banking for individuals and business? I know there are businesses large enough that they have systems through the Bank that allow this but this must be made available to all.

Why, because the Bank has taken the funds from my account and only once they have finished investing it overnight or for three days to squeeze every last earning out it will the Bank allow it to continue on its journey. Why do I wait for three days for my funds to arrive? That is costing me interest if it is paying a credit card. If the debit is from an overdraft then it is costing me at both ends.

If the Banks are the conduit, the pipe is blocked and needs a clean out. Regulate that if there are clear funds in an account that a funds transfer to another account should be real time.
– ends –

And what about the numbers?

Let’s take UBank as an example. It recently announced that it has $5 billion in deposits. It seems common for UBank to have a 3 day delay coming in or out. All $5 billion had to get in there, and will come out again at some point, and so it loses up to 6 days of interest. At UBank’s 6.51%, that’s over $5 million [edit: $2.5 million - see comments below] windfall to the banks – and that’s just on the money in UBank.

Does that sound fair?

Compare banks at mozo.com.au

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.

Earlier this year we cracked the rewards code to reveal the value Australians were getting for their money with rewards credit cards with the launch of our Rewards Revealer tool. Today, consumer advocacy group, CHOICE, launched the 2010 CHOICE Shonkys, awarding the Commonwealth Bank Awards program a Shonky for low flying jest.

CHOICE singled out the Commonwealth Bank for its shonkiness in how the points are calculated for cards linked to the Qantas Frequent Flyer program. Unlike other rewards credit cards where one rewards point equals one Qantas Frequent Flyer Point, with the Commonwealth Bank card you only earn points at half the rate. It means you have to spend double the amount of money to earn the rewards.

The Shonkys, reminded us here at Mozo HQ of just how important the Rewards Revealer is, and so we decided to take this opportunity to take a look (and highlight) some other shoddy practices and unrewarding rewards programs.

Based on a $12,000 annual spend the three worst performing rewards cards are:

(excluding platinum cards)

Rewarding? Maybe for the banks but certainly not us consumers.

With the NAB Gold Card to earn you a flight from Sydney to London you’d need to spend a mind blowing $937,500 and that’s not the biggest catch. Points expire after 36 months, so unless you are planning on buying a house on your credit card, it’s virtually impossible to accrue enough points to redeem the flight before they expire.

But even more telling is that it’s not just a handful of rewards credit cards that will put you in the red. Of the 71 standard rewards cards in the market, 35 will cost you more than they return in rewards value each year (at $12,000 annual spend after the annual fee).

So, what can you do to ensure you get value from your rewards card? Here are our top tips:

1.    Make sure you are earning more in rewards than you are paying in annual fees
2.    Always pay off your card in full each month to avoid high interest rates
3.    If you have a credit card debt, switch to a low rate card instead

Compare rewards credit cards at mozo.com.au

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

Money lovers, bank spotters and finance paparazzi take note: Mozo is chuffed to present our inaugural People’s Choice Awards.

In the last year, an astonishing 23,938 reviews were cast by you, the real customers, raving about your bank stars and dumping on your money duds. Mozo then crunched the numbers and tallied up the scores, to give voice to the people’s choice.

So who are the home loan heros, the credit celebs and stellar tellars? A round of applause for your winners:

Australia’s Best Bank

ING Direct

Australia’s Best Credit Union

Victoria Teachers Credit Union

Australia’s Best Building Society

The Greater

Sill more coveted awards – including best category performances and runners up – can be ogled at the People’s Choice Awards webpage.

And interestingly, it’s the new talent – the challenger brands and independents – who won your hearts and accounts. More interestingly still (if this kind of thing hits your sweet spot), the people rejected splashy headline rates and flash-in-the-pan intro offers in favour of the best ongoing deals.

For example, UBank – winner of the Best Savings Accounts – doesn’t have the highest rate on the market for its USaver account. However, it does offer an astoundingly competitive ongoing interest rate if you make regular contributions, and is perhaps the best choice for longer-term savers.

So why not get in on a spot of celeb-watching and discover the ultimate line-up of financial products: the best credit cards, home loans, savings accounts, bank accounts, personal loans, term deposits as chosen by the people.

Check out the winners podium at The Mozo People’s Choice Awards 2010.

Richard Branson was in Sydney yesterday, bearing the news that Virgin Money is relaunching its consumer banking arm. Earmarked by Branson as “classic Virgin territory” due to the domination of the Big 4 in the marketplace, Virgin Money has declared its intentions, in alliance with Citibank, to make a ‘fair profit’ on the back of “simple and fairly priced products”. The first cabs off the rank in this quest to take on the Big 4 are in the credit card and savings account market.

Virgin Saver
The Virgin Saver is Virgin’s online savings account, a no fees account with a variable introductory rate of 6.75% for 4 months that falls back to 5.35%. These numbers put it right up there with the top 5 standard and promotional savings account rates in the market and it’s a great product, particularly as it lacks the deposit and withdrawal conditions held by some products.

Virgin No Annual Fee Credit Card
The Virgin No Annual Fee Credit Card is Virgin’s ‘no frills’ card. No annual fee and no rewards of any note. It comes with an introductory offer of 2.9% on balance transfers for six months and an ongoing purchase rate of 16.95%. Whilst promoted as “simple and fairly priced”, there are only 44 interest-free days and the card features the sneaky trick we’ve previously highlighted of reverting the balance transfer to the much higher cash advance rate of 20.99% as well.

If you plan on carrying a debt, using our credit card comparison table one can see that there are other low rate and low fee cards that could save you over $500 over 3 years on an average balance of $3000, taking into account the interest and fee costs. However, if you plan on paying off your balance in full each month, this card will cost you nothing, and is well worth picking up for those who enjoy things like the choice of card colour and Virgin’s customer service.

Virgin Flyer Credit Card
The real headline grabber here is the last product on the list, the Virgin Flyer Card, its Platinum frequent flyer card. And it’s a bit of a Jekyll and Hyde proposition.

What Virgin is hoping will sell this product is the flight rewards. The biggest selling point is that four times a year, you’ll get 2 for 1 flights on Virgin Blue. It’s a great feature that’s sure to appeal to many. Factor in the best earn rate for velocity points without getting an Amex, for the first $1,500 monthly spend anyway, and it’s a very good rewards card. Using our credit card Rewards Revealer, at the Australian average spend of $14000, it’s the clear leader once you factor in the free flights. For the high rollers looking for a Platinum Card, those spending $50,000 a year would only derive more value from the Citibank Emirates Platinum card, taking annual fees and free flights into account.

It must be noted however, that as a day-to-day credit card, it’s a pricey option. The rates’ conspicuous absence from Virgin’s release is a signpost to the card’s steep nature. With a rate of 20.99% for both purchases and cash advances and a balance transfer rate of 6.9% for 6 months that reverts to 20.99%, it’s one of the most expensive cards on the market. Throw in the interest free period of only 44 days and you can definitely say it’s not a card to accumulate debt on.

The Verdict
The Virgin Saver looks a winner, particularly given its simplicity. The No Annual Fee card is a good basic card for those who pay off their balance in full each month, but there are better options for those who like to rack up a debt. Again, the Virgin Flyer card also isn’t one for the debt accumulators, however it makes up for it with an excellent flight rewards program. With home loans yesterday stated to be in their sights, it’ll be interesting to see where Virgin goes next.

Compare all savings accounts and rewards credit cards at mozo.com.au

State against State. Mate against Mate. It’s a line that epitomises rugby league’s annual showcase of interstate rivalry, underscoring the passion and pride on display between the NSW cockroaches and the cane toads from Queensland. With rugby league’s annual State of Origin series now decided, it’s time to bring back the financial biff and pit the states head on!

Since Origin is about representing your state, community and people, we’ve decided to use what consumers have said about their banks hailing from each particular state to create an overall picture. So using the 30,000 bank reviews you’ve submitted, it’s time for Mozo’s annual ‘Rate of Origin’. State against state. Rate against rate.

With 7371 reviews behind them and big players like Westpac, Macquarie and St. George as well as no less than 4 credit unions on our list of the top 10 Australian banks in the side, NSW comes in as strong favourites. As always, Queensland are the underdogs, conceding a significant numerical advantage in both number of reviews (2416) and number of providers (10 to NSW’s 15). They’re led by Queensland stalwarts like Suncorp, Bank of Queensland and their sole representative in our top 10, CUA.

With the NSW camp already shattered and in turmoil after losing their fifth straight origin series, it will come as another body blow to the state and their footballers that NSW is getting dusted not only on the field but also in their wallets. NSW banks put up a solid if unspectacular average overall rating of 6.91, led by strong performances by Teachers Credit Union and the Greater Building Society. However, with old hands Suncorp and Bank of Queensland ably steering them round the park and strong efforts from CUA and Heritage Building Society, the banana benders have stormed home with an overall rating of 7.34 to claim the Origin title.

The real difference between the sides was the abject performance of Westpac, whose rating of 6.7 was the catalyst to NSW’s demise. If you remove Westpac from the equation, NSW’s rating rises to 7.25, a mere drop goal away from victory. NSW will be looking for Westpac to pick up their game over the next year to avoid the pain and humiliation of another Rate of Origin defeat.

So as the dust settles and the xxxx’s are cracked in bank head offices around Brisbane and wider Queensland after another fiery clash between these two interstate rivals, I implore all Origin fans out there to get behind your state and rate your bank to give your state a shot at Origin glory next year!

A slew of Australia’s banks, including the Big 4, are facing, what is being labeled as the largest class action case in corporate history. Litigation funder IMF Australia is funding several class action suits against the banks, seeking at least $400 million of the $5 billion charged in ‘exception fees’ by the banks.

Exception fees are fees charged by banks for ‘exceptional’ circumstances. These circumstances include late payment fees on both credit cards and loans, over-limit fees on credit cards, honour fees when overdrawing a bank account, and dishonour fees charged for cheques that bounce. Reserve Bank data shows that banks charged consumers $961 million in exception fees in 2008.

The impact of these fees on your credit card cost can be significant. Say you’re on a ‘low rate’ credit card with an interest rate of 11.99% and running a $3000 balance. A $30 charge for being a couple of days late on a payment effectively makes your interest rate 12.99% in terms of your cost. If you’re late or overdraw a few more times over the course of the year, the additional costs effectively transforms your low rate card into a middle of the range card without any of the perks.

The principal legal argument for the class action is that when a customer breaks a contract with a bank (by making a late payment for example), the bank may only be able to recover a reasonable estimate of the cost. IMF Australia’s contention is that the banks charge fees much higher than what can be termed a ‘reasonable estimation’, given that it actually costs banks “only a few dollars at most” when you make a late payment or overdraw on your account.

There is a foreign precedent, with close to a million Britons unsuccessfully seeking compensation for overdraft charges in 2009, though a new case set to be heard in Glasgow in June could lead to more litigation. The issue also reared its head in America, with the US Federal Reserve recently ruling that creditors must obtain a consumer’s consent before charging fees for transactions that exceed the credit limit.

Here in Australia, the worst offenders for credit card over limit and late payment fees are Citibank and Suncorp, both charging a whopping $40 for each occurrence. Even NAB, who made a great deal of noise when slashing bank account fees this year, still charge $25 for going over your card limit and $30 for a late payment. Westpac and St. George lead the way, charging only $9. However, the case goes back six years, which could still spell trouble for those who have only recently cut fees.

Even though there will most likely not be a resolution for years, if ever, it will be intriguing to see how the banks behave in the light of all this publicity, particularly in a time of record profits. Even if this case is successful, it almost goes without saying that the banks will find other means to maintain their margins, whether through higher regular account fees or interest rates. As a consumer, the best way to deal with this is to shop around. Only when customers start voting with their feet (and their wallets) will banks really address these issues.

Banking comparsions at mozo.com.au

Since the last time the Reserve Bank cut its interest rates back in April 2009, the home loan market has seen a predictable and steady shift upward in rates, save for the odd excessive rate hike. In what is one of the more dramatic and interesting days in recent memory, both CUA and AMP have announced cuts of 0.25% and 0.22% respectively to their flagship variable rate home loans. It is indeed a welcome news day for consumers, with competition now firmly back on the agenda in the marketplace.

CUA has laid its cards on the table, declaring that they are actively looking to “exploit the perceived absence of competition in the banking industry”. Only time will tell as to the sustainability of the competition-fuelling strategy CUA is looking to push. Indeed, this a sharp contrast to the news of yesterday, where comments out of Westpac suggested that pressures on lenders were only increasing and bigger rate rises loomed. CUA’s new standard variable rate loan at 6.37% is now a full half a percent below the average Big 4 rate, while AMP’s basic variable rate is at an even better 6.27%. AMP’s is advertised as limited time offer, so perhaps they’re waiting to gauge the reaction of both consumers and competitors.

So will competition and rate cuts be the ‘new black’? One thing is for sure, the once stagnant home loan market has been given the shake up it so sorely needed. With interesting times ahead, now is a great time to reevaluate your loan and examine the marketplace. Stay tuned and watch this space, because the home loan battle lines are only just being drawn.

Compare home loans at mozo.com.au

As GFC mud was slung in the States, Congress ducked for cover behind its credit card reforms — which were passed in May last year and have just come into effect. Whether similar changes should be expected in Australia remains uncertain, and will be some time off if they do eventuate. As far as the US reforms go, there’s both good and bad news for consumers.

On the upside, random interest rate changes have been abolished, as the centrepiece of the reform. How and when banks can raise interest rates is now tightly regulated, and they must give at least 45 days’ notice before increasing their interest rates. Furthermore, a review of penalty rates and fees is scheduled for later this year.

The major lenders have responded, however, by hiking up fees, and inventing new ones. So your balance transfer with JPMorgan Chase will now attract a 5% fee. Let’s hope that one doesn’t emigrate down under.

And credit card rewards have also been hit with various creative penalties, such as no points accrued on purchases if the customer is late with a payment (courtesy of American Express co-branded cards).

One of the big wins (for consumers) is restrictions on credit limits, and more stringent credit cards application processes, with lenders tightening up access to credit. Which may seem rough to those struggling to find a provider, but will hopefully lead to fewer borrowing more than they can afford.

Australia is usually a couple of years behind American credit card trends (for example, the 0% balance transfer), so it’ll be interesting to see which, if any, changes trickle through to the domestic market.

compare credit cards at mozo.com.au