the mozo blog

When you’re setting up a small business or looking to switch banks, you’ll want two things from your financial institution: convenience and affordability. So you might think banks everywhere would be offering up competitive package deals on a suite of business products to service the time poor, cash-flow-starved start-up market. Not to mention the time-poor, expense-averse small business market looking for a better deal.

You’d be wrong.

This week we launched a business banking section on Mozo – detailing all the business loans, business credit cards and business bank accounts on offer. And we’ve been surprised to discover that of the Big Four banks only ANZ offers an online business package that rolls various products into one deal – and one monthly fee of $32 + GST. This gets you a transaction account and a range of extras such as a savings account, payment account, credit card and merchant services.

The catch is that other fees and charges may apply – for example, on terminal rental, which still attracts half the usual monthly rental fee. So by paying “one simple monthly package fee” you don’t necessarily avoid a slew of complicated monthly fees.

Westpac is happy enough to bundle services under its “Business Foundations” package, which marries a transaction account with two additional products and saves you “up to $1,100”. But again, you’re looking at a variety of different fees and charges – and you’ll have to choose between credit cards, a savings account and a business loan.

The catch this time round is that your potential discount of $1,100 is made up of savings such as “a 25% discount off Financial Management Workshop 101” – worth $225. Another way of looking at this is an additional cost of $665 for said workshop.

Commonwealth Bank and NAB offer all the same individual products, and a similarly complicated set of calculations to figure out which bank has the most competitive package overall. And challenger brands – such as Bankwest business accounts or the St George BizPack – make it equally difficult to estimate the total cost of running a few perfectly standard accounts.

It’s the same old bank game of burying fees in incomprehensibility. But stay tuned: Mozo is set to unpick the fine print to find out which banks have the best business deals.

Do you have a business banking question? Ask the gurus on Mozo Answers, our super new Q&A forum.

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.

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.

The fastest thing on four legs on Cup Day was in fact the major banks, with their fastest-ever reaction to the RBA rate rise.

After last month’s RBA rate rise, I wrote here about the Underhanded, not even-handed way that the major banks passed on the increase faster than they passed on previous rate cuts.  Across all their home loans, that little trick saw them pocket something like $17 million extra in October.  Our story was also picked up by the Daily Telegraph.

Well clearly the banks read it as well.  But instead of embarrassing them into being fairer to their customers, it seems all I managed to do was encourage them to screw you even harder.  The Big 4 managed to pass on the November RBA rate rise even faster than the last one!  When the RBA cut rates by 1% in February, it took the major banks an average of 8 days to pass on the cut and in April it took 10 days.  Last month they passed on the RBA rate rise in just over 5 days, and this time around they’ve taken only 3.5 days.  It is staggering to think that, had they passed on the 1% cut in February as fast as they acted this month, borrowers could have saved as much as $80 million.  That is simply taking advantage of their market position, and taking you for a ride.

And that’s what I call Shocking!

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