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Chapter 7 - Shared banking facilities and mobile Banks
Introduction
7.1
The Committee notes that during the Hawker inquiry in 1998/99, the
banking industry gave a clear indication that it intended to address the
concerns of the community and announced a package of measures including a
commitment to leave reasonable access to banking services when closing a branch
in rural areas.[1]
Since then, the banks have taken a number of steps to improve banking services
to small rural communities. They cite the implementation of numerous
initiatives intended to compensate for the loss or downgrading of full bank
branch services.[2]
For many consumers, the answer is for banks to share facilities or introduce a
mobile banking scheme. This chapter examines both proposals.
Shared banking
7.2
At the local and community level there is strong support for ADIs to
share facilities. The Victorian Farmers Federation suggested that banks conduct
trials in housing more than one bank in the same building, possibly using the
same staff, in towns where there is only one bank or branches are operating on
reduced hours.[3]
It noted:
Such an arrangement could minimise regional accommodation and
staffing costs for banks, with leases and staff split. Existing office
infrastructure, including IT systems, security and safes would be better
utilised, and over-capitalisation in banking services infrastructure for small
towns would be reduced. [4]
7.3
It added that a number of banks sharing the one facility would offer the
benefits of increased competition and provide consumers with a choice of
face-to-face access from major banks. It could also provide an opportunity for
the employment of a senior officer able to provide and negotiate personal and
business finance.[5]
Mr Barber, Latrobe City Council, asked simply ‘why some of the banks have not
been wise enough to get together in the smaller areas and have a smaller
service’. He added:
Sure, you will lose 50 per cent of the staff and two banks. One
bank closing is bad enough, but it is a lot better than losing 100 per cent of
the staff and leaving the area without a service.[6]
Perceived problems with shared banking
7.4
The South Australian Country Women’s Association, the Goulburn Shire
Council, the Gunning Shire Council and the District Council of Karoonda East
Murray were among a number of community organisations that supported the
concept of banks sharing facilities.[7]
Others, however, such as the Murgon Shire Council, expressed doubts about bank
sharing arrangements because they believed it could lead to a further erosion of
services.
Potential to undermine quality and level of
service
7.5
The ABA suggested that the move to share a facility could be construed
as a forerunner to reduced levels of branch facilities.[8]
The ANZ also held concerns about public perceptions that shared facilities
would result in the downgrading of services. It submitted that branch sharing
may have a negative impact on the local community in terms of unemployment if
it resulted in a reduction in the number of branches in the town. It
acknowledged that shared facilities raised other questions such as whether the
banking services available would meet the needs of the local community. For
example, whether it would only provide basic transaction services or more
complex banking services such as establishing and re-financing loans, business
cash handling or business relationship management.[9]
7.6
Drawing on overseas experiences, Mr Adrian Lovney, CUSCAL, also foresaw
the possible undermining of services as a result of shared banking. He was of
the view that:
...proposals that allow large institutions to share
infrastructure, on the one hand, enable new facilities to be established at a
lower cost but, on the other hand, conversely also allow existing branch
structures to be rationalised. The experience in the UK of some of the shared
services proposals is that it has been a Pyrrhic victory, in that it basically
allows institutions to withdraw services that they already have and consolidate
those into single banking models.[10]
7.7
While the Committee accepts that a proposal by banks to share a facility
may be interpreted as a move to reduce services, it could also be welcomed as a
practical measure to retain at least a bank presence in the community. In the
view of the Shire of Woodanilling ‘a shared facility does not replace a bank,
but the “agency” can provide a very valuable resource for a community’.[11]
7.8
Despite the apparent sensible approach to improve the delivery of
banking services through shared arrangements, the major banks, in particular,
were not confident that this proposal was a workable option for them and urged
that this matter be subject to careful review.[12]
They identified a number of problems in shared banking arrangements arising
from:
- competing interests under the one roof;
- administrative complexities arising from matters such as cost
sharing associated with the use of equipment and infrastructure;
- compliance with the requirements of the Trade Practices Act; and
- regulatory impediments under the Financial Services Reform Act
(FSRA).
7.9
The following section looks closely at the main objections to shared
banking.
Conflicts in a shared facility environment
7.10
A number of financial institutions identified competition issues such as
conflict over whose product the employee sells as a major issue that could
arise in shared banking. The Commonwealth Bank explained that if the employee
were ‘receiving various rates of remuneration (based on sales) from the
different financial institutions, there is an inherent risk that the adviser
will sell those products from which they receive the greatest commission’.[13]
7.11
The ABA referred to the potential for consumer poaching as a commercial
impediment to shared banking arrangements.[14]
The Wagga Mutual Credit Union also expressed doubts about shared banking as a
feasible arrangement. It was of the view that two or more financial
institutions using banking facilities in the one RTC or branch would not be a
tenable long-term situation.[15]
7.12
The Elders Bank recognised the challenges in arriving at an acceptable
solution to the shared banking proposal where business rivals are expected to
provide similar services from the one outlet while maintaining a competitive
spirit. It noted, however, that the Elders joint venture arrangement with the
Bendigo Bank did not involve a mismatch of interests. It stated that while
Elders Bank is a shared shareholder facility ‘it is not necessarily a
competitor doctrine that needs to be delivered’.[16]
Likewise, the Commonwealth Bank cited the success of the giroPost where a post
office outlet provides a banking service on behalf of a number of financial
services providers but where commercial interests are not openly contested. It,
however, held reservations about other shared arrangements where interests are
more likely to clash.[17]
7.13
The Committee understands the concerns about the complications that
could arise from having two or more banks, who are in direct competition, under
the one roof and sharing a range of facilities including staff. Clearly, joint
ventures where the parties complement their service delivery, such as Elders
and Bendigo Bank, do not create such conflicts nor does giroPost where the
provision of banking services involves basic banking transactions and is not
the core activity of the outlet. These types of joint ventures are discussed at
length later in the report.
Administrative difficulties
7.14
Some within the banking industry also felt that issues about internal
management, security and sharing administrative costs could deter banks from
entering a shared arrangement. The ABA referred to commercial impediments such
as the difficulty in determining appropriate cost-sharing arrangements.[18]
7.15
The Commonwealth Bank noted that the need for common, or at least
compatible, systems and technology to operate the shared facility would be a
significant challenge. It asserted that it would require the negotiation of
complex protocols. The impact on staff training and management would also be
onerous for the participants.[19]
7.16
The Wagga Mutual Credit Union believed that shared banking facilities
would not be successful because country people wanted complete privacy and
protection in relation to their banking requirements. In its view, there would
always be the perception that if one or more financial institutions used the
same branch there would be room for leakage of confidential information
particularly if computer facilities were not kept entirely separate.[20]
7.17
Clearly, banks face awkward administrative and management issues in
establishing a shared banking facility. The fundamental conflict of interests
between competitors using the same facility adds to these complexities in
making a shared branch a workable and constructive arrangement. While the
Committee believes that such problems could be resolved, it acknowledges the
reluctance of banks to enter into a shared agreement with another ADI.
7.18
Aside from the practical day-to-day difficulties for banks in sharing a
facility, a number of submissions referred to regulatory impediments to the
shared banking model.
Regulatory impediments—the Trade Practices
Act
7.19
The ABA obtained legal advice that underlined the potential difficulties
involved in the sharing of banking facilities. In brief, this advice suggested
that the ‘per se provisions of the Trade Practices Act 1974 (TPA)...and
the obligations imposed on licensees by the Financial Services Reform Act
2001 (FSRA) are likely to pose significant regulatory impediments to the
commercial arrangements by which banking facilities may be shared’.[21]
7.20
The major concern was whether the prohibitions on restrictive trade
practices under the TPA would apply to the commercial arrangements entered into
under any proposal, planned or implemented by banks, for the sharing of banking
facilities. The legal advice identified the following provisions of the Act
likely to have a bearing on decisions to share banking facilities:
- Collective boycotts or market sharing under section 45—this
section prohibits the making or giving effect to a contract, arrangement or
understanding containing an exclusionary provision. Under section 4D, an
exclusionary provision must be between competitors and have the purpose of
preventing, restricting or limiting the supply or acquisition of goods or
services to or from particular persons or classes of persons or on particular
conditions.
- Price fixing under section 45A—this section deems a
provision of a contract, arrangement or understanding to lessen competition
substantially if it has the purpose, effect or likely effect of fixing,
controlling or maintaining price (or a discount, etc) in relation to the supply
or acquisition of goods or services by competitors.[22]
The advice explained further:
The sharing of banking facilities
could encompass, for example, arrangements involving:
- the sharing of physical infrastructure, eg: branch premises and
information technology;
- the sharing of employees and joint provision of customer
services;
- the appointment by one bank of another bank to act as its agent
or representative; or
- the appointment of an authorised representative to represent more
than one bank in the provision of customer services.[23]
7.21
According to the advice, in some circumstances, these arrangements may
provide an opportunity for information regarding prices, costs, products or
services (including proposals for products or services) to be shared. In
addition, some arrangements may require banks to agree on the costs each will
incur in the sharing of banking facilities.[24]
7.22
While conceding that such arrangements would not necessarily contravene
the prohibitions on restrictive trade practices under the TPA, the advice
concluded that it was ‘highly likely that the arrangements would attract close
scrutiny’ by the ACCC.[25]
7.23
The legal opinion accepted that the ACCC may grant an authorisation if
it were satisfied that any lessening of competition arising from the provision
would be outweighed by public benefit. It nonetheless questioned the
effectiveness of seeking an authorisation because of a number of disadvantages
such as:
- the absence of any time period within which non-merger
applications must be approved;
- the process of review adds significantly to the delay and
uncertainty of the review process; and
- the potential for exposure of commercial information relating to
the parties to authorisation.[26]
7.24
The ACCC informed the Committee that in principle it is possible for
banks to establish arrangements for sharing facilities without raising trade
practices concerns, but nonetheless agreed with the view that it, as a
regulatory body, would take a close interest in bank sharing arrangements. It
stated:
Generally, the banking and financial services sector is
important for the strength of Australia’s economy and a sector that affects
nearly all consumers. Consequently, collusive activities in this sector have
the potential to generate significant detriment for the community. As such, it
is likely that the Commission would examine any proposal by banks to share
facilities.
...
In any event, if there was a prospect of a breach of the Act,
the relevant banks could obtain an authorisation if they could satisfy the
Commission that an initiative to share banking facilities generated a public
benefit outweighing a public detriment.[27]
7.25
In addressing the concerns about the length of time to obtain an
authorisation, the ACCC conceded that the process is necessarily thorough and
rigorous but that the Commission aims to issue a draft decision within four
months and a final decision in six.[28]
Mr Brian Cassidy, ACCC, explained further:
There are certain processes we have to go through which are
important because...what we are doing is giving an exemption to conduct which is basically
unlawful under the terms of the act...The process is very transparent and open.
It provides opportunity for interested parties to have their say...That said, the
speed with which we are able to deal with authorisations depends, importantly,
on the speed with which the applicant deals with the issues...So the timing is
partly in the hands of the applicant.[29]
7.26
The Committee accepts that the ACCC should pay attention to activities
such as sharing arrangements by banks. It understands that parties to such arrangements
are entitled to seek an authorisation if they are worried that their proposal
might raise trade practices concerns. The Committee appreciates that the
process requires the parties to establish that their arrangement would generate
a public benefit outweighing any public detriment but that such a process,
while needing to be thorough, need not be lengthy.
Regulatory impediments—Financial Services
Reform Act (FSRA)
7.27
The legal advice also examined the licensing obligations under the FSRA
which requires a person who operates a financial services business in Australia
to hold an Australian services licence. The Act allows one person to be an
authorised representative for two or more financial services licensees if each
licensee consents to the person being the authorised representative of each of
the particular licensees. This means that licensees could share facilities by
each appointing a person as its authorised representative for the purpose of
providing financial services on their behalf. In such a case, however, the
advice warned of the prospect of joint and several liability applying which
would be a likely disincentive for entering into such an arrangement.
7.28
According to the legal advice, a second problem arises from the
responsibility on licensees to ensure compliance with obligations imposed by
the FRSA. In other words, each licensee must ensure that their representative
complies with the obligations under its respective licence. The advice
emphasised that the licensee, not the representative, is accountable for all
services provided under the licence. It concluded:
The establishment of shared banking facilities would create
uncertainty for Australian financial services licence holders in relation to
compliance with the above obligations imposed by the FSRA and an onerous and
costly compliance burden.[30]
7.29
The Commonwealth Bank also suggested that confusion could arise as to
‘under whose licence the employee staffing the shared facility would operate’.
It explained further:
It may be possible to structure a ‘special purpose company’ in
which case the staff member would be authorised by each financial institution
but, as it stands, each financial institution would be jointly and severally
liable for the actions of the staff member. Thus, inadequate documentation/training
by one provider could result in a liability for each financial institution.[31]
7.30
The Act anticipates situations where a person can be an authorised
representative for more than one licensee. ASIC outlined to the Committee the
basic principles of the FSRA governing a situation where more than one
licensee, in this case a number of ADIs, share services across a group. In
turning to liability issues, Mr Ian Johnston, ASIC, mentioned that the
licensing process was still in an early stage but that someone does have to be
liable for the conduct of the representative and if they are representing more
than one licensee, there does need to be a cross-endorsement by each licensee.[32]
Ms Pauline Vamos, ASIC, explained:
The act does contemplate that where a person does have a
different authorisation for a different type of financial service, the
licensee’s liability would be limited to the provision of that financial
service. Where that person is providing the same service for two different
licensees, there is cross-liability.[33]
7.31
She made the point:
Our key message there is that somewhere somebody in the group
has to take responsibility for monitoring and supervision and there must be
close liaison between the licensees. It is not an insurmountable hurdle.[34]
7.32
In reviewing the proposal for shared banking, Mr Bell told the
Committee:
The preferred position of the banks is that we would rather see
third parties roll out these networks, as they already have, and compete
through those networks rather than go through this process, which is still
cumbersome, of potentially having shared facilities. That is the preferred view
of the members.[35]
7.33
Clearly, there is a strong current of resistance from the major banks to
shared facilities. The Committee believes that the problems could be overcome
but, without the major banks’ endorsement, this option seems unlikely to take
hold. Although the Committee understands their reluctance, it nonetheless urges
the banks not to discard the idea completely. There may be circumstances particularly
in servicing the needs of small business in regional areas where cooperation
between the banks may be the ideal solution for the community and a means for
banks to maintain a physical presence in the locality.
Mobile banks
Community support for mobile banking
7.34
A number of submissions thought that a mobile bank could address the
problem of access to banking services for some communities. The Shire of
Woodanilling, which has no banking service within its municipal boundary,
submitted that it appears to be a policy of the banking industry to locate
lending officers in larger regional branches. It suggested that it would be a
major advantage for rural areas to have access to ‘travelling’ lending
officers. This arrangement would allow for urgent matters to be dealt with over
the telephone, while still providing a ‘face to face’ opportunity for people to
deal with lending issues.[36]
7.35
The Catholic Women’s League (Tasmania) referred to the mobile bank
system operating in the UK. According to the League it works along the same
lines as the mobile library units that service rural areas in Tasmania. The
mobile bank visits certain locations on set days and customers can take
advantage of normal banking facilities. It also allows business people to bank
their takings.[37]
The Shire of Wiluna also supported the introduction of circuit mobile services
to remote areas on a regular basis.[38]
7.36
Professor Harper also saw the potential for banks to explore the use of
mobile banks. He told the Committee:
What South Africans are doing with mobile banking and mobile
technology is just extraordinary. They are leaping over the need for lines and
physical facilities because the communities, as you would be aware, they are
dealing with are very remote, very poor, often illiterate. Yet the sorts of
banking services which are being taken to those communities are, in many cases,
very sophisticated. Ordinary villagers in South Africa are just as concerned
about their financial affairs.[39]
7.37
Indeed the Association of Bankers of South Africa is proud of its
success in developing and introducing two State of the Art Mobile ATMs to bring
‘banking to more people of South Africa’. It explained:
They are manned by a ‘Mobile ATM Custodian’ who is committed to
delivering professional and efficient service to all people he meets. This
highly trained individual not only drives the ATM to various destinations, some
of which are somewhat off the beaten track, but is also responsible for all the
technology support, the Communication link-up upon arrival, and manning the
Administrative desk when the ATM is up and running.[40]
Banks’ attitude to mobile banking
7.38
In evidence before the Committee, the banks indicated that they operate
a mobile banking service but this service seems to be confined to particular
customers and is concerned primarily with providing advice.[41]
As noted in chapter 5, there are specific sectors in the rural community, for
example the agribusiness sector, that are valued customers of the banks. In
such cases, the banks are catering to the needs of selected customers by
providing a mobile banking service for them.[42]
Mr Carroll, National Australia Bank, informed the Committee:
In the agribusiness division there are people who look after
those farms and stations. We run a fleet of 190 vehicles, and it does mean face
to face. Our agribusiness managers would be out there with those farmers once a
year with laptop computers running through their budgets. Often they would take
a specialist with them—if there is a commodities prices risk management need
that we can fulfil, we will take a specialist out there.[43]
7.39
The service is not confined to agribusiness customers. Mr Ian MacDonald
from the National, told the Committee:
We recognise that not everyone in the bush is a farmer. For that
reason, we have extended our relationship approach to other rural customers.
Since 1997, we have provided our rural business customers with dedicated
business relationship managers. Like our agribusiness managers, these business
managers reside locally, are mobile and are happy to travel to visit their
customers. These managers provide specialist advice to our customers across
their total business needs.[44]
7.40
Again the Committee refers back to its findings in chapter 5 which
showed that there are sectors in the rural economy which have benefited from
competition and receive high-quality service, for example personal relationship
managers who will visit customers at their workplace or home. Less valued
customers, however, miss out on such attention.
7.41
Evidence before the Committee suggests that banks in country Australia
are not enthusiastic about providing a mobile banking service for basic banking
transactions such as deposits and withdrawals. Mr Harley, Commonwealth Bank,
told the Committee:
In the mid-1990s, we actually had exactly that facility and we
were disappointed in the take-up of it...I suppose we can talk from experience in
terms of having found it not to be greatly successful for us and, for that
reason, not something we are actively considering at the moment.[45]
7.42
Mr Jennings, Westpac, expressed concern about matters surrounding
security.[46]
7.43
The Committee agrees with the observation that delivering banking and
financial services through a mobile bank provides a satisfactory compromise for
areas unable to support a bank branch. It accepts, however, that banks are
reluctant to expend time and resources on customers unlikely to produce
significant commercial returns. Even so, the Committee believes that the banks
have not demonstrated a commitment to service their retail customers in country
areas by exploring and actively pursuing a range of potential service delivery
channels including mobile banking. The proposal for a mobile rural transaction
centre discussed later in this report is an example of the innovative approach
being taken by local councils to find solutions to the banking difficulties
faced by their residents in outlying districts. The banks do not appear to have
the incentive to follow their example let alone take the lead in investigating
different ways to meet the needs of their customers in country Australia
including through a mobile banking facility.
7.44
The Committee believes that this means of delivering banking and
financial services to rural and remote Australia could be explored further.
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