by Scott Pape - June 30th 2007
I’ VE worked out that giving a speech in front of 1000 strangers is infinitely easier than addressing a smaller crowd dotted with familiar faces.
I learnt this when I headed home to the country this past week to deliver an after-dinner speech for the Central Victorian Business Network.
Upon arriving home, I was puzzled when my parents informed me that they’d decided to take a pass on attending my presentation. “Why would we pay good money to hear you speak?” asked my mother – just the positive reinforcement I needed before I stepped on stage.
In the end their non-attendance was a godsend. With fewer familiar faces in the crowd, I quickly got into the groove. And once I had done so, it got me thinking about how responsive, innovative and practical country people can be.
Bendigo: not so backwards
Many city slickers see places such as Bendigo as being, well, perhaps a little backward when it comes to business. Yet this is a town that built the highly successful Bendigo Bank, which recently rebuffed a $2.5 billion takeover offer from the much bigger Bank of Queensland.
As opposed to the big banks, Bendigo is owned by thousands of small, local, vocal shareholders, many of whom not only bank with the bank, but have also proved to be loyal long-term investors.
This explains why Bendigo’s board felt comfortable rejecting BOQ’s offer (twice), despite the protests of stock analysts that a merged entity would be better equipped to take on the banking behemoths.
There’s no doubt that the big banks are the 800-pound gorillas of corporate Australia. During the past decade they have let their guard down, and in the process allowed nimble competitors to court their customers.
Technology changes big bank operations
The big banks embraced technology in the 1990s, using our rapid up-take of internet banking to encourage customers to do their banking online or via a cost-cutting call centre rather than at a branch.
Those people still wanting a relationship with their banker soon found it would be cheaper to take the teller on a date than to be socked with a fee to see the teller over the counter.
CLOSING unprofitable branches helped deliver billion-dollar profits, but it came at a heavy cost to their reputation within the community – especially in regional towns that bore the brunt of the many branch closures.
As a major regional player the Bendigo saw the often-disastrous effects this was having first hand, and came up with a way to serve the community and help build and differentiate their brand.
The result is the highly effective community-banking model – when banks moved out, the Bendigo moved in.
Managing director Rob Hunt says: “We believe our customers are much more likely to buy from us and stay with us if we are strongly connected with them and their communities.”
Despite customer satisfaction levels heading south, the property boom and our insatiable appetite for borrowed funds were a bonanza for the big banks.
Increased demand brought with it an increased supply of new, often complicated mortgage products, opening the door for loan brokers to act as the middleman.
The real cost of mortgages and refinancing
According to industry data, about 40 per cent of new mortgages and up to 80 per cent of refinancing are now sourced through loan brokers.
Loan or mortgage broking is largely an unregulated industry. However, unlike their financial planning pals, mortgage brokers seem to so far have come off unscathed from taking long-term trailing commissions on the financial products they promote.
Now that some of the heat has come off property lending, many banks are looking at their loan books and noticing that ironically they’re paying ongoing trailing commissions to salesmen who have placed some of their former customers into loans. It’s now the loan brokers who have the relationship with the client – not the bank.
IN response to these challenges the CBA and ANZ set up separate stand-alone mortgage businesses, which target savvy consumers confident enough to deal direct, often via the internet or over the phone. The deals they offer are often lower than the same product sold under their bank banner – especially when they can strip away the loan broker’s ongoing kickback.
How credit cards figure in
Yet it’s not just in the mortgage market where banks are feeling the pressure.
It used to go something like this: deposit your money in a bank account and get two parts of bugger-all in interest, and then take that money and loan it back to consumers at 18 per cent on their credit cards.
Now new savvy entrants such as ING direct have increased competition in savings accounts – and others have followed suit (there are now 10 online saving accounts offering interest rates greater than 6 per cent).
In the now highly competitive credit card market we’ve seen the introduction of low-rate credit cards, and no-annual-fee cards.
Citibank suffers from small ATM network syndrome, so has entered the market with all-you-can-eat banking for five bucks a month (waived if you credit your salary). Yep, if you want to send Citibank broke, you can withdraw your pay $20 at a time from a 7-Eleven ATM machine and not only will you not incur a fee but they’ve got a linked account that pays 6 per cent.
Disclosure time – I bank with Citibank, but I only withdraw my money from the 7-Eleven late on a Saturday night.
Financial literacy
In my speech in Bendigo I talked about the need for financial literacy in the wider community, specifically my plans for implementing a financial education program in schools. Young people need sound advice rather than spruikers touting the next “big money-making idea”.
Sustainable wealth is built slowly, it’s a rather dull long-term process of spending less than you earn and investing the difference. Yet few people seem to grasp this concept.
How else can you explain the fact that despite the banks now grudgingly offering online savings accounts and low-rate credit cards, most customers still have their money in basic banking accounts and their credit on cards that are (in some instances) 10 per cent higher than what they could be paying if they simply filled out a form and transferred the balance.
Tread your own path!
Photo: www.flickr.com/photos/ecstaticist/2104593549/
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