Sydney, 18 May, 2006: The average price¹ of banking in Australia is falling according to a new report by Macquarie University academic, Dr Kim Hawtrey.

The ‘Fees for Banking Services’ report says that increased competition and greater choice has allowed many Australians to switch to cheaper banking options – the effect is a reduction in the average price of banking for individuals.

Bank fee revenue can increase through:

1. An increase in the price of using products and services (i.e. transaction fees); and/or
2. An increase in the use of those services (i.e. volume).

The report by Dr Hawtrey finds that since the average price has actually declined, the increase in bank fee revenue is a story of volume.

Why are average prices for banking declining?
This is an important finding as it demonstrates that individuals are actively looking for the cheaper accounts to meet their needs. For high transaction users, this choice may be an ‘all you can eat’ account that gives unlimited transactions for a fixed monthly fee.

For other customers, a basic bank account which charges no monthly fee may be the smart choice. These accounts often have other restrictions.

A third category of customer may be lowering average prices by migrating transactions from higher cost channels like branches and cheques, towards lower cost channels like - Internet, credit card, telephone, EFTPOS and direct entry credits/debits.

With all these account options, customers get the benefit of highly convenient services and the security of having one of the safest banking systems in the world.

Why is volume increasing?
Even though the average price is falling, in 2005, bank fee revenue increased by 3.7% to $9.2 billion as a result of increased numbers and use of accounts.

For example, in 2005, the number of credit card accounts set up by banks increased 7%. For each one of these accounts, an annual fee is typically payable. For the same period, the number of credit card transactions has grown 5%.

In the last year, EFTPOS transactions increased 11.3% and, importantly, the lowest cost means of making a transaction, direct entry, increased in use by 8.7%.

Low-income earners and the user pays system
The Hawtrey report includes a table, using Australian Bureau of Statistics (ABS) data, showing that low-income households pay the lowest amount in bank fees – both in absolute dollar terms - $1.40 per week, and also as a proportion of the household’s income. The ABS data reveals the highest proportion of bank fees are paid by the households in the highest income category. This finding shows the increasingly user-pays banking system is not disadvantaging low income earners relative to higher income earners.

Notes for editors:
The Fees for Banking Services report can be accessed from the ABA website from the following link: www.bankers.asn.au/fees-for-banking-services-report

For further information:

Heather Wellard
Director, Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439

Dr Kim Hawtrey
Macquarie University
Mobile: 0404 476 012

ENDS


¹ Per transaction