Aggregate fee growth has fallen sharply over the past three years from 8.3% in 2008, 6.1% in 2009 and 0.0% this year. 

Across the two broad customer segments, bank service fee revenue decreased by 16.4% to $4.25 billion for households, while for businesses it increased by 13.9% to $6.87 billion. 

This year (2010), bank service fee revenue from households fell by a large $835 million or 16.4% to $4.25 billion, the first fall on record, with falls across five of the six major products categories for households.  Fees on transactions accounts fell by a massive 36% or $668 million and for credit cards, the fall was 11% or $148 million.  The only category which increased was housing loans which saw a very small $27 million or 2.1% increase. 

At 13.9%, the growth rate for bank service fee revenue from businesses was the highest since 2001.  This reflected increased bank intermediation of business funding as a result of the global financial crisis.  Even so, fees on deposit accounts of businesses have fallen by 17% over the past two years.

Bank assets are growing at a faster pace than bank fees

Bank service fee revenue will normally grow if bank assets, such as loans, grow. 

At the end of June 2010, total resident assets of banks were $2.4 trillion.  This was an increase of $29.5 billion or 1.2% over the previous year. 

The following chart shows that there has been a downward trend in the ratio of bank service fee revenue to average total resident assets.   In the early part of this decade, this ratio averaged around 0.87%.  It is now at a record low of 0.47%.  

The reason that this ratio has been falling is evident from the table below.  That is, banks’ resident assets have been growing at a faster rate than bank service fee revenue. Over the past five years, bank assets have been growing, on average, by 13.9% per year.  This is 2.5 times faster than the average growth in bank service fee revenue (5.4%) over the same time.   

Bank service fee revenue as a proportion of operating income has stayed within a tight range of around 15%-18% over the ten years shown in the chart below. 

Over the past four years, the ratio has been at the lower level of this narrow range (between 15.3% and 15.7%) averaging 15.4%.  For the four years prior to that (2003-2006) it averaged 17.4%. 

In 2010, the ratio of bank service fee revenue to operating income was 15.4%. 

Households

For the 2010 survey, bank service fee revenue from households was $4.25 billion, a large fall of 16.4% or $835 million over the previous year.  This is the first fall on record.

Fees fell across five of the six major products categories for households. 

Fees on transactions accounts fell by a very large 36% or $668 million.  For credit cards, the fall was 11% or $148 million.  The only product category to increase was housing loans which saw a very small $27 million or 2.1% increase.

In 2010, bank service fee revenue from households accounted for 38% of total bank service fee revenue compared with 46% in 2009.   In 2008, it reached a high of 48%.

It is useful to compare bank service fee revenue from households with total household spending, using the ABS National Accounts aggregate – Household Final Consumption Expenditure (HFCE).  

This year saw a substantial fall in the proportion of household expenditure on banks fees to 0.61%.  The chart below shows that bank service fee revenue from households as a proportion of HFCE was very stable over the prior four years, between 0.74% and 0.76%. 

Over the 12 months to the end of June 2010, banks average outstanding loans to households (excluding securitisations) were $1.01 trillion. 

The ratio of bank service fee revenue - from bank lending to households - to aggregate bank lending to households conveniently summarises the relationship between these two items.

Over the 12 months to the end of June 2010, bank service fee revenue from loans to households was only a small fraction (0.29%) of total lending to households.  This ratio is now at the lowest level on record. 

Over the 12 months to the end of June 2010, bank service fee revenue from transaction accounts made up 28% of total bank service fee revenue from households, the lowest on record.   Over the ten years from 1999 to 2008, fee revenue from transaction accounts ranged from 41% to 45% of total bank service fee revenue from households, falling to 37% in 2009 and 28% now.

Prior to 2010, transaction accounts had been the highest contributor to bank service fee revenue from households for every year of the survey. This year, fees from transaction accounts rank behind housing loans and credit cards.

The proportion of bank service fee revenue from housing loans and credit cards has grown over the past two years.  This has been a result of large falls in fees on transaction accounts, not large rises in fees for housing loans and credit cards.  That is, over the past two years, fees on transaction accounts have fallen by a very large 43% while fees on housing loans have increased by only 6% and fees on credit cards have fallen by 5%. 

Average Weekly Bank Fees Paid by Households

In 2010, there were 8.4 million households paying on average around $9.73 per week in bank fees.  This is a fall of $2.13 or 18% over the previous year ($11.87).

For households who only have a transaction account, the average weekly fees were $2.73, the smallest amount over the past decade. 

Average weekly fees paid on transaction accounts fell by a significant amount, $1.61c per week, over the previous year (it was $4.34 per week in 2009) and by $2.28 over the past two years. 

Housing loans

At the end of June 2010, there were over 5 million active home loans in Australia with banks being the lender for about 81% of these.   The total value of lending for homes on the books of Australian banks was $959 billion at the end of June 2010. 

Housing finance statistics from the Australian Bureau of Statistics (ABS) show that over the 12 months to the end June 2010, there were 569,504 new housing loan commitments made by banks to owner-occupiers with a value of $164 billion.  Furthermore, ABA estimates that this rises to nearly 787,667 new housing loan commitments if investor loans are added. 

The total value of housing loan approvals made by banks to new owner-occupiers and investors was $239 billion over the 12 months to the end of June 2010.   

 
The value of bank service fee revenue from home loans as a proportion of average home loan outstandings is the lowest level on record.  For 2010, the total value of bank service fee revenue collected from housing loans is much less than 1% (0.14%) of the total value of housing loans being managed by banks.

Credit cards

Bank service fee revenue from credit card products fell by a large $148 million or 10.5% to $1.26 billion in 2010.  This is the first fall on record, since the survey commenced in 1997.  The fall was driven entirely by a 42% reduction in exception fees.  

Transaction accounts - Households

For the vast majority of bank customers, their most regular experience with banking is through their personal accounts – that is, their transaction account used for day-to-day transactions or their investment account, generally used for savings. 

Over past year, there were almost 1.56 billion credit card transactions, 830 million ATM transactions, 2.1 billion EFTPOS transactions, 311 million cheques issued and processed and 2.4 billion direct entry payments.

Internet banking usage was 2.5 billion in terms of the number of value and non-value transactions in 2010. 

In 2010, bank fees paid by households on their transaction accounts was $1.2 billion, a massive fall of 36% or $688 million over the past year and the lowest level over the past decade. 

The fall in transaction account fees this year follows a large fall of 12% or $248 million last year.  That’s a $916 million or 43% fall over the past two years. 

Moreso, over the past two consecutive years, the large falls in bank service fee revenue from transaction accounts has been seen across all sub-categories of transaction account fees i.e. account keeping fees, transaction fees, other fees (including exception fees).

Bank fees paid by households on their transaction accounts makes up only a small proportion of total bank income.  In 2010, this was at a low of 1.7%, half that of five years ago.

 
Businesses

For 2010, bank service fee revenue from businesses was $6.9 billion.  This is a 13.9% or $838 million increase over the previous year, with 57% of this increase coming from large businesses.

Bank service fee income from businesses accounted for 62% of all bank service fee income over the past year (2010). 

For the three years prior to the onset of the global financial crisis, growth rates for bank service fee revenue from businesses were low.  In 2004, there was a fall of 3.0% while for 2005 and 2006 there were small increases of 3.3% and 1.9 respectively.

In the three years since the onset of the global financial crisis, average growth in bank service fee revenue from businesses has been 10.1% per year.

The increase in bank fees since the commencement of the GFC reflects the disruption in global financial markets over that period.  That is, businesses increasingly turned to banks to support their financing needs as other markets tightened or closed entirely.

For small businesses, growth in bank service fees was 10.5% this year while for large businesses growth was 18.2%.  Over the past three years, average annual growth in fees from large businesses (17.4%) has been three times faster than for small businesses (5.4%). 

At the broad product level:

• Businesses experienced a 7% fall in fees on deposit accounts in 2010.  This follows a 10% fall the previous year.

• The past two years have seen fee growth from business loans increase by just over 20% per year (i.e. 22% in 2009 and 21% in 2010).  In terms of the overall dollar amount of the increase in fees from business loans, large businesses have accounted for 85% of the increase over the past two years.  This significant increase in loan fees paid by large businesses was a direct result of the global financial crisis.  As global capital markets became severely constrained and corporate treasuries closed, businesses approached banks for their funding needs. 

• Merchant fees increased by a small amount (2.3%) over the past year, the same as for the previous year.  Merchant fee reform saw merchant fees fall in 2004 and 2005.  

For 2010, bank service fee revenue from business loans accounted for 40% of total bank service fee revenue from businesses, the highest contribution, from this category, on record.   In fact, fees from business loans have been the highest contributor to total bank fees from businesses for the past six years (i.e. from 2005).  Merchant fees were the highest contributor for the six years prior to that (1999-2004).

In 2010, merchant fees were the second highest category of fees from businesses at 27%. 

Fees from deposit accounts held by businesses made up 10% of bank service fee income from businesses in 2010, the lowest contribution on record.  For eight years from 2001 to 2008 deposit accounts contributed 16% to 17% to bank fees from businesses.

Over the four years shown in the chart below, 2007-2010, merchant service fees were the second highest contributor to bank service fee revenue from businesses

The ratio of total bank service fee revenue from businesses loans to total loan outstandings for businesses fell, in trend terms, over the period 2001 to 2008 but has turned upwards over the past two years.   Even though there has been an uptick in the data, it remains lower than for the first half of the decade. 

The strong performance of the business sector over recent years has been widely reported.  This has resulted in a marked increase in use of banking services by businesses.

 
Exception fees

Over 2010, a total of $764 million of exception fees were paid by households and businesses.  This was a fall of almost half (48%) or $718 million over the previous year. 

This year, exception fees accounted for 6.9% of all bank service fee revenue, compared with 13.3% for the previous year. 

In 2010, households paid $652 million in exception fees while businesses paid $112 million.

For households, exception fees fell by 49% or $638 million this year.  Exception fees paid by households fell across every product category. 

For household transaction accounts, exception fees fell by 57% or $382 million as banks continued to reduce exception fees and introduce more fee free accounts.  Likewise, exception fees on credit cards experienced a very large fall of 42% or $219 million. 
 

In 2010, exception fees represented 1.06% of banks total operating income, falling from 2.06% the previous year.

At $292 million in 2010, exception fees on transaction accounts were 0.06% of total deposits, falling from 0.16% in 2009 and 0.19% in 2008.

Updated July 2011