ATM fees abolition a smoke screen?

One of several “enhanced” ATM’s located in the Alberta Arts District of Portland, Oregon. Photo by Ian Sane

If you were feeling all warm and fuzzy about the Big Four banks deciding to drop the hated ‘foreign’ ATM fees, sorry, the feeling won’t last. For a start, the Commonwealth Bank’s decision to go first didn’t last long. The CBA announced the fee abolition early on Sunday (aiming for a slow news day lead). But within hours, Westpac, the ANZ and National Bank of Australia had all suddenly (on a Sunday) released statements that they had come to the same point of view. The likely reason is that the boards of all four banks (and others) have had the ATM fees item on their agendas for a while now, just waiting for the right time to tell their media people to press “go”.

And they make it sound like they’re doing us all a big favour. Banks have been gouging ATM fees (typically $2 or $2.50) since the Reserve Bank of Australia first said they could, in March 2009. The main ‘victims’ of this unjust fee (for using an ATM owned by another bank), were the people who travel interstate or intrastate and had no choice.

RBA data tells us there were 251.65 million ‘foreign’ ATM withdrawals in the last financial year. Deutsche Bank estimates the Big Four have foregone about $117 million by dropping the ATM fee, according to the Australian Financial Review. But that’s a modest amount compared to the $4.4 billion we collectively pay out in bank fees every year.

RateCity analysis of RBA data shows the average mortgage holder paid $471 on banking fees last year. That includes $240 a year in home loan fees and $231 in credit card fees.

In this context as some have suggested, the ATM fees abolition story is a PR smoke screen. ABC senior business correspondent Peter Ryan said of Sunday’s news coup…“the planned, if not co-ordinated, decision is mostly about banks doing what it takes to avoid a royal commission into bad banking behaviour.”

The most recent media disclosures about money laundering allegations compound other image issues for banks, including financial advice scandals and allegations of market manipulation and misleading conduct.

While the big bank PR people might be spinning this as “listening to our consumers”, the real story is ATMs are becoming less popular.

Reserve Bank of Australia (RBA) data shows ATM use is falling and falling sharply. Monthly withdrawal transactions have fallen from a high of 78.427 million in December 2008 to 48.684 million in January 2017.

Banking analysts ascribe this sharp downturn in ATM use to the now ubiquitous “tap” method of paying for anything from a Mars bar to a week’s worth of groceries. There is also the “any cash out?” query whenever you spend money in a supermarket or bottle shop.

Pat McConnell, Visiting Fellow, Macquarie University Applied Finance Centre, says new technologies will soon be launched that further undermine ATMs. The biggest will be the New Payments Platform (NPP). Another is OSKO, a new payment mechanism from the developers of BPAY.

McConnell writing for The Conversation, says the NPP will change the way that payments are made in Australia.

“Rather than putting a payment on a credit card or waiting a few days for a payment from another bank to clear, with NPP payments will be cleared in a few minutes or less. Using NPP, anyone will be able to make an almost instantaneous transfer of funds into the bank of a supplier, such as a plumber.”

As McConnell puts it, with NPP, everyone with a smartphone and spare cash is an ATM.

Technology changes go some way to explaining why so many bank branches are closing or relocating to kiosk-style retail outlets. Last week, for the first time, I withdrew cash from an ATM outside the local Bank of Queensland branch. I did so because the Suncorp branch in Maleny closed in mid-September and with it went the Suncorp ATM. Suncorp’s advice was to use (a) the BOQ-branded ATM across the road or (b) withdraw cash at the Post Office. Transaction duly completed, I was pleased/relieved to find that I was not charged a fee for using the other provider’s ATM.

(Incidentally, Suncorp announced on Tuesday it would scrap ‘foreign’ fees on its 400 ATMs Australia-wide by the end of December).

There are still six ATMs in Maleny, although the jury is out as to which won’t charge a fee if you bank with someone else.

In case you didn’t know, some ATMs (the ones found in pubs, casinos, convenience stores, roadhouses and other retail outlets) may charge you a fee regardless. What the Big Bank decision to scrap ATM fees means for their business model remains to be seen.

Maleny has just two banks left (Bank of Queensland and Maleny Credit Union (now called MCU Ltd). The ANZ left its ATM in place and established a mobile business bank at the other end of the street.

Since 2007, the number of bank branches in Australia has dropped from 6,600 in 2007 to fewer than 5,600. Branch closures are ongoing, with the Finance Sector Union recently revealing Westpac branch closures in Western Australia and Victoria.

When our local Suncorp branch closed, we went in to check out rumours of cake. Yes, there was (gluten-free) cake, iced in Suncorp colours.

We popped in to say “bye”, but ironically tellers were too pre-occupied serving customers for other than a quick “thanks and good luck”.

What’s bothering me more, honestly, is my habit of collecting gold coins in a container and, once I have $100 or so, banking the cash in my account. Oh, you do that too? The gals at Suncorp didn’t have a problem with this old-school habit. We were told (by Suncorp) we could do basic banking business at the local Australia Post branch. I queued up yesterday, banked $30 in gold coins and it was no drama at all. I even got a receipt.

Now, about that late fee for missing a credit card payment by one day…


No interest at all

Johanna Ljungblom/

Though the headline might put you off, we must ask: why are interest rates dropping, who does it affect and where will it all end?

Few people would be unaware that the Reserve Bank of Australia (RBA) dropped the official cash rate to 1.50% on August 2, the lowest rate since records have been kept.

The supposed reason is to stimulate the economy (that is, to encourage spending and borrowing). It is theoretically OK to do this when inflation is low or falling as it is now. Conversely, as inflation rises, so do interest rates (RBA considers that this will restrain borrowing and spending).

An official cash rate of 1.50% is a huge problem for self-funded retirees such as yours truly and She Who Supports Ethical Investment. Four years ago we invested in a bank term deposit paying 5%, with interest paid annually. The annual payment dropped into our bank account this week. But where do we turn when this tiny golden goose gets killed off next year?

On current speculation, cash rates could drop to 1.25% by the second quarter of 2017. Given that inflation is currently 1%, that is a pretty skinny return.

The theory is we (self-funded retirees and younger people trying to save), will turn to the share market, where one can not only get better yields, but also the prospect of capital gains (and a tax break via dividend imputation). That means the company paying the dividend has already paid tax on it, so the franking credits (tax component) is refunded to the investor. But as we all know, the share market is volatile; you can lose money, companies can reduce or suspend dividends; gadzooks, companies can go broke and your modest $12,000 investment drifts away like steam from a kettle.

We’re told inflation has dropped from 1.7% in January to 1% in June, yet each week we seem to spend more at the supermarket and the petrol pump. House insurance premiums are rising, ditto rego, electricity and water rates. What’s really going on?

The low interest scenario, not by any means restricted to Australia, is set to continue for the foreseeable future.

Pre the GFC (2008), self-managed retirees could obtain interest rates of 6% to 7% on term deposits so their SMSFs were earning a fair, tax-protected return, sufficient to pay pensions and preserve capital (thus avoiding the inevitable dip into the public purse).

In this low interest rate environment, the biggest risk is that naïve investors will be lured into higher-rate schemes which are either unsecured and risky or just outright scams. The best known of scams is the Ponzi scheme, where a promoter offers you 12% on your investment, making interest payments with new deposits and eventually fleeing to some country with no extradition treaty.

Caveat emptor, mate.

Nevertheless, an official interest rate of 1.5% looks generous compared to the UK, US and Japan, the latter entering negative interest* territory in February. In post-Brexit UK, the Bank of England cut the cash rate this month to 0.25%, its first rate cut in seven years. The rationale for doing so was to support growth and return inflation to a sustainable target of 2%. UK inflation was 0.3% in May, so we can see what they mean.

Steve Worthington, adjunct Professor at Swinburne University of Technology revealed an odd cultural reaction to negative interest rates in an article written for The Conversation.

One month after the Bank of Japan’s decision to unleash negative interest rates, applications to join the loyalty programmes of Japanese department stores such as Mitsukoshi, Daimaru and Takashimaya (which offer discounts on goods of 5% to 8%), were 100-200% higher than in the same month of 2015.

Such consumer behaviour undermines the intentions of the central banks. Prof.Worthington proffers that if the weapon of negative interest rates does not work as expected on currency values or domestic consumption and investment, what else is there left to deploy to prevent deflation and a further slowdown in economic activity?

Prof. Worthington says negative interest rates are intended to boost domestic demand by forcing banks to lend money out and encourage consumers to both borrow and spend.

But they cannot bank on the unpredictable behaviour of individuals and organisations. Prof Worthington referred to the unexpected result this week after New Zealand’s central bank cuts its cash rate to a new low of 2%.

“Rather than that lowering the value of the NZ dollar, it has actually sent their dollar higher – economics theory meets reality and is found wanting!”

Many Euro Zone countries are already in negative interest mode, Japan has just joined the club and the US (0.5%) and UK (0.25%) is as close to zero as you can get. There are even a few economists in Australia who believe we could be at zero interest within a couple of years.

A collaborative essay in the Wall Street Journal examined the trend to negative rates, uncovering some evidence the policy was backfiring. The authors wrote:  “some economists now believe negative rates can have an unintended psychological effect by communicating fear over the growth outlook and the central bank’s ability to manage it.”

If the primary motive of low or zero interest rates is to encourage citizens to borrow or spend, it appears to be a lost cause. The OECD index of household savings shows savings are high and likely to go higher in countries such as Germany, where the percentage of disposable income which is being devoted to saving rose to 9.7%, and is forecast to rise to 10.4% this year.  The OECD also forecasts the rate to rise in Japan.

While Australians now are saving just under 10% of their disposable income, in the noughties we were saving virtually nothing and gearing ourselves into unsustainable debt.

A Federal Treasury paper, The rise in household saving and its implications for the Australian economy, theorises that had household savings remained at  2004-05 levels, consumption would have been 11% higher than its current level – about 6% of GDP.

“The primary effect of the turnaround in household saving has therefore been to reduce the extent to which interest rates and the exchange rate have needed to rise to maintain macroeconomic balance.”

The paper noted that subdued household spending will also present challenges to the retail and residential construction sectors.

So what does the average punter do – buy a safe (apparently ‘trending’ in Japan), stash the cash under the mattress, buy gold bullion, collectables or vintage wines?

You can still find a few banks with term deposit rates around 3%, though the rate does not vary much between six months and five years.

Self-funded retirees who need a certain level of return to maintain their lifestyles have only a few options: take riskier investment strategies (hybrids, debentures, unlisted property trusts), dig in to capital; apply to Centrelink for a part-pension or (shudder) start job-hunting. (Either that, or forget about that trip overseas…Ed).

*instead of receiving a return on deposits, depositors must pay regularly to keep their money with the bank.