A move to free banking?

[MotherBear]

Banks scramble for lost accounts
Sunday October 1, 2006
By Maria Slade

Kiwibank is picking up 2000 new accounts a week as the major banks scramble to lure back customers.

Westpac is the latest bank to launch a fee-free account, and says it's done so to win back the 100,000 customers it has lost to Government-owned Kiwibank since it was set up five years ago. The move matches ASB's Streamline account, which from today charges customers no fees as long as they only bank electronically and forego a monthly bank statement.

Westpac's revamped Elect account will offer the same deal from November 6. All online, Eftpos and ATM transactions will be free, and no minimum balance is required. However, if the customer needs to contact the branch there will be a $3 fee. Neither account pays interest.

The advent of zero-fee accounts comes as the banking market reaches hyper-competitive levels, with New Zealand banks earning the smallest profit margin in the Western world. Customers have benefited from better home mortgage, credit card and online savings account deals in the past couple of years. This latest move appears to have been driven in no small part by Kiwibank.

"To be honest, the mainstream banks have given Kiwibank a pretty free run for the past three or four years," said David Cunningham, general manager marketing and products for Westpac. "Kiwibank has 100,000 of Westpac's customers."

Kiwibank chief executive Sam Knowles said the bank had 450,000 customers. It's currently putting on 2000 new customers a week. Knowles said Kiwibank hasn't had a free run - in fact it was the other way around. "New Zealanders have had 10 to 15 years of increasing fees and reduced service, and someone came along and offered them an alternative option." Kiwibank also has fee-free accounts, but they require a minimum balance.

"We don't have a low functionality, zero-fees account because we think that's just a bit cute really. [The banks] know actually people can't behave that way and everyone needs to go and put cheques into a branch occasionally, and they'll end up paying big fees anyway."

However, Westpac research shows its customers will be significantly better off under the restructuring of its accounts. Under the old structure "start-out" 18 to 24-year-olds were paying an average $167 a year in fees. Under the new structure they will pay an average of $14 a year.

The Consumers' Institute said to remain competitive it was inevitable other banks would offer zero-fee accounts. It said it was good news for consumers, but warned people to be aware of high fees for phone and over-the-counter transactions. The Institute will keep a close eye on savings accounts, as banks have to make money somewhere. It would be concerned if there was a reduction in interest paid.

National Bank claimed it was not seeing customers move to other banks. "In fact we are seeing good growth in our customer numbers. While fair pricing is important, customers identify with more than just bank fees," said Gillian Dudgeon, general manager products.

ANZ's managing director of retail banking, Wayne Besant, said ANZ launched its Everyday $5 account in August allowing customers as many transactions as they like. "We believe that a flat fee option, with no extra fees depending on the service you use, is great value."

ASB said its customer numbers were up four per cent for the past year. Head of retail banking Ross McEwan said the key driver in gaining and keeping customers would be a bank's relationship with them.