ABA hub ruse distracts from a real solution for regional bank branches

When it comes to essential banking services in our communities, let’s stop putting a cape on sneaky politicking.

Since Simon Birmingham and the Australian Banking Association (ABA) released their “solution” to the regional banking problem last week, I’ve been asked for my view as CEO of Regional Australia Bank on the effectiveness of their proposal.

The kiosk and banking hub idea has been rolled out in other countries, most notably the UK and New Zealand. Does following in their footsteps give it credibility? Is the ABA’s proposal a step in the right direction?

No it isn’t. Not even close.

The ABA’s proposal cannot resolve the real issue facing communities that need essential, full-service banking. In my view, it is a thinly-veiled attempt to distract from the obvious solution while allowing the big banks to keep retreating.

Regional Australians deserve better than pop-up service “hubs” in libraries or shipping containers. Offering a second-rate service and calling it progress is an insult.

For years, large banks have known they can close a branch and retain the profitable banking relationships: deposit taking and lending. The expensive work falls to the bank that stays. Its trained staff handle signatory changes, powers of attorney, children’s accounts, scams and fraud. Many banks now want customers to deal with these problems online or by phone after long waits in queues. Customers need the option of face-to-face service.

Complex face-to-face banking issues can include cash, but this is far from an exclusive cash distribution problem.

Modern technology, including real-time interbank payments, allows customers to manage a split banking relationship. The bank that leaves town gains a cost advantage at the expense of the bank that stays. Economists call this a free-rider problem.

My colleagues and I at the Regional Banking Investment Alliance (RBIA) have been telling anyone who will listen that this free-rider issue, which we call “passthrough banking”, is already having a serious effect.

On average, around 40% of cash deposit transactions at a Regional Australia Bank branch result in money moving to another bank’s balance sheet within seven days. I estimate that customer-owned banks, which provide a disproportionate number of regional branches compared with listed banks, are subsidising larger banks, including ING and Macquarie Bank, by more than $100 million each year.

A reverse subsidy to the big banks exists today, paid for by regional Australians. Why should the banks that stay carry the costs of those that leave?

Enter the ABA and its undefined kiosk “solution”. Can it deliver the support regional Australians want and take the pressure off this growing cross-subsidy?

We decided to ask the experts: regional Australian banking consumers.

The response was emphatic. A concierge pointing you to a machine is no substitute for a branch. Not now. Not ever. Sending an out-of-town lender into premises paid for by local ratepayers and calling that community support is insulting.

Well over 90% of respondents identified access to highly trained branch staff, privacy and security, support for local businesses and communities, and in-person help with scams and fraud as critical to their banking needs.

The ABA’s kiosk proposal does not explain how it will meet these demands. Regional Australians should not have to accept a downgrade dressed up as a solution.

According to the ABA, our branches are disappearing because we don’t need them anymore. We are expected to believe falling transaction numbers have nothing to do with earlier branch closures, shorter opening hours or enquiries redirected to offshore call centres and chatbots. Don’t mind the $1 billion in annual cost savings the banks have taken out of regional Australia from branches already closed.

Australia already has years of experience with an alternative to branches called Bank@Post. It has value for basic transactions. Yet fewer than 40% of our regional Australian survey respondents had used it, and 80% of users did not consider it a sufficient alternative for their banking needs.

Kiosks and banks of ATMs are, at best, a tokenistic and politically motivated part solution. In a world of deepfakes, AI bots, cyberattacks and real-time irrevocable payments, we are re-learning the value of the best form of biometric identification: a professional human interaction.

There is an answer. Bring regional branches back and support those that have stayed.

Our big banks are among the most profitable organisations in the world. A banking licence carries an obligation to invest in and support face-to-face banking, wherever Australians live. That obligation cannot end when a branch becomes inconvenient to the big banks’ profit motive.

The obligation must encourage fair competition, eliminate free-riding and allow different banking strategies. It must not be gameable or rely on taxpayer funding. Above all, it must be simple. The ABA’s kiosk proposal ticks none of these boxes.

A solution is already sitting on the government’s desk.

Our Community Service Obligation (CSO) proposal recognises every bank’s obligation to fund and support regional branches. It gives every bank access to industry funding, creating sustainable business cases to reverse the disappearance of regional branches.

It is a solution built on listening to regional Australians, rather than telling them.

The problem for the big banks is that our proposal threatens the competitive advantage they have built from the branches they have already closed. In my view, that is why we have the ABA’s kiosk proposal. It leaves the underlying advantage intact and the door open for more branch closures.

Kiosks are not a proper, whole solution. At best, they are a small part of the solution.

The ABA’s proposal is a specious defence against real change. Let’s not pretend it puts regional Australians ahead of its big bank members.

Simon says the ABA will decide whether its own pilot succeeds. That is no basis for independent scrutiny. I hold grave concerns for our remaining regional branches if this fool’s gold becomes more than a pilot.

Canberra already has the real answer. We put it in their lap. Our simpler, more cost-effective alternative is based on two years of research and consultation.

It’s time to stop rewarding retreat and act on a real solution.

David Heine
CEO
Regional Australia Bank and member of the Regional Banking Investment Alliance