About 350,000 ANZ customers pay the Breakfree fee, earning the bank $140 million a year. It will switch customers to a simple no-fee mortgage product, or one that charges $10 a month for an offset account.
ANZ Group director for retail and commercial banking in Australia Mark Hand said new requirements for banks to ensure products were suitable for customers had lifted regulatory risk on package fees. He said customers didn’t like the fees and many felt they didn’t get what they paid for.
“Clients definitely want clarity on what they’re getting for the fees they’re paying,” Hand said. “We think this will be very good for retention and will also help with customer acquisition.”
He pointed to the arrival of streaming services forcing the unbundling of Foxtel channels and said banks were under similar pressure as customers chose to buy products from various financial service providers rather than taking everything at one. single bank.
“As customers disaggregate banking services – they may have one bank for a mortgage and another for a credit card – I think customers need to have a cheaper option with good value for money, when they know what they get,” Mr. Hand said.
Over the life of a 30-year loan, annual fees of $395 add up to nearly $12,000. The Big Four’s variable package loan rate is, on average, 119 percentage points higher than their basic no-frills variable loans for homeowners, according to RateCity.
“A low interest rate generally plays a much bigger role in the overall equation, especially on larger loans,” said RateCity research director Sally Tindall.
After ANZ’s quarterly update last week, analysts worried about the bank’s loss of fee income at a time when interest income remains under pressure from low official rates. Taking into account the costs of replacing the clearing account, Macquarie estimates that ANZ will lose $60 million a year in revenue by discontinuing the product.
The decision comes with mortgage brokers operating in the best interest to ensure customers receive the right products and with banks working under a “design and distribute obligation”. Mr Hand said this required banks to ensure that customers were in the correct product, and if they did not use the benefits of the bundle, banks had to inform customers that another product might be more appropriate, creating compliance issues.
In March 2018, the Hayne Royal Commission heard how ANZ had struggled for a decade to deliver the product and failed to deliver promised benefits, including fee waivers and tariff reductions, leading to hundreds of thousands of customers to pay more than they should have. ASIC’s fine last year came after regulator found ANZ failed to remind customers when Breakfree benefits were not being used and fee waivers were not being charged correctly correctly in banking systems.
Even before it hit the regulatory speed bump, ANZ customers were abandoning the use of bundles, Mr Hand said. “Customers can more easily pick up their products from a range of suppliers, customers are starting to unbundle and get value for money through discreet transactions. There is an element of necessity here.
Customer aversion to card fees has been a key driver of growth in the buy now, pay later industry, shifting the cost of short-term credit products to retailers.
Analysts have lowered ANZ’s fee income forecast after the bank said last week the move would cost it $140 million. “We doubt future volume growth will offset this, so our non-interest revenue guidance for fiscal 23E and 24E has been lowered by approximately 5%,” said Morgan Stanley analyst Richard Wiles.
Mr Hand expects ANZ’s decision to force other banks to consider the regulatory risks of mortgage fees. “They will have to think about it and may well follow,” he said. “You have to think, are you offering value for the fee?”