Better Banking for the Bush

By Mark Sneddon and Soruban Rajakulendran.

Key Points:
A recent Commonwealth Parliamentary Report has outlined a range of measures designed to improve financial services in regional and rural Australia.

The Parliamentary Joint Statutory Committee on Corporations and Financial Services has called on regulators and industry groups to adopt a range of measures to improve the provision of financial services outside metropolitan Australia. Its report "Money Matters in the Bush" tabled on 15 January 2004 reviews the effect of cost cutting measures by banks on rural, regional and remote Australia and suggests practical recommendations to encourage the financial services sector to be more active and responsible in providing access to services in rural Australia.

Problems identified

A combination of economic factors has led to a significant reduction in the number of bank branches over the past few years. Although the availability of internet and telephone banking has brought greater efficiencies, improved financial performance and reduced costs, closing branches has meant that customers have had to transfer accounts (at significant cost), learn new methods of banking, and have to travel long distances to conduct face-to-face banking.

Many Australians in rural Australia are unable to access technology because of inadequate infrastructure to support the delivery of the service, lack of skills or high costs. Local councils feel that banks have failed to provide rural customers with the skills and confidence to use new technology effectively.

The Committee identified indigenous Australians as a particular concern because of the combination of remoteness, lack of financial literacy, socio-economic disadvantages, cultural differences or a combination of these factors that they may face.

Banking institutions sharing facilities or other innovative ideas such as mobile banks were identified as an ideal solution by many customers as a way for banks to maintain a presence in rural Australia, while maintaining lower costs. However, this approach lacks support from the big banks.

Although the withdrawal of big banks in rural areas lends itself to greater opportunities for smaller Authorised Deposit-Taking Institutions (ADIs), there are a number of hurdles in expanding their rural business, particularly compliance costs and a lack of flexibility in some requirements under the Financial Services Reform Act 2001 (Cth).

Third party arrangements such as facilities offered through Australia Post provide access to services with fewer staff and at lower costs. Customers have stated, however, that the service provided is not adequate because of a lack of access to professional banking staff, and that third party arrangements create privacy and security concerns.

Rural Transactions Centres (RTC) have been established over the past few years. Although they provide a convenient location for people to conduct their affairs, many of them do not offer banking services, preferring to use their resources on social services.

Key recommendations

The Committee recommends that measures are put in place to exempt a customer from stamp duty and other associated costs when transferring a loan from one financial institution to another as a result of a branch closure in Rural Australia. When such closure occurs, the bank should waive fees or penalties incurred by a customer closing an account. This should be included in the Transaction Services and Brach Closure Protocol. Additionally, banks should minimise penalties in rural areas where customers have no choice but to use a foreign ATM.

This Protocol has been adopted by the Australian Bankers' Association (ABA), committing the industry to provide on-going face-to-face banking services for personal and small business customers after a branch closure in rural Australia. The committee recommends the following additions to the Protocol:

• during considerations to close a branch in rural Australia, a bank must consult with customers and community organisations about substitute options for the loss of service; and
• when a bank intends to close a branch in rural Australia and that branch is the only branch in the town, the bank must give six months written notice to its customers and community organisations. When notice is given, the bank must release a community impact statement to help customers understand the reasoning behind the closure and to assist them in accessing other banking facilities, for example through the RTC program or Australia Post.

The Committee recommends initiatives from many of the Government Agencies and Departments involved in the financial industry. It recommends that:

• ACCC convene an industry working group to review current practices in the transfer of accounts from one financial institution to another, formulate a best practice guide and incorporate it into the Banking Code of Practice
• APRA, ASIC and CUSCAL consult with small ADIs about the impact of the regulatory regime on ADIs and prepare a report to be tabled in Parliament as to how costs could be minimised without compromising consumer interests or prudential standards
• ABA amend their current code of practice to include a commitment that banks will take reasonable measures to educate customers on new technologies
• the banking industry formulate a safety net basic bank account with extended benefits, and advertise its availability in Rural Australia
• the forum established under the Banking Code of Practice should report publicly on the jurisdiction of the Banking and Financial Services Ombudsman, and whether it should be broadened to include complaints regarding access to banking services
• financial institutions be required to disclose their practice of providing finance to disadvantaged districts, similarly to the UK, USA and Canadian requirements; and
• the Federal Government play a greater role in gathering statistics on access to banking services and appoint an agency to analyse and interpret the information.

The Committee recommends that the Federal Government make a public recommitment to the RTC program and conduct a review of the RTC program focusing on:

• the adequacy of the level of funding
• developing an appropriate communication network between individual RTCs and Government departments
• establishing why many RTCs do not provide banking services; and
• innovative ways to deliver services such as mobile RTCs.

Additionally, it recommends that a member of the indigenous community should be appointed to the RTC Board, and that banks should have trained officers who have knowledge of the local community and businesses in the district available at RTCs.

The Committee recommends that financial literacy and money management form part of the curriculum from primary schools through to secondary and adult education programs. It also recommends that the Government provide funding to assist financial institutions to provide employment and educational opportunities for indigenous people. The Committee applauds the regime by which the Canadian Bankers' Association encourage financial literacy, and urges the ABA to follow its practices.