Homegrown disadvantage for banks

For the past three years Kiwibank has been voted New Zealand's Most Trusted Bank in the annual Reader's Digest poll.

Not bad for an entity that was a mere twinkle in Jim Anderton's eye a decade ago.

It's a mark of the mana New Zealanders bestow on the handful of homegrown financial institutions. It seems accepted as fact that Kiwi-owned banks offer superior service, cheaper fees and more convenience.

Nielsen figures for the six months to March show a net +38 per cent of people would be likely to recommend Kiwibank to their family or friends. Its Taranaki-based compatriot TSB Bank scored even better with +52 per cent.

In comparison BNZ scored -16 per cent, Westpac -18 per cent, and ANZ -23 per cent.

The news that Pyne Gould Corporation, Southern Cross Building Society and Canterbury Building Society plan to merge their banking-related assets and create a fourth locally owned bank has been met with much interest.

But is Kiwi-made really better?

It's all smoke and mirrors, says Massey University banking expert Claire Matthews.

"There is a perception that the Kiwi-owned banks are providing better service and that becomes self-fulfilling, in that people expect that and therefore that's what they see."

All the banks provide fundamentally the same products and services, she says, and customer service generally comes down to who you deal with on the day. No bank has a monopoly on the best people.

Local ownership may benefit the country but it does not directly benefit consumers, she says.

Consumers Institute chief executive Sue Chetwin notes Kiwibank has always committed to offering cheaper mortgages and its rates are consistently near the bottom of the band.

But it isn't always the cheapest - last week BNZ was offering a variable rate of 5.59 per cent, beating Kiwibank at 5.65 per cent.

With over 300 branches via the New Zealand Post network - the most of any bank - Kiwibank does seem to have prompted its competitors to reopen branches they had closed.

"But whether they are in fact more competitive I think is down to perception and also probably marketing."

They're also not perfect. Last month Kiwibank received a rap over the knuckles from the Commerce Commission over its method for calculating mortgage break fees.

However the key for consumers is the existence of competition, says the bank's chief executive Sam Knowles.

Kiwibank came in with lots of branches and simple products, and competed aggressively on price.

The Australian-owned banks responded by bringing their prices down. Kiwibank in turn improved its products and now competes on a range of fronts.

Knowles cites its new online budgeting tool Heaps and its Go Fly Mastercard which earns users Air New Zealand Airpoints dollars as recent examples.

Without that challenge the main banks would just focus on how to increase profits out of existing customers, he says.

"The reality is those challengers are probably only going to come from New Zealand because there are not too many other people who've got the commitment to come in and put the networks in."

He points out that HSBC and Citigroup have pulled back in New Zealand, and the global financial crisis saw banks around the world retreat to their home markets.

Ross Smith, managing director of Invercargill-based SBS Banking Group, says the three existing Kiwi-owned banks have to do everything at least as well as their Aussie competitors just to get in the race.

"[Then] people will, I think, weigh up the more value propositions and one of those value propositions is Kiwi ownership."

Price is only a temporary thing because it's pretty simple for your competitors to match you, he says. There has to be a stronger strategic advantage.

SBS aims to compete on service. That means no call centre in Manila or Mumbai. "We get a huge number of compliments about our contact centre ... Aucklanders they actually enjoy it because we have a little accent down here."

Local ownership means local employment, but bank workers' union Finsec is not always impressed by the Kiwi-owned institutions.

The local banks often offer better working conditions, campaign director Andrew Campbell says.

"Certainly they tend not to have the kind of performance management systems, the targets and the chronic understaffing that the Australian banks do."

The flipside is they pay less, particularly Taranaki's TSB which he describes as "hostile" to Finsec's organising in its workplace.

The union's figures show the starting salary for a TSB teller is $29,500, rising to a maximum of $35,000. In comparison at ANZ/National Bank a teller starts on $32,900 rising to $46,000.

TSB chief executive Kevin Murphy says only a small number of its staff are Finsec members so the union speaks for a minority.

He also says pay is not everything. TSB regularly tops customer satisfaction surveys and the feedback from staff is that they like the environment. "The two sort of go hand-in-hand, really - happy customers, happy staff."

Like Kiwibank TSB competes vigorously on product, particularly its two-year fixed home loan which has been been one of the lowest over the last three years, Murphy says.

However, the main Aussie banks argue that their size offers them the edge over local institutions because they can afford to invest in research and development.

ANZ managing director of retail Kerri Thompson gives the example of new 24-hour banking technology ANZ has trialled in Wanganui. The machines take deposits in all forms, including coins, and provide receipts.

Within two weeks, 47 per cent of deposits in the city were made using the new technology, she says.

"It's that sort of technology that people, as they get busier, really need, that we can afford to invest in."

BNZ external relations manager Diane Maxwell echoes the investment theme. BNZ has placed a priority on fraud and security. One of its developments is "liquid encryption" which protects customers' credit cards by re-encrypting the data on the magnetic strip every time it is used in a BNZ ATM.

The bank is also creating local jobs by "insourcing" work such as a call centre for its parent NAB here in New Zealand, she says.

There remains the greater good argument, however.

Business commentator Brian Gaynor says New Zealand is out of step with the rest of the world in that 95 per cent of customers are with foreign-owned banks. In most countries the vast majority of people bank with locally owned institutions.

He believes retaining New Zealand ownership is important. Banks are profitable entities, and at the moment most of those profits are lining the pockets of Australian shareholders.

"The biggest contributor to our current account deficit is all the dividends going from the banks back to their Australian parents."

Made in New Zealand

* Kiwibank

Customers: 700,000

Credit rating: AA-

Net profit: $52.5 million for year to June 2009, up 43 per cent

Current floating mortgage rate: 5.65 per cent

Hot products: Heaps online budgeting tool; Go Fly Mastercard

* TSB Bank

Customers: 150,000

Credit rating: BBB+

Net profit: $51.2 million for the year to March 2010, up 19 per cent

Current floating mortgage rate: 5.99 per cent

Hot products: Two-year fixed mortgage 7.19 per cent

* SBS Bank

Customers: 80,000-100,000

Credit rating: BBB

Net profit: $12 million for the year to March 2009, down 16 per cent

Current floating mortgage rate: 5.90 per cent

Hot products: Flexi Loan mortgage