Kiwibank 'wasting big chance'

By KEVIN TAYLOR

Kiwibank has blown a big chance to grab a large market share by announcing its products before its branches have opened, says a marketing expert.

Dr Mark Colgate, of Auckland University's business school, said all the attention on Kiwibank's products was being wasted.

Next Tuesday three branches open in Palmerston North and on Wednesday four open in Hawkes Bay. But most of its planned 300 branches will not open until April or May.

Kiwibank is offering low or no fees, low mortgage rates and high deposit returns.

But Dr Colgate, who runs an annual banking satisfaction survey, said the fact that few people could open an account meant the media attention on Kiwibank was being wasted.

From a marketing viewpoint the bank's launch should have included the opening of all branches, TV advertising and celebrities.

By April or May prospective customers would have forgotten what Kiwibank offered.

Massey University's Banking Studies Centre director David Tripe would not say Dr Colgate was wrong, but said the complications in getting a bank operating should not be underestimated.

"If they are going to go out to the market next week there's some political need to tell people about the products," he said.

Kiwibank yesterday promised low mortgage rates, as the NZ Post subsidiary tries to attract enough customers.

The bank wanted 100,000 customers after three years, chief executive Sam Knowles said. It planned to undercut the mortgage rates of other banks.

Kiwibank announced a 6.1 per cent home loan rate for floating and one-year fixed-rate mortgages, but it would be available only at the pilot branches.

The move was matched by the ASB Bank, which announced a special offer 12-month fixed rate mortgage of 6.1 per cent to customers in Palmerston North and Hawkes Bay.

The ASB issued a statement saying it believed such a rate was not sustainable, but it would "take an aggressive response to competitor initiatives of this nature".

The floating rate of the five main trading banks is 6.7 per cent.

Asked if Kiwibank would continue to undercut competitors' mortgage rates, Mr Knowles said it would keep a margin.

Asked how Kiwibank would make money with lower fees and mortgage rates, and higher deposit rates, he said it had a lower and variable cost-base.

Mr Knowles conceded Kiwibank's profit targets were lower than some of the other banks.

Mr Tripe said Kiwibank was not going to make much money in the short term.

He described the products as a "reasonable attempt" at catching a market share. But he said Kiwibank may end up attracting a lot of people who do over-the-counter transactions, which was not necessarily what it wanted.

Franchises taking up Kiwibank would make a loss if they were to get just 53c per transaction and Kiwibank was going to charge customers only 30c per counter transaction.

The bank has run into problems with some NZ Post franchisees who are unhappy with the 53c fee. Some franchisees say they do not want a branch. Of NZ Post's 300 outlets, 170 are franchises.

Mr Knowles said the bank was delivering on the promises made when the concept of a New Zealand-owned bank was first announced by NZ Post.

With a planned 300 branches by mid-year, Kiwibank would have the largest branch network in New Zealand, well ahead of the next biggest rival, WestpacTrust, with just over 200.

"Our strategy is to provide services in the community, human being to human being, where customers want it," he said.

Act MP Rodney Hide said Kiwibank's "overhyped" fee structure failed to meet the political promise of undercutting the competition by 30 per cent.

Kiwibank's own analysis showed annual transaction fees for a family of four was $97.20, compared with ANZ Connect 10's $114.90. That was a difference of only 15 per cent, or 34c a week. "Kiwibank is offering home loans at 6.1 per cent. ANZ's Easy Start loans are 5.45 per cent."

Mr Hide said Kiwibank's numbers did not stack up. He pointed out the counter fee would be 30c a transaction yet Kiwibank was offering franchises 53c a transaction.

That was why franchises were revolting and baulking at signing up.

"The counter transaction fee means that Kiwibank and the franchisees lose money on every transaction. It's no wonder the roll-out is stymied."

nzherald.co.nz/kiwibank