What will banking look like in 2021?

Will 2021 see the end of cheques? Photo / file

Major banks will all stop accepting cheques in 2021 while branch closures and a decline in the number of ATMs are set to continue.

Roger Beaumont, chief executive of the New Zealand Bankers Association, says the outbreak of Covid-19 has sped up trends in the banking industry that were already happening.

Its industry-wide research shows there was a 15 per cent reduction in branch transactions involving cash in 2020 and a 30 per cent drop in those involving cheques.

"Cheques are in rapid freefall in terms of their usage and I think you have got to bear in mind Covid last year accelerated a lot of these trends that we are seeing whether it is in branch transactions, use of cheques or on the flip side the increase in online engagement and activity and online banking and mobile banking."

"That really accelerated significantly through the Covid period because people didn't really have a realistic alternative except for, particularly during the lockdowns, on very limited hours a week with their major bank."

Its research shows 75 per cent of bank customers are now registered with internet banking and 70 per cent of those registered users are considered active.

Beaumont said all the banks were working really hard to help customers with the transition to digital banking.

"It is a bit scary if you not familiar with technology - it is a little bit foreign and I think banks have a role to help people understand that it isn't that scary and it is actually a really user friendly experience and it does make life easier and it is a more secure way to operate in terms of a lot of transactional activity."

Beaumont firmly believes New Zealand will get to a stage where all customers are doing their banking online.

"I think over time absolutely we will. If you had asked me that pre-Covid I'd have added another 10 years to the figure. I think that has certainly accelerated things. Within the next 10 to 20 years we would be very close to that point."

While digital usage has increased ATM transactions dropped 12 per cent in 2020.

Like branches Beaumont says ATMs are a traditional distribution channel.

"In the sense it is a physical location you go to transact the only difference is you are not dealing with a person. It is quite understandable that the ramp up in digital engagement means that any of those traditional channels are reducing in their popularity."

While there is a need for cash and demand for cash ATMs will always have a function, he said.

"But I doubt whether we will see them being as prolific as they are now in the future."

"The flipside of ATMs is in a small community that is too small to have a branch they are a great alternative."

ASB and BNZ have already signalled major branch closures in 2021. ASB will close 23 branches in February and reduce the opening hours of another 13 branches.

While BNZ closed eight branches before Christmas and will close a further 30 over the course of 2021.

"I think we have seen an acceleration in the number of branch closures as a result of Covid because of the rapid change in behaviour and activity it caused. Banks will continue to fine-tune their branch footprint but that will be getting the balance right between consumer demand and the level of branch presence."

Beaumont says there are some branches in small communities where there are fewer than 10 customers walking in the door a day.

"That is just unsustainable - that is not a good use of the staff members' time."

In 2020 many branch staff were redeployed to answer phone and email queries as calls to banks surged. Contact centre calls increased by 15 per cent to 13.2 million while calls were almost 30 per cent longer on average compared to 2019.

Despite the branch closures Beaumont points out there will be no redundancies because the demand for frontline staff is still there, it is just in a different capacity to the traditional branch structure.

"I think the industry has really stepped up in terms of the support it has given customers."

Around 12 per cent of home loan customers had a deferral in 2020 while 5 per cent switched from principal repayments to interest only. About 1 per cent were behind on their home loan repayments.

One in every five Kiwis has a mortgage with the average value around $260,000 and 60 per cent of home loans are now on fixed terms.

Around 69 per cent of all consumer lending (including home loans) that had been deferred is now back on full repayments.

"That is really encouraging because what that tells us is people understand and have got the message if you can afford to go back to normal payments you should and it's the right thing to do rather than defer things further."

Banks received one complaint for every 29,000 transactions in 2020 and only 2 per cent went on to the Banking Ombudsman

On average complaints were resolved in under five working days.

Beaumont says banks are much more focused now on getting in front of complaints and addressing them as quickly as possible now rather than letting them drag on and become an even bigger problem.

"It's to everyone's advantage to address complaints and resolve them one way or another as quickly as they can."

Roger Beaumont, chief executive of the New Zealand Bankers Association. Photo / NZME

Banks also dealt with $197m in fraud with 76 per cent of potential losses successfully prevented.

Beaumont says the big challenges for the industry for 2021 will be to continue supporting customers as the country grows out of economic challenges of the past 12 months.

"I think there is a bit of flow through to still come from the economic impact of Covid. Although the last quarter of 2020 was really strong I think in 2021 we will see the full impact of the peak tourism period without international visitors. There will be the real determination of any employment impacts from businesses that have been affected, particularly in that sector."

But he says bank CEOs are also hearing plenty of positive stories from customers around the country as well.

"We have got significant displaced spending that would have otherwise gone on overseas holidays being reinvested back in the community. I guess the question is how long that will continue and what the flow through of that is in balance with some of the other challenges that will also flow through."