Fees paid by households to Australian banks in 2020 fell at the fastest rate in a decade thanks to the impact of the pandemic and the associated lockdowns.
The 24th annual report on bank fees issued by the Reserve Bank in its June quarterly bulletin showed that fee income slumped $823 million or 6.5% last year from 2019 to $11.446 billion.
That was also down 7.7% or more than $900 million from 2017’s $12.412 billion, which was the halcyon days of pre-the Hayne Royal Commission which exposed fee gouging on a massive scale by banks and other big financial institutions.
“Business fee income accounts for around two-thirds of banks’ overall fee income, while households account for the remaining one-third of banks’ fee income. The ratio of lending fee income to assets (loans) declined a little, continuing the trend of recent years.
“Deposit fee income decreased slightly relative to the value of deposits,“ the RBA said
Last year saw sharp falls in the use of credit cards, personal loans, and overseas ATM withdrawals, the rise in use of debit cards and the new payment method of Buy Now Pay Later where fees and charges are outside the banking system.
The RBA said the fees paid by households fell 10% to $3.6 billion, the biggest drop since 2010.
While household bank fees were already falling in recent years, the sharp change in 2020 was driven by the pandemic, with lower fees for foreign exchange services, overseas ATM withdrawals, personal loans, and a decline in the number of credit card accounts. Fees income from credit cards slumped 15% in 2020 alone, according to the study.
One big growth area in fee income last year was from home lending and that should again be the case this year. Last year saw a lot of refinancing pf loans as mortgagees took advantage of the slump in interest rates – that was a godsend for the bank revenues and earnings as the RBA explains:
Fee income from housing loans rose in 2020. This reflected an increase in account-servicing fees and other housing loan fee income, which was partly offset by lower income from transaction fees.
“The increase in fee income from housing loans is consistent with the high level of mortgage refinancing throughout 2020, as borrowers took advantage of the very low level of housing interest rates. When a borrower refinances their mortgage with another lender, they generally pay fees to both their new and previous lenders.
“These switching costs typically include an application or establishment fee for the new loan and a fee to discharge the old loan,’ according to the RBA.
That sounds like money for jam for the banks, especially for the big four which still dominate home lending.
Fees paid by business customers also fell, by 5% to $7.9 billion. The RBA said a key reason for the decline was because lockdowns led to lower merchant fees, which are paid for processing card transactions.
The RBA in fact saw the fall in merchant service fee income in 2020 “as the largest decline since 2004, when interchange fees – the fees paid by a merchant’s bank to a cardholder’s bank whenever a card purchase is made – declined significantly following the Reserve Bank’s reforms to credit card interchange fees in 2003.”
But again, the fees paid in Buy Now Pay Later transactions sit outside the conventional payments system.
