You are not permitted to download, save or email this image. Visit image gallery to purchase the image.
At first glance the review of New Zealand banks by the Financial Markets Authority and Reserve Bank is largely positive.
None of the shocking and disgraceful practices revealed in the recent Australian inquiry came to light. And the banks acknowledged the sales incentives created by pay structures were changing.
Nonetheless, an uneasiness remains.
First, why would the big four New Zealand banks, all Australian owned and with more than three-quarters of the business, be that different from their parent companies?
Second, the New Zealand review was very different from the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. How hard did the review probe the ANZ, ASB, BNZ, Westpac, Kiwibank, TSB, SBS, Radobank, Heartland Bank, The Co-operative Bank and HSBC?
The review, as it said, did not audit files and accounts and look in detail at historic cases. Rather "our review was based on interviews with bank staff and directors, and documents supplied to us by the banks". Information supplied was tested by on-site reviews and a consumer survey conducted.
Encouragingly, additional feedback included from Consumer New Zealand and relevant unions.
The banks here will be pleased they escaped relatively lightly.
The review of Bank Conduct and Culture confirms banks will be expected to stop providing staff incentives to sell the likes of insurance or Kiwisaver on top of their normal banking. Banks have until next March to have a plan in place to effectively get rid of sales incentives and deal with other shortcomings, and nearly a year before they might be publicly named and shamed for failings.
Clearly, a lot of upselling of products has been going on.
As businesses, banks want to make as much money as possible. Other businesses, too, aim to sell people what they do not necessarily need or what.
But banks are in a privileged position, often holding mortgages on people’s biggest asset, their house, and often being the conduit for their savings. They have social responsibilities and long-term obligations to do the best by their customers.
If, as the Government says, their houses are not in order, regulation will be required.
The review also said "no blame, speak-up cultures", should be promoted. It was concerned whistleblower policies were not particularly effective in encouraging staff to speak up about day-to-day issues.
Banks, especially those in Australia tagged with disgraceful practices, must be pleased customers are largely creatures of habit and inertia.
Australia’s biggest, the Commonwealth Bank of Australia (ASB’s parent), seems to be riding out severe damage to its reputation, at least for now.
Meanwhile, many customers on this side of the Tasman might talk about change to New Zealand-owned banks but relatively few do so.
Recent record announcements — combined after-tax profits of $4billion for the ANZ, Westpac and BNZ — show just how profitable this business can be. That is a lot of money mostly going overseas.
As has been noted, New Zealand should take heed of the changes in Australia, even if that means some regulation. Its thorough commission’s findings will lead to improvements in rules, processes and culture. This country can piggy-back that.
Whether the review effectively dug to the bottom of banking issues here or not, banks will be recognising how important customer trust will be as technological innovation sweeps the world. Peer-to-peer transactions and block chain technology could swipe bank business. Small players might find niche banking positions, while giants like Amazon, Facebook, Google or Alibaba have the customers, data and capital to eat the banks’ lunch.
Banks, surely, dare not continue to incentivise unwise upselling. They will have to be focused on the best interests of their customers and build trust as part of their strategy to try to ward off future competitors.