ANZ, which charges a flat rate of $5 a month on its standard transaction accounts, is hoping it can persuade customers to trade up to ANZ Extras, costing $18 a month, with an offer that includes dining and shopping discounts, bonus rates on savings accounts, emergency services and insurance.

ANZ’s general manager deposits, Mandy Simpson, said the bank’s research showed that customers liked the peace of mind of a flat fee account. Simpson said: “The other thing they tell us is that they are busy and they like the idea of a package of services that are good value and are covered by one fee.”

The transaction account is operated with a Visa debit. Customers are given a fee free overdraft up to $1000 (the fee is usually $6 a month). If customers open a linked online savings account they get 20 basis points on top of the base rate (currently 4.5 per cent).

Customers can also have a fee-free credit card – ANZ First (18.99 per cent on purchases and no rewards program). The $18 fee covers premiums on mobile phone insurance, domestic travel cover and a small amount of accidental death cover.

Non-financial benefits include 20 per cent discounts on meals in designated restaurants (15 in the program so far) and discount shopping with Top Wines, Always on Sale, Travel on Sale and others. There is also 24-hour roadside assistance and two free callouts a year for home emergencies such as broken windows or power failures.

After the Reserve Bank put up the cash rate by 25 basis points in April, Citibank increased its personal credit card rate by 60 basis points, from 14.99 per cent to 15.59 per cent. According to InfoChoice, Heritage Building Society, Aussie, Macquarie Bank, National Australia Bank and Suncorp all increased purchase rates on their cards by 50 basis points. Cash advance rates went up even higher. Heritage Building Society increased the cash advance rate on its Visa Classic by 75 basis points. Aussie increased the cash advance rate on its Aussie MasterCard by 70 basis points.

Abacus is the umbrella organisation representing credit unions and building societies. “As the customer backlash builds, Woolworths is responding to complaints from customers with a standard message that entirely omits the fact that Woolworths earns sizeable revenues by forcing them to use the EFTPOS system.

Woolworths is not being open with its customers about its true motive for removing customer choice at the checkout. If Woolworths is successful in increasing its revenue by increasing costs for scheme debit card issuers, scheme debit cardholders may face higher transaction fees or higher account keeping fees. Woolworths should put its customers first and stop dictating to them about how they pay at the checkout,” Petschler said.

Reserve Bank of Australia statistics show credit card use has dropped almost 17 per cent in the past five years and now accounts for just under 42 per cent of all card transactions. Debit scheme cards, which are increasingly being offered by banks and credit unions, are the main reason for the trend. This card use has increased more than 30 per cent in the past 12 months alone.

“Debit scheme cards give consumers the best of both worlds; accessibility of a credit card and they allow the consumer to use their own money,” Datamonitor senior analyst Harry Senlitonga says. When it comes to choosing which cards to use, Australians prefer to use their own money, such as a debit scheme card or Eftpos, rather than borrowing on credit, Senlitonga says.

Other factors behind the increase in debit card use are the high credit card fees and interest rates charged. In contrast there is no interest and usually no fees involved with a debit card because the money is being taken from existing savings. If there is no money in the savings account, the transaction will not be accepted.

There are more than 275 million card transactions every month throughout Australia, of which 116 million are attributed to credit cards. Mr Senlitonga says if the trend continues, the credit card market share is expected to fall below 40 per cent.

Consumer group Choice spokeswoman Elise Davidson says one of the biggest moves in the debit card arena recently was by retailer Woolworths. The supermarket and variety store giant now only processes debit cards as an EFTPOS transaction.

Previously, like most retailers, it processed these cards as a credit card transaction. Woolworths has potentially shifted the cost of paying for the transaction from the retailer to the customer. This means debit card customers need to be aware each transaction might be counted towards their monthly Eftpos limit, depending on their bank’s fee structure.

Debit cards are processed by selecting the “credit card” option when paying at the shop counter. But when it is pressed, the retailers are charged a credit processing fee. Now, Woolworths will avoid that fee and the payment will be counted as the customer’s Eftpos transaction.

Consumer Action Law Centre director Nicole Rich says the move by Woolworths and potentially more retailers won’t make any difference to most consumers in their use of debit cards. However, it could mean they will be charged a fee by their bank if they exceed the number of free transactions each month. “You may want to check if your account provides unlimited Eftpos transactions,” Rich says.

“In fact we just upgraded our synergies by 29 per cent and our synergy estimates are more aggressive in Aviva than they are in Axa, so I think we’re very comfortable that what we’re paying [for Axa] is a fair price.” Much of the Spectator interview was centred on the strategic rationale behind NAB’s bid for the Australian and New Zealand business of Axa Asia Pacific, and he produced this nugget of data in the context of the suggestion that NAB extracted little value from its 2002 takeover of MLC, another wealth manager and life insurance business.

NAB agreed to pay $885 million for Aviva and has never clearly spelled out the cost savings and revenue gains that it is budgeting from this business. Meanwhile speculation resurfaced in the media that NAB was considering listing its British banking business operated through Clydesdale Bank on the London Stock Exchange.

The Sunday Times reported the possible listing was part of a broader review of NAB’s options for its business in Britain. It appears to be the fall back option if NAB fails to buy the 318 Royal Bank of Scotland branches and associated customer lists that are presently in the market

In a widely-anticipated move, the central bank notched up its fifth 25 basis-point rate hike in seven months, saying the global recovery, Australia’s rising terms of trade and the outlook for inflation also had forced its hand.  The dollar responded to the RBA’s decision by leaping as high as US92.46 – its strongest level in more than two weeks.

The increasingly upbeat outlook for the economy was also reflected yesterday in positive jobs data and by Australia’s share market, which returned to its highest level since September 2008 with a near 1 per cent jump in the ASX 200 index. “With the risk of serious economic contraction in Australia having passed some time ago, the board has been lessening the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker,” RBA governor Glenn Stevens said after the rates decision.

Mr Stevens pinpointed rising inflation and climbing house prices as key reasons behind the decision. “New loan approvals for housing have moderated over recent months as interest rates have risen and the impact of large grants to first-home buyers have tailed off,” Mr Stevens said

“Nonetheless, at this point the market for established dwellings is still characterised by considerable buoyancy, with prices continuing to increase in the early part of 2010.” “The board judges that, with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average.”

Banks quick to follow

Commonwealth Bank reacted within minutes of the RBA’s decision by announcing it would increase its standard variable mortgage rate by 0.25 percentage points to 7.11 per cent. Westpac, ANZ and National Australia Bank followed with the same move soon after, while Bendigo Bank said its lending rates were “under review”. Upbeat economic news out yesterday supported the improving outlook with ANZ revealing jobs advertisements edged up a combined 1.8 per cent last month, to be 8 per cent higher than a year ago.

More hikes to come

Economists also are expecting several more rate rises this year, with some predicting the cash rate could top out at more than 5 per cent by the end of the year. Financial markets yesterday rated the chances of a 25 basis-point interest hike next month at 32 per cent.

Macquarie Bank interest rate strategist Rory Robertson told BusinessDaily that official interest rates could get back to 6.5 per cent by the end of next year.

“If the economy continues to get back on its feet and the global economy continues to get back on its feet then you can probably expect interest rates to go back towards where they were before the world fell apart in September 2008,” he said.

The survey of 1042 people, conducted by Galaxy research, found four in five Australians were worried about their ability to repay debt over the next 12 months – up from 76 per cent in September 2009. “This is the highest level of debt stress in the past two and a half years of this study,” Veda Advantage said in a statement on Monday.

“Also of concern is the finding that one in seven Australians have missed a minimum bill repayment in the past three months – up from 12 per cent in September 2009.” Of those who had missed a repayment, one in ten are looking to take on more debt in the next six months, the survey found. Chris Gration, head of external relations at Veda Advantage, says the Federal Government should act quickly to protect Australian families experiencing stress from falling into a debt trap.

“The Government is dragging its feet delivering on its promised changes to the credit reporting system,” Mr Gration said. “Helping lenders prevent Australians from falling into a debt trap should be a high priority.

“Implementing promised credit reporting reforms will assist lenders to more easily identify when a borrower is overcommitted.” It would also give credit providers the tools they need to implement new responsible lending laws, Mr Gration said.

Credit reporting, which falls under the Privacy Act, has been under review since January 2006, Veda said. The Federal Government has indicated it will change the Privacy Act so lenders can have access to information on the number of loans a consumer has, how much they have borrowed and their repayment history.

Even before the financial crisis took hold HSBC was rationalising its investment in Australia, though changing priorities, and upgraded projections of population growth (driven by immigration from Asia) appear to be leading to a rethink on the bank’s options.

RBA assistant governor of financial markets Guy Debelle said the GFC had a “material impact in pricing and structure” in the Australian mortgage market, but it did not have a material impact on the quality of housing credit provided. “Housing finance has been readily available throughout the crisis period, with housing credit growing at about 8 per cent a year,” Dr Debelle said in prepared remarks to the Mortgage Innovation Forum in Sydney on Tuesday.

“The larger banks have filled the gap left by the decline of the wholesale lenders, so that there has not been a material constraint on the quantity of housing credit available in Australia throughout the crisis.” Dr Debelle said the higher costs of funding housing loans had not been fully passed through to borrowers. But he said the banks had made up for it by slugging personal and business loan customers by the higher cost of funding those loans. “The average rate on variable rate housing loans has increased by around 110 basis points relative to the cash rate since mid 2007,” Dr Debelle said.

“This increase, relative to the cash rate, is below the estimated 130 to 140 basis point rise in banks overall funding costs over this period. “In contrast, banks business and personal loans have increased by even more relative to the cash rate and by more than the rise in funding costs.” Dr Debelle said the fact home lending rates had not increased by as much as the rise funding costs reflected “the competitive state of the current market”.

The assistant governor also said how mortgage rates moved had an impact on the central bank’s monetary policy deliberations. “While interest rates on mortgages have increased relative to the cash rate, the Reserve Bank is able to take account of those changes in its policy deliberations,” Dr Debelle said. “The cash rate determined by the Reserve Bank is still the major determinant of the interest rate structure in Australia, including that of mortgage rates.”

The outlook for the smaller lenders had improved since mid-2009, he said, with the securitisation market starting to recover. “The cost of long-term and short-term wholesale funding has also decreased since mid-2009, although the cost of deposits remains high,” Dr Debelle said. “Consistent with this, the smaller lenders’ market shares have risen slightly over recent months, though they are unlikely to return to pre-crisis levels any time soon.”

Tightening lending standards had seen some banks reduce their maximum loan to valuation (LVR) ratios from 95-97 per cent to about 90 per cent during 2009, Dr Debelle said. Other changes have included higher interest rate buffers, increased “genuine savings” requirements and greater difficulty in obtaining low-doc and non-conforming loans. This has resulted in the share of new owner-occupier housing loans with an LVR of above 90 per cent fall to 17 per cent at the end of 2009, compared with 27 per cent in the March quarter.

“The share of low-doc loans has declined to about 7 per cent,” Dr Debelle said. Dr Debelle said the provision of mortgage credit in Australia was likely to continue to be adequate in a competitive marketplace.

The research has emerged amid a furore over Westpac’s decision to charge interest on credit card interest and fees. Federal Treasurer Wayne Swan said Westpac’s behaviour was exactly why people didn’t like big banks. “Unfortunately this bank seems like it’s becoming a serial offender when it comes to taking its customers for a ride,” he said yesterday.

“There are other credit cards that don’t charge interest on fees and no doubt many Westpac customers will be considering those today.” Not only are there credit cards that don’t charge interest on fees, some cards don’t charge interest on interest. Consumer group Choice has found cards offered by Bendigo Bank, Heritage Building Society and Teachers Credit Union do not charge interest on interest.

These were also the cheapest cards in a Choice test – up to 80 per cent less expensive than cards offered by most majors. Choice has found Australian cards would fail changes being introduced in the UK.

The changes include that repayments must be allocated to the part of the debt attracting the highest interest, unsolicited credit limit increases are banned and that consumers can reject interest rate hikes. The measures are expected to save customers up to $800 million a year.

Yet Choice’s Alan Dooley said: “Most of the practices to be outlawed in the UK are standard practice for Australian banks.” A spokesman for Financial Services Minister Chris Bowen said it was monitoring developments in the UK and a ban on unsolicited credit limit increases was on the way. Also yesterday, data from the bank regulator APRA showed that, over the past 12 months, major banks raked in $45 billion of interest.