Chapter 4Possible solutions to the regional banking crisis
Introduction
4.1This chapter outlines a number of proposals for reforms that could address the impacts of bank branch closures on regional and remote communities, including:
alternatives to bank branches, such as better remote service options, co‑location of banks, community hubs, local council banks, mobile banking, and more community and customer owned banks;
increasing the role of Bank@Post;
a national public bank;
options for regulatory form, such as imposing a universal service obligation on the banks, increasing regulation and oversight in relation to branch closures; and
options to address the 'stickiness' of bank customers.
Alternatives to traditional branches
Better remote service options
4.2In response to concerns raised in earlier chapters, banks claim to have introduced measures to aid remote communities in maintaining access to banking services. Mr Ross Miller, Chief Customer Engagement Officer, Westpac, told the committee that Westpac 'can do many things currently that previously would have had to be done physically or face to face' through the ability to have remote conversations. Mr Miller claimed that Westpac has experienced 'a huge uptake in [its] virtual banking offerings'.National Australia Bank (NAB) explainedthat 40per cent of its home lending appointments are now conducted via videoconference.
4.3Video banking, however, relies on consistent and reliable digital connectivity, which is lacking in many remote areas. It also ignores the preference of some customers to discuss important financial decisions with their bank face-to-face. Mr Mark Reeves, Mayor, East Gippsland Shire Council, explained how trust and connection can be better fostered by in-person banking:
I think banks will tell us, 'Oh, you can do that via video links,' but a lot of our residents, because of the nature of banking and the investment required, would tend to like to have somebody face-to-face. There is a relationship and a trust that is built up, I think, and that's something that's happened in the past. We often hear of the bank manager being somebody who is embedded in the community and was trusted by the community and knew the community.
Co-location of banks
4.4The co-location of banks with other service providers was suggested in various forms. Dedicated banking hubs for multiple providers, sharing space with Australia Post, and setting up space within council offices were all canvassed during the inquiry.
4.5The Combined Pensioners & Superannuants Association cited the example provided by the Regional Banking Hubs pilot program conducted in New Zealand as a possible solution. Under the program, each of the major banks provide dedicated banking support staff at a single location, thereby splitting the costs of running a branch between each of them. Services offered include deposits, withdrawals, and basic transactions, similar to the current Bank@Post arrangements, but with the added convenience of having dedicated bank staff who are able to assist with more complicated banking matters.
4.6Westpac has been co-locating in some areas with its subsidiary, BankSA. MrMiller said the co-location program, commencing in 2021, allows Westpac to 'remove duplication in [its] network while investing in and maintaining [its] local presence'. Westpac currently has 20 co-locations across South Australia including in Port Augusta, Renmark, Mount Gambier, and Victor Harbor. MsDale Webster noted that although such outlets are co-located in a single location, they are claimed as two separate branches by Westpac for the purposes of reporting to the Australian Prudential Regulation Authority (APRA).
4.7The Australian Chamber of Commerce and Industry (ACCI) argued that a shared space would be an alternative to bank branch models. Such a space would 'substantially reduce the costs of operating a branch and make it economically viable to have a qualified banking staff member in the community'. ACCI posited that a shared space could include Centrelink or Medicare offices with a bank representative on a part-time basis. By partnering with local, state, and federal governments, ACCI believes 'banks could continue the provision of their services within the community at a greatly reduced cost'.
4.8Isaac Regional Council submitted a similar proposal and noted that sharing space with other parties that hold common objectives is used in other industries. Such an arrangement 'does not rely on other services to deliver banking services but provides low-costoptions for office space and allows complimentary services to be co-located to increase customer usage'. Isaac Regional Council acknowledged that Regional Transaction Centres (RTCs) and the Queensland Government AgentProgram (QGAP) already deliver co-located services in many areas, but that a shared location model 'allows for banks tomaintain a physical presence in towns that may not otherwise prove to be profit-positive', while leaving RTCs and QGAP to focus on government services.
Community hubs and local council banks
4.9Submitters also proposed the use of Australia Post's branch network as a possible solution to the problem of branch closures. Acknowledging that providing a retail footprint with personal face-to-face service is costly, the Licenced Post Office Group (LPOGroup) told the committee that using the established Australia Post network would be an obvious solution to provide additional services. However, such an arrangement 'must be adequately funded to meet commercial expectations by theproviders'.
4.10Mr Paul Graham, Group CEO and Managing Director of Australia Post, told the committee that, in some locations, the 'outlets are by nature small and do not come equipped with what you'd regard as the ability to conduct private conversations'—such locations would make it difficult to conduct private banking arrangements. However, Mr Graham said that Australia Post has looked at using branches with a larger retail footprint as Community Hubs. These branches would have dedicated lines for banking services and a meeting room that could be booked by a mobile banker or mortgage broker at scheduled times, allowing residents to plan banking visits. The first such Community Hub@Post has been launched in Orange, New South Wales.
4.11Mr Scott Etherington, Chair, LPO Group, told the committee that upgrading or converting existing post offices may not be as onerous as many believe:
To be a post office, we've got duress alarms, we've got time-lock cash containers, we've got double-lock safes—we've got all those sorts of things. We currently transact more cash than many bank branches today, so I think that point is moot. Any additional security required is not an impediment to making it happen.
4.12However, Mr Graham explained that Australia Post would need to consider security arrangements for any potential expansion of services:
[W]e need to look at the capability of outlets to do that, particularly from a security perspective and also from a size and scale perspective. When the last bank in town closes, we become the only outlet for those services. That means the actual foot traffic increases, particularly just after the closure. As you may know from being around your own electorate, a lot of these outlets are small. Therefore, we need to look at the physical changes that may need to be made and upgrades to safes, security and CCTV. It's not out of the question that we could do it, but we need to look at each town on a case‑by‑case basis.
4.13An expanded role for Australia Post and Bank@Post services is discussed further on in this chapter.
4.14A third model of shared spaces was proposed by submitters advocating for banking services to be located within shire and council offices. The Northern Regional Development Australia Alliance told the committee that such arrangements are already in place in some areas:
In the Tropical North Queensland region, the very remote Aurukun Aboriginal Shire Council in Cape York Peninsula, acts as an agent for Bendigo Bank, while Kowanyama Aboriginal Shire Council acts as an agent for the Commonwealth bank, with the service operated from the Kowanyama Post Office. Local government has stepped up and offered sustainable models where markets have failed.
4.15Mr Dale Grounds, CEO, The Capricornian Limited, explained how The Capricornian operates a similar service. The Central Highlands Council developed a model in which it operates an office out of the council service centre in Springsure, Queensland. Mr Grounds described the office as a 'mini branch' in terms of what it can offer customers:
We rent part of the counterspace and we have our own safe, so that's a full cash service, withdrawals, deposits, foreign currency. We do insurance and we have access to an office. People in those regions tend not to want to wander in and have a chat about a home loan straight away. They'll come in and ask for an appointment, and we'll send someone down from Emerald. It's only a 45 minute drive, so they'll shoot down the next day or the day after … within the suite of products and services we offer, it's the full package for those products and services.
4.16In its submission, the Shire of Ashburton went further than co-location and proposed a 'Local Government Bank of Australia' that would have 'a primary purpose of providing essential community banking services and facilitating investment in regional Australia'. According to Australian Local Government Association data, cited by the Shire of Ashburton, Australia has 537 councils of which 55 per cent are in regional, rural, and remote areas. The infrastructure is already in place to operate these council services and provides a ready-made network from which to operate a bank.
4.17Under the plan, the Local Government Bank of Australia would utilise the secure and accessible facilities in existing service centres to offer community oriented banking services. Benefits of such an arrangement include the reinvestment of profits back into the local community, increasing liveability of remote areas, closing the financial inclusion gap, and increasing workforce stability.
Mobile banking hubs
4.18In the event that neither stand-alone nor co-located bank branches can be accommodated, the idea of mobile banking hubs was put forward. Such a hub would involve 'a banking specialist who would attend regional communities to provide advice and support, provide documents to set up new accounts, provide lending advice, arrange loans, and establish digital skills for internet banking'. This would take the form of a mobile bank, similar to a mobile library. The banking specialist could potentially also provide regular education programs on digital and financial skills.
4.19Traditional Credit Union (TCU) proposed a hub approach in which banks and other service providers cooperate to deliver support through community-based hubs. In remote areas, such a hub could partner with local Indigenous organisations, employ Indigenous people, and promote financial inclusion through culturally sensitive interactions. Such a model would, in the view of TCU, reduce costs associated with supplying services, and would provide financial inclusion to customers who would otherwise hold little commercial value to an individual organisation.
4.20Given the difficulty in finding suitable retail space in remote communities, TCU suggested a 'trucked-in' solution utilising transportable buildings and shipping containers. Ownership of the hubs would lie with a local Indigenous organisation and funding for the establishment of such hubs could be provided under existing advancement grants and programs. Such a space could also potentially house other financial services including superannuation funds, financial counselling services and specialist training providers.
4.21Dr Andy Schmulow, Associate Professor of Law at the University of Wollongong outlined to the committee how a similar program has been successful in South Africa. Under the South African model, the banks' primary motivation is 'to adhere to the highest standards of market conduct … and that an integral part of their approach was not to simply walk away from their obligations to serve their customers'. To this end, the major banks in South Africa have provided full bank branch facilities to the most remote areas of the country, including parts with no electricity. To do this, banks have converted shipping containers into full-service branches and mounted them on trucks that are then driven to remote parts of the country. Banks aim to give customers access to a mobile branch at least once a week.
4.22Indigenous Consumer Assistance Network and Weipa Community Care Association (ICAN and Weipa) also advocated for mobile banking to be utilised in service provision. Mobile banks would require a 'collaboration between the major banks in providing a core team so they can aid all banking customers regardless of who they bank with'. The mobile banking units would provide services including replacement and activation of key cards, funds transfers, internet banking and banking application (app) support, opening of accounts, and assistance to apply for loans. ICAN and Weipa said that it believes 'it is unreasonable to expect a banking customer to wait for more than a month' for any of the above services.
Response to these options
4.23Ms Webster noted that the co-location model is similar to that of the Rural Transaction Centres (RTC) initiative launched in 1999 as an outcome of the inquiry into Regional Banking Services. Ms Webster argued that the RTC model did not live up to expectations at the time:
Rural Transaction Centres, a government-funded initiative to come from the Hawker inquiry, also didnot live up to expectations … The RTC scheme only lasted until 2003 before being rolled into another federal grant initiative andhas, according to the…Department of Infrastructure, Transport, Regional Developmentand Communications, disappeared into history with no information available on the current status ofany of the centres that were opened under the program.
4.24In the 2004 Money Matters in the Bush report, the Parliamentary Joint Committee on Corporations and Financial Services (PJCCFS) noted that the majority of witnesses supported the RTC program but still raised concerns about aspects including the implementation process, limited range of services, commercial viability, maintaining momentum, and future funding. The PJCCFS recommended that the'Australian Government conduct a review of the RTC program and its future direction'.
4.25Despite the limitations of the model, RTCs continue to operate in several towns, including Port Broughton and Bute, and offer services for the post office, Centrelink, and Medicare.
Community and customer owned banks
4.26Dr Klaus Serr from La Trobe University suggested that the high level of concentration in Australia's banking sector is not 'conducive to either regional or national economic development'. Instead, Dr Serr proposed Australia could learn from countries like Germany, where a large proportion of banks are not‑for-profit community banks. Dr Serr recommended 'that additional public/community banking services be considered, to diversify the Australian market and make it less vulnerable to market failure'; and '[t]hat any new community banks thus created, have a clear focus on [small and medium enterprise] business lending to stimulate the real economy'.
4.27An increased focus on community and mutual banks was also suggested by other inquiry participants. Indigenous Business Australia provided an example of how the model has been used to serve the First Nations people of Canada:
In Canada, the First Nations Bank of Canada is a First Nations-owned and operated bank. The bank focuses on commercial customers in communities dominated by First Nations people. It operates nine full service branches and ten community bank centres across regional Canada. It is an example of how community-focussed financial institutions can provide high-quality services to communities where they would not otherwise be due to population size or remoteness.
4.28The main point of difference between banks of this nature and the major institutions is the ownership model. Customers are also the owners of the institution, thereby removing the profit-focussed behaviour of major banks and instead concentrating on people. According to the Customer Owned Banking Association (COBA), the model 'better aligns the incentives of customers and their bank and reduces the risk that the bank's purpose will create issues that drive the need for more regulation'.
4.29COBA provided the story of the Toowoomba-based Heritage Bank as an example of how community branches can be established. The model involves community members forming a company made up of a range of investors from the local region to be a joint venture partner with Heritage Bank. After the initial investment is repaid, the branch becomes a 'true Community Branch with all future profits shared between Heritage Bank and the community company'. Profits are reinvested through grants to support local charities, sporting clubs, and organisations.
4.30COBA noted that although community branches provide an opportunity to retain banking services in a community, it can be difficult to raise the estimated $500000 in initial establishment costs. COBA recommended this as an area where government can support communities to help themselves:
Government support for more community branches can offer an opportunity to grow this important network, by overcoming the significant funding hurdle facing community branch establishment. This could be achieved through the provision of interest free loans to the community for establishing a branch combined with acceptable loan repayment periods.
4.31For all of the benefits of the community bank model, established community banks have advised the committee that the increasing costs of compliance and regulation threaten the ability of member-owned institutions to best serve their communities. The Capricornian—a member-owned financial institution in Central Queensland—told the committee that the burden of compliance with regulations that often have limited benefit for its members accounts for a disproportionate amount of resources and time.
4.32COBA noted that one of its larger members estimated that regulatory costs amounted to over $9 million in 2022. These costs are exacerbated by the diversion of resources and tight deadlines to comply with regulatory changes. This can include the 'pressure on smaller banks to compete for a limited pool of trained specialists to implement regulatory changes in limited timeframes'.
4.33One example was the upkeep of The Capricornian's 31 individual Target Market Determination documents. These documents describe the type of customer a product is appropriate for. They are reviewed quarterly by staff, yet had only been viewed online 106 times, inclusive of bank staff, in the 90 days up to 24May2023. It was also noted that documents such as these are pitched at the level of understanding of an urban professional and that 'it would be advantageous to conduct a wider level of testing for both comprehensibility and applicability to include rural and regional Australians with respect to how they interact with their financial institutions'.
4.34To combat such regulatory burdens, COBA recommended that the Australian government 'implement a new regulatory coordination and transparency mechanism (an Australian Regulatory Roadmap) … [that] would outline regulatory change across multiple financial services regulators to support better decision making from regulators, industry and other stakeholders'.
4.35In addition to regulatory barriers, Ms Catherine Clemow told the committee that significant obstacles are faced when attempting to establish a community bank as an alternative:
A push to get a Community Bank (eg Bendigo Bank) in Mannum, will require a one hundred-million dollar commitment from our community in loans and deposits, together with the establishment of a Board and all the legal requirements that go with this endeavour. A current resident, who has been part of establishing a Community Bank in Cummins, has said that the 'Big Banks' offer revised interest rates which the Community Bank can't match, in order to keep their customers from transferring over.So not only do the 'Big Banks' withdraw their services from Regional Communities, but they make it difficult, if not impossible, for these communities to solve their own problems and establish an alternative smaller bank.
Committee comment
4.36The committee acknowledges there are likely inequities in the impacts of banking regulation on smaller ADIs and community banks, and possible scope for reforms in this area.
4.37While a thorough investigation of this issue was outside the scope of this inquiry, committee members would be supportive of efforts to give further consideration to this matter.
Increased role for Bank@Post
4.38Banks are increasingly relying on Bank@Post to meet their customers' ongoing needs. Mr Miller, implied that Westpac believes providing services through Bank@Post meets 'a minimum standard for [the bank's] customers'. However, evidence indicated the services available are limited, there are serious concerns about the sustainability and longevity of the arrangements, and post office licensees (and Australia Post more broadly) may not be adequately compensated by the banks. This evidence is detailed below.
Problems with Bank@Post
4.39As outlined in Chapter 2, Bank@Post provides a number of essential services in regional communities, especially in those communities where banks no longer operate branches. MrGraham explained that there are now 3400 outlets where Bank@Post is available—'almost the same number as the total number of banks in the whole country'. This incorporates 1148 areas where Australia Post is 'the only banking service available', which places significant pressure on the post office.
4.40A number of submitters, including the Combined Pensioners & Superannuants Association, argued that in its 'current form', Bank@Post 'is not an acceptable alternative to face-to-face banking as a whole'. This is mainly because of cash limits and lack of access to critical services such as identity verification and change-over of signatories. Australia Post acknowledged there is demand for an expanded range of services through Bank@Post. Mr Graham explained:
The service started in 2018 under the current agreements, and, at that time, those services were to provide what we would regard as basic consumer banking services—the ability to deposit some money and withdraw some money. That's still the primary purpose. But we have seen, particularly as bank closures have accelerated, a need from the community to expand the range of those services. We have worked with the banks to do that, but they're still pretty much contained within that basic consumer banking. We're seeing increased demand for the availability of cash and also for the availability of more small-business services.
4.41Mr Graham suggested Australia Post outlets would be well-placed to provide identification services for the banks and has been 'talking to the banks about' this:
At the moment we are unable to provide the ability to change a signature on an account or a PIN code, because that's not something the banks have asked us to provide. That does become frustrating for customers, because they were able to do that at their local branch. They are some simple examples of the things that I think we (a) have the ability to do and (b) already have a good compliance regime in place for to ensure we've got the right checks and balances.
4.42The LPO Group provided further examples, with Executive Director, MrsAngela Cramp, saying:
The bank won't let you deposit money into a BSB bank account for your child or someone else. They won't let you make large cash deposits if you've just sold your car or your caravan. We do those things for our other providers in our post offices today, but the banks won't let us do it for them. To top it off the banks charge their customers extra fees when they're there to do a banking transaction at a post office.
4.43LPO Group and the Finance Sector Union (FSU) raised the issue of ANZ's decision not to partner with Australia Post to offer Bank@Post services. MrJulian McIvor, President of Sale Business & Tourism Association, suggested ANZ should rectify this in order to 'live up to the rhetoric they keep on spouting about how they are working with regional and rural Australia'.
4.44LPO Group was concerned that licensees are not being adequately remunerated for providing banking services and suggested that banks should pay more. MrsCramp confirmed that LPOs are paid to do some transactions, but not paid for helping customers 'deal with the banks' scam text messages', for providing balance checks, or for counting 'the thousands of dollars of change from school canteens and community fund-raising events'. Mrs Cramp concluded:
These same banks, making billions of dollars of profit every year, refuse to cover any of the costs for us to be there to serve their customers. We want to be there to serve our communities, but we also want to receive a fair payment for doing it.
4.45Licensee of Bongaree LPO, Mrs Suzie Stride, told the committee while Bank@Post is almost 50 per cent of the work her post office does, it is only 'about 30 per cent' of the earnings.
4.46Another issue raised was the variation across Bank@Post contracts. Services available and amounts of cash that can be deposited and withdrawn vary across the different ADIs, which causes confusion for customers and is challenging for post office staff who 'have to handle systems and processes for 81 different financial institutions'.
4.47Australia Post submitted that it provides training to all licensees regarding Bank@Post and has comprehensive complaints handling processes in place:
Any Bank@Post related complaints can be lodged with Australia Post via phone, email, web form or Facebook messenger. Details of these channels are available at the Australia Post website. Business customers can also lodge complaints via their designated Enterprise Service Advisor. Australia Post also maintains a separate contact channel for any issues or concerns relating to Privacy matters. These are dealt with by a Privacy Manager within our Group Compliance team.
Any suspected compliance breaches are also managed by the Australia Post Group Compliance team in accordance with our regulatory and commercial obligations.
4.48However, the Banking Code Compliance Committee (BCCC) expressed concerns with 'the adequacy of arrangements currently in place to ensure banking services provided through Bank@Post comply with the Banking Code'. The BCCC explained that it is working with the ABA and banks to ensure there are appropriate systems, processes and oversight mechanism in place regarding Bank@Post.
4.49In relation to cash, Mr Graham explained that licensees do not pay for the transportation of cash. However, under current Bank@Post contracts, Australia Post is responsible for making cash available, and is increasingly required to pay the full cost:
If there is a bank in town then that cost is split with the bank. Where we find that we are the only bank in town, as at Kalgoorlie or Coober Pedy, the cost of that provision rests on us. Again, that's part of the discussion that we are having with the banks. We don't believe that's a cost that we should bear. We are a service provider, and that cost should be borne by someone else. But at the current time we are bearing that cost.
4.50Mrs Cramp asked, 'how much longer should [LPO Group's] members continue subsidising the banks'? She suggested the committee should recommend that government puts in place regulation that would force the banks to pay 'properly' for the services provided by LPOs. This could be facilitated through a levy, paid by banks to secure a banking licence, and used to ensure ongoing, sustainable access to cash and services through the post office network.
4.51Asked if she believed Australia Post was failing to negotiate a good enough deal, Mrs Cramp highlighted the power imbalance between the banks and Australia Post, and said:
Australia Post has been in consultation with these guys. Our executive leadership team have told us that. For many years they have been talking to these banks—for a long time—and no traction at all. If anything, they keep walking back the agreements they've had with us previously. The agreement we have today is not as good as the agreement we had in the past, and even the agreement we had in the past didn't cover the cost of us physically being in the locations that we're in.
4.52Australia Post was asked about its contracts with ADIs and confirmed that banks do pay set fees to compensate Australia Post for providing services. This 'community representation fee' is paid on top of the transaction fees paid. While LPOs do not receive any of this fee directly, Australia Post provides systems and technology development, training, helpdesk and complaints handling, and coordinates and funds cash transport.
4.53Finally, Australia Post and a number of submitters noted while there are ten‑year contracts in place with major banks, this does not necessarily guarantee that banks will continue these partnerships in future. There is a need to ensure Bank@Post remains sustainable and available over the short to medium‑term, to ensure these critical services remain available.
Suggested improvements
4.54A number of submitters made recommendations to extend and improve Bank@Post. AgForce QLD recommended that post offices be equipped and funded to provide 'ATM access, higher transaction limits, replacement cards or passbooks, bank cheque access, deposit transfers between accounts, deceased estates etc' in communities where there is no longer a bank. It also recommended dedicated banking officers, or a 'community bank window' be provided at post offices to 'deal with customer request anomalies or more complex enquiries across the banking product service range, including identification verification'.
4.55The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) suggested the Australian Government insists on 'adequate … performance standards, and sustainable franchise and licensee commission structures'. These should be designed to ensure Bank@Post remains a viable offering that can 'better support small businesses to access cash and deposits'. In addition, ASBFEO said banks must 'adequately consider and manage the risk of local [post office] franchises closing and leaving regional communities without banking services'.
4.56AgForce QLD recommended a 'longer-term commitment by banks to the Bank@Post model of services beyond current 10-year plans', and the Local Government Association of Queensland (LGAQ) recommended that government 'immediately rules out the closure of any Australia Post outlets and adopts measures that will enhance the existing banking services provided through Australia Post'.
4.57Inquiry participants argued customers should not be charged more to use services at Bank@Post. ASBFEO submitted:
Fees charged by banks for the use of Bank@Post should match fees charged in branch. Banks pay Australia Post to offer Bank@Post services on their behalf under circumstances where they have withdrawn their own in‑branch services. As such, customers should not be charged for transacting at Bank@Post, or Bank@Post transactions should not attract fees to recover the cost of Australia Post providing Bank@Post services.
4.58AgForce QLD proposed that Bank@Post needs to be more 'adequately resourced to handle the workload' and 'manage non-transactional banking activity, such as to witness bank documents', and that Australia Post outlets need 'better equipped cash floats' and 'adequate and reliable connectivity and power supply to [rural regional and remote] areas, to support consistent Bank@Post banking services'.
4.59Mr Graham confirmed that under existing arrangements, post offices are 'unable to provide the ability to change a signature on an account or a PIN code', which is 'frustrating for customers, because they were able to do that at their local branch'. He suggested this provides just one example of additional banking services that Australia Post has 'the ability to do' and already has 'a good compliance regime in place for'. However, Mr Graham also argued for greater standardisation of the service offerings between different banks, which would be 'more efficient [and] lower the cost then for [Australia Post] licensees in particular'.
4.60ACCI acknowledged that expanding Bank@Post is one option available. However, it noted concerns including: the additional impost on post office staff, their limitations in providing 'advice and guidance to banking customers', and a possible reluctance of customers to give post office staff even more of their personal information.
4.61LPO Group was asked if it believes the banks and Australia Post could reach a commercial agreement that 'better supports' LPOs. LPO Group replied that it is 'difficult to imagine' this happening because the customers who rely on Bank@Post are not profit-making or high-value customers for the banks:
Customers with little or no income or very small bank balances represent a significant proportion of our Bank@Post customers (ie Pensioners, school children, unemployed or under-employed people). These customers rarely hold a credit card or are servicing a bank loan. Banks make nothing servicing these customers rather, they cost the banks. Consequently, they are not motivated to incur any cost to service them. ... These customers still need access to banking services, but there is no commercial justification to provide them. These customers rely on Government intervention (either in the form of regulation or the creation of a government-backed bank).
Response from Australia Post
4.62Australia Post's relationship with the banks is complex. It has 81 individual contracts with ADIs, offering a range of different services with differing rules and cash limits. ADIs pay transaction fees and representation fees, which are used to fund 'compliance for systems, cybersecurity, training', and increasingly to fund the provision of cash, which Mr Graham said was 'not fully contemplated' when the agreements were first struck.
4.63According to Mr Graham, Australia Post received approximately $90 million in 'transaction fees, commissions and other costs' in the 2022–23 financial year through its contracts with ADIs. This included $29.9 million in commissions or transaction fees paid to licensed post office operators and additional service fees on top of that figure.
4.64Committee members noted the strong operating margins of Australia's major banks and asked Mr Graham to estimate Australia Post's operating margin. MrGraham confirmed it is 'a small, single digit margin', which is 'decreasing over time as the cost of compliance, of systems and of training continues to increase'. Asked if he believed there would be 'merit in the Commonwealth government levying banks for a universal service obligation and then contracting [Australia Post] to provide the services', Mr Graham replied that was 'a matter for government', adding:
We're happy to continue providing those services, but they do need to be economically viable, particularly for our licensees, who, as I said earlier, are struggling in a number of areas due to the digitisation and change of foot traffic that we've seen for a number of years now.
4.65Mr Graham said Australia Post is 'happy to look at expanding the range of services' provided through Bank@Post. This could include providing expanded cash services to small business and 'an increasing range of consumer banking services'. However, changes in the service offering would require improvements to the 'capability' of many outlets, including 'upgrades to safes, security and [closed circuit television]', along with possible upgrades to the physical space:
When the last bank in town closes, we become the only outlet for those services. That means the actual foot traffic increases, particularly just after the closure. As you may know from being around your own electorate, a lot of these outlets are small. … It's not out of the question that we could do it, but we need to look at each town on a case-by-case basis.
4.66Australia Post confirmed that the continued operation of Bank@Post relies on the service being 'practicable and commercially sustainable'. Increasingly, the cost of running Bank@Post—including 'the provision of cash … significant investments in cyber security and training, ensuring compliance standards are met, and uplifting of security and safes—is posing a challenge to the sustainability of Bank@Post, "particularly in regional areas"'.
4.67Mr Graham revealed that Australia Post is 'working with the banks to explore expanding those services and how we would get remunerated for the services'.
National public bank or PostBank
4.68A number of submitters supported the idea of a national public bank or public postal bank, funded and backed by government. The Australian Citizens Party (ACP) suggested the Commonwealth Government should utilise the post office network to provide a public postal bank (PostBank), which would:
… guarantee banking services to all communities, and force the big four private banking oligopoly to actually compete on service for the first time in 25 years; guarantee banking services without discrimination; guarantee deposits, as the bank would be owned by the Commonwealth government; support the cash payments system; lend to local individuals and small businesses in the communities the postal bank serves; invest surplus deposits in a national development or infrastructure bank, to be a source of credit for the economic development of Australia; and break the monopoly of the big four banks, including their power over Australian politics.
4.69Australia has a substantial history of public banking institutions, including the previously public Commonwealth Bank of Australia, which was privatised in 1996, and a number of state government-run banks. Many of the smaller state‑run banks collapsed or were merged into the Commonwealth Bank of Australia over time.
4.70Inquiry participants who supported the creation of a new national public bank, including Dr Serr, argued that such an entity could challenge the 'highly concentrated Australian market'. According to Dr Serr, a public bank would provide an alternative option for finance that could facilitate both regional and national economic development:
The obvious choice is to re-think the complete reliance on large scale commercial banking and again create a public banking option that is responsive to the needs of the nation's real economy and communities across the country.
4.71According to the ACP, a key benefit of a public bank would be its ability to support investments in farming and small business, especially in regional areas. It could also guarantee access to cash, support the viability of postal services, invest in local and community infrastructure, and provide financial services to 'neglected communities'.
4.72Many members of the public who submitted to the inquiry supported a public bank. Mr Bruce Thompson suggested the banks' behaviour around closures has led to a crisis that can best be resolved through introducing a public bank, and Ms Ann Lawler said:
The major banks act like a cartel, what one does they all do—they raise interest rates in lockstep, offer the same speculative products and hold hands when it comes to closing bank branches. The banks are supposed to operate as individual private corporations, competing against each other. But somehow, they all come up with and implement the same game plan. If it quacks like a duck, and acts like a duck–it is a duck! They are a cartel, and only a public bank would force them to act differently.
4.73Per Capita suggested that Australia Post be provided with an ADI/banking licence and, over time, move to being a 'full national savings and loan bank'. PerCapita argued a PostBank would 'improve banking services across the country by setting new standards' and underpin the viability of post offices in remote and regional communities.
4.74ACP proposed a different model:
Briefly, the proposal is for a dedicated public bank, rather than Australia Post receiving a banking licence, but for the bank to have an agency agreement with Australia Post, like the private banks have, except it would be exclusive for the bank, i.e. its retail operations would be exclusively through post offices.
The agency agreement with Australia Post would be structured to reimburse Australia Post and its LPOs for the actual cost of providing banking services, including any extra staff required to serve more customers, ensuring it is of financial benefit to Australia Post and the LPOs.
The bank would be owned and guaranteed by the Commonwealth [G]overnment, and managed and staffed by banking experts. It would be responsible for rolling out whatever extra banking infrastructure is required in post offices, such as computer systems, cash counting machines, and safes and vaults.
4.75Noting the changes that would be needed for post offices to provide full banking services, Per Capita proposed 'a phased approach', starting with PostBank offering 'basic savings and transaction accounts, followed by credit cards and personal loans'. PostBank would move to introducing mortgages, then 'commercial lending with an initial focus on agricultural and other regional and rural business lending'. This would allow for a 'steady, staged rollout' and allow the profits and capital accumulated in the early stages to fund the rollout of the next phases, 'thus minimising initial capital requirements'.
4.76Witnesses across the committee's 13 public hearings were invited to comment on the proposal for a public bank, or PostBank. The Hon Bruce Billson, Ombudsman, ASBFEO, said he has considered this option but it is 'hard to know' how it would turn out:
You'd be aware I've looked at banking for small business access and a range of models around the world. Some publicly owned institutions perform well and behave well, and others don't. It's a difficult one to foreshadow how they'd operate in reality. I'm probably straying a little bit out of my lane here, if I could suggest that, but is the question about the failure of the market in banking per se or is it a behaviour issue around the banks that are there? That would probably be an influence on my thinking with that kind of idea.
4.77FSU did not support a government-funded public bank. Ms Wendy Streets from FSU Queensland said the union does not 'think the Australia Post model—or increasing that to become some kind of bank—is the way to proceed'. Ms Streets explained that the union does not support the banks shifting their costs back on to the government or the taxpayer:
Last year, the big four banks in Australia made a combined $30 billion in profit. There is no reason in our view that they can't remain in regional and remote Australia. They have sufficient resources to do that. We don't think government should have to set up another bank to cover for these four, who … come for all the government guarantees whenever the going gets tough. These four pillars will not be allowed to fail. Why do they get off scot-free, and why do we say the Australian taxpayers should have to set up another bank to cover them when they leave? I think that's grossly unfair. What we need is for these four to continue to invest some money in regional and remote Australia. It's where they derive a whole lot of their profits from.
4.78Dr Schmulow acknowledged the idea of a PostBank has been 'kicking around for a while' and argued 'there's a need for it'. However, he also cautioned that any new entrant into the banking market would have to face strict prudential regulation and high 'capital adequacy rates', which act as strong barriers to entry. Dr Schmulow concluded by saying simply, 'Good luck with that'.
4.79Chair of the LPO Group, Mr Scott Etherington, said his organisation supports the idea of going 'beyond Bank@Post', setting up a government bank which could 'leverage' the post office network and provide banking services to communities and customers that are 'not profitable' for the banks.
4.80In his personal submission, ACP production manager and editor, MrGlenIsherwood argued that when the Commonwealth Bank of Australia was created, 'the private banks immediately improved their treatment and services of customers, including by dropping fees'. Further, the opening of Kiwibank in New Zealand in 2002 led to 'a halt to branch closures' in that country:
These lessons show that an outside force must disrupt the cosy position of the Big Four, whose only motive is profit, bonuses, and power. ... I call upon this Committee to recommend the creation of a public bank alternative to the private banks, and use that said bank to ensure a continuous service to regional communities. Relying on private corporate banks to drive positive social outcomes is foolish.
4.81Mr Isherwood argued introducing a public bank to compete with the major banks is 'the only lasting way that the banks will be compelled to serve communities'. As well as advocating for a public bank, MrIsherwood proposed additional regulatory measures, including 'legislating a minimum service requirement on the banks, which would include the full raft of banking services that only a branch can provide currently'.
4.82The LGAQ did not support the idea of a public bank, or local councils setting up and running banking services. However, CEO, Ms Alison Smith, said LGAQ would support initiatives to create more competition in the banking sector:
… on behalf of Queensland's 77 councils, we certainly do not condone cost shifting. If there were a requirement of local councils to step up and take more responsibility and potentially not be met with the funding to run it, we would not be supportive of that. But what I would say is that one of the best ways to put pressure on banks to improve service delivery is through competition and having the market decide.
Regulatory reform options
Universal service obligations
4.83Many submitters argued that banks have a 'moral' or 'social' obligation to Australian communities—not just their own customers—because of the protections and benefits the industry receives from government.
4.84Adams Economics highlighted government deposit guarantees and other support enjoyed by Australia's banks, suggesting the major banks 'owe a much larger obligation to Australian taxpayers and Australian society more broadly', and Dr Schmulow argued that banks are 'subject to a social contract':
That social contract evidences itself in the provision to, and acceptance by, banks, of a series of significant benefits. … Guarantees for the safety of depositors' funds mitigate the risks of depositor panic cum bank runs. … Without taxpayer support modern-day banking, and banks, would not exist. … when the going is good, bank shareholders win. When the going is bad, taxpayers lose. Put differently, we routinely privatise bank profits but socialise bank losses. No other industry enjoys this benefit. … banks, in return for the significant benefit they enjoy thanks to the largesse of society, are morally obligated to ensure that the industry serves the community that sustains it, not the other way around.
4.85In addition to taxpayer protections, banks access a public facility—the Reserve Bank of Australia (RBA)—which provides 'lender of last resort' facilities and access to a 'discount window or "cash rate"', meaning banks enjoy lower rates of interest than those available to citizens and other businesses. Protected from 'systemic risk' through guaranteed taxpayer support, Australia's banks are, arguably, 'riskless to insolvency'. According to DrSchmulow, this:
… creates an extraordinary benefit to bank shareholders who enjoy the benefits of competition in a free market, but with none of the disbenefits. … The value of the taxpayer funded guarantee enjoyed by Australian Banks has been estimated to be worth up to $3.7 billion annually. Since the 2004 Senate Inquiry, Australian banks have enjoyed, thanks to taxpayer support, savings in funding costs of approximately $74 billion. That may be expected to be sufficient to fund a thousand branches, for a thousand years.
4.86Mid Murray Council submitted that 'surely banks have an unwritten duty to maintain essential banking services in regional communities'. The ACP suggested the government should immediately 'impose a community service obligation' to maintain 'a minimum level of branch services, including an immediate moratorium on further branch closures'. FSU recommended banking be 'declared as an essential service', and that a set of minimum 'service standards' be developed to regulate their practices:
This type of policy can only happen through government mandate and regulation, a mandate which the banks have resisted time and time again. The FSU sees a mandate on this issue as a more than reasonable trade-off for the tax-payer support provided to banks such as the government guarantees of deposits.
4.87The Council of Small Business Organisations Australia (COSBOA) highlighted the critical need for small businesses to have reasonable access to 'physical banking services', and recommended the government designates banking services as 'essential'. Isaac Regional Council called on the government to 'review banking legislation to incorporate genuine social sustainability obligations to force banks to accept a greater degree of social responsibility', and Dr Serr recommended that 'banking be mandated as an essential service, like the provision of food outlets and other critical utilities such as water, gas and energy', and access to cash be designated a 'right' under law.
4.88AgForce QLD recommended the government legislate to 'ensure the essential services of banks continue to financially connect regional communities, at a reasonable travel distance'. Incentives should be provided to encourage banks to 'redirect funding to the regional branch banking model, as a priority over urban branch bank access'.
4.89One way a universal service obligation could be facilitated would be for banks to be allowed to coordinate their branch networks, under regulatory supervision. Inquiry participants recognised that current competition laws would prevent banks working together to ensure universal service across Australia's regions. However, some submitters, including Financial Counselling Australia, suggested it would be in the public interest for banks to better coordinate branch coverage:
We recognise that there may be competition issues in the banks coordinating how they deliver services in regional and remote communities, but these could be addressed in the public interest. If this were to happen then solutions would include:
banks working together to ensure that all regional areas had access to a full-service bank within a reasonable distance
banking services being delivered from appropriately refurbished government sites, such as Centrelink offices
for remote communities, the best solution is mobile banking where the banks bring the service to the community on a regular basis
expanding the range of services provided under the Bank@Post option.
4.90AgForce QLD said the major banks should 'come together and divide the regional towns between them'. This way, banks could ensure each town had 'one remaining branch, rather than all the banks leave town'.
4.91Stronger regulation on access to cash and physical banking services would need to be supported through government action. The Hon Mia Davies MLA, Member for Central Wheatbelt, recommended governments develop a national plan 'to ensure the sustainable delivery of financial services across regional and remote Australia, encompassing corporate and community needs including development of local jobs in the sector'. Isaac Regional Council suggested, that if necessary, governments should provide banks with 'grants, tax relief or concessions for maintaining or opening branches in rural, regional and remote Australia'.
4.92Committee members asked representatives from the Department of the Treasury (Treasury) and RBA if there are currently any obligations imposed upon the banks regarding branches. Treasury official, Mr Robb Preston, confirmed that there are none, saying, 'at the moment, any obligations the banks have in relation to closure are ones they have put upon themselves'.
4.93Under current laws, banks are not classified as 'an essential service'. MrPreston said declaring banking an essential service 'would be a matter for government', but government would need to consider:
which services should be declared 'essential';
what the 'policy objectives' would be (for instance, 'access to cash or availability of other banking services'); and
'who' the declaration applied to (major banks, smaller players, etc—noting that some ADIs already have no branches at all).
4.94Mr Preston also cautioned there could be 'unintended consequences', including the possibility of further entrenching the role of the major banks.
4.95ACCI did not support imposing any regulation that requires banks to maintain branches, saying, 'like any other business, banks have labour costs, overheads and a requirement to operate within budgets', and branches are often unprofitable.
4.96Mr Luke Achterstraat, CEO, COSBOA, said it is not generally his 'first inclination to look at more regulation', and he would like to see banks encouraged to be more accountable:
Let's take a really good look at things like the bank closure protocol and see if that's actually having an impact or not. Let's look at the way they're informing their customers. Let's look at the way they're meeting a range of those obligations.
Views of the industry
4.97Representatives of the major banks were unlikely to support a legislated community service obligation. ANZ CEO, MrShayneElliott, said a universal service obligation would 'impose an unfair burden on those which are already in the regions and which have done the right thing, as opposed to the 80 other organisations which compete in Australia and which have no branch network'. It was his view that 'tying a small group of banks to an old model and enforcing that would have the sorts of outcomes we all imagine'.
4.98Mr Ross McEwan, Group CEO and Managing Director of NAB, said 'every bank competes in different ways', and a universal service obligation could have negative 'ramifications', potentially enshrining 'old practices that are going to disappear over time':
Would you have guaranteed 30 years ago my having a mobile app? Would you have guaranteed my having a mobile network that stayed up for 99.9per cent of the time? I don't think you would have. So I just think we need to think of the consequences on both sides.
4.99Ms Anna Bligh, CEO of the ABA, was concerned about potential unintended consequences of requiring banks to maintain regional branches. She suggested such a policy would negatively impact regional post offices, many of which rely on the income they receive from Bank@Post to remain viable. It could also decrease the profitability of Australia's banks and lead to lower investment in digital banking channels:
Trying to predict what banking will look like in Australia in five years time or 10 years time, if you think about the changes in the last decade, is an impossible task. Seeking to enshrine one channel that is in rapid decline will have the effect of taking money out of innovation, security, cybersafety and where customers are actually banking.
4.100Commonwealth Bank CEO, Mr Matt Comyn, was more open to the suggestion of a universal service obligation and agreed that banking is an essential service. However, he would need to give 'some more thought about what the appropriate design would be'. Mr Comyn argued banking services in Australia rate 'very highly' on a global scale, and he believes a mix of services is appropriate—'including face to face, digital, partnerships, and in this case through Bank@Post'.
4.101Asked if CBA would support attaching a service obligation to the banking licence, Mr Comyn said:
There's an important context of course about banking services being made available continuously to customers, clearly not by the entire industry but certainly by some subsets of the industry. We're certainly prepared to play that role.
Failure of self-regulation
4.102A number of submitters argued self-regulation by the banks has failed to protect regional customers and communities and that measures adopted by the banks have been piecemeal and disappointing.
4.103Many submitters provided their contributions to the inquiry in early 2023, before ABA's Branch Closure Support Protocol was updated, and impact assessments were introduced, in June 2023. These stakeholders held high expectations for the potential role of impact assessments, with Narrabri Shire Council recommending they be made 'publicly available for community comment and stakeholder input prior to any facility closure or service reduction being undertaken', and that:
Where Branch Closure Impact Assessments identify deleterious impacts on a vulnerable community that cannot be appropriately managed nor mitigated, that service closure not be permitted to proceed within these communities.
4.104It became increasingly clear over the course of the inquiry that the banks' revised branch closure protocol has not lived up to the expectations of stakeholders and does not represent genuine due diligence. MrShane Love MLA, Member for Moore, WA, observed that the banks' commitment to 'ensure banking services are accessible and inclusive'—outlined in the Banking Code of Practice—and adoption of a new closure protocol in 2023, have not resulted in 'genuine attempts by banks to engage' around closures.
4.105Ms Webster argued that the closure protocol, 'as it stands today', represents a watered-down version of what was originally intended when previous committees recommended it. In particular, the incorporation of an 'if commercially viable' caveat has rendered the protocol largely meaningless. MsWebster explained:
The real goal of both the Hawker and Chapman inquiries was to find alternatives to traditional branch banking but while well-intentioned, the recommendations of these committees have helped engineer the further dismantling of the regional 'big four' branch network.
4.106Committee members shared stakeholders' frustration and disappointment around the branch closure impact assessments, with Committee Chair, SenatortheHonMatthew Canavan, telling representatives of Bankwest:
The whole reason for these statements is to particularly look at where maybe a town is being left completely high and dry and there are no other banks available. You are not taking these things seriously. Clearly, the taskforce has not had the impact that was intended, and that's why we're doing this work, for a start. There's going to have to be a much, much stricter approach here, in my view. It's an insult to this whole process. You're just not doing the proper assessment.
4.107Evidence from the BCCC confirmed the growing frustration. The BCCC reported 'an increase in concerns raised … about branch closures' over recent years, in particular around: insufficient notice of branch closures, inadequate transition arrangements, removal of ATMs, and problems with 'alternative banking channels' (like understaffing in call centres).
4.108The committee heard these concerns directly from affected communities, with the CEO of Kingston District Council, Mr Ian Hart questioning whether the banks are living up to their values:
Curiously, when I googled BankSA's five core values that they're guided by, they are: helpful, ethical, leading change, performing and simple, and passionate about providing a great customer experience, trusted to do the right thing, determined to make it better and be better, accountable to get it done and inspired to keep it simple and easy. The decision to close their branch is out of alignment with those values.
4.109During the many hearings conducted for this inquiry, senators asked banks about their values and suggested regional closures may not be consistent with these values. When asked to respond to this suggestion at the Kingston hearing, Mr Miller insisted he was 'satisfied' that Westpac was 'doing everything [it] can that aligns with [its] values':
Senator FAWCETT: [Y]our customers are not having what you say in your value statement. You're 'helpful'. You're 'passionate about providing a great customer experience'. I think 390,000 of your customers would dispute that. You're also 'ethical—trusted to do the right thing'. …
Mr Miller:Thank you for the feedback. I do feel very satisfied we are doing everything we can that aligns with our values to support our customers. As I said, whether it's 390,000 or more customers that need to use a physical service, we continue to have 541 points of presence that we run nationally ourselves, and we have expanded the ATM network. The feedback we're hearing here from the committee—and as we continue to do—is to improve the proposition that's through Bank@Post, which we have an aspiration to do as well. I think we continue to try to provide the right services for our customers in getting the right balance across all the channels.
Senator FAWCETT:It still doesn't answer the question: if you are customer focused, what are you doing to get real feedback from the customer? … We heard evidence here that an official from the administration in Coober Pedy drove the 540 kilometres to Port Augusta to go to a Westpac branch, only to be told: 'Sorry, I can't verify your identity. It has to be the manager. He's tied up today. Come back tomorrow.'… Just today there's been a bunch of evidence that you're clearly not providing what your values say you'll provide. Is what happened in Port Augusta an acceptable outcome?
Mr Miller:No, it's not. I'll start there. If that was the case, I apologise for that poor customer experience. We'll give consideration to how we can rectify things so that doesn't happen, and to how, in particular, we ensure that we encourage customers, if they need something, to make a booking with us prior to arrival so we can be sure we have the right services for them.
4.110In its 2004 report on banking and financial services in regional and remote Australia (the Money Matters in the Bush report), the PJCCFS considered whether a community service obligation should be imposed upon the banks. The PJCCFS opted instead for stronger self‑regulation, through the industry code of practice, but said it believed:
… that [authorised deposit taking institutions (ADIs)] do have a social responsibility to ensure that the communities they serve are provided with adequate services. It believes that there should be measures in place to guide, assist, even compel Australian ADIs to behave appropriately. [And that] the Government has an obligation to intervene should the market fail to look after the needs of consumers especially in the area of access to banking and financial services.
4.111Recommendation 3 of that report urged the banking industry to set down and enforce minimum standards of behaviour for its members, but included this caveat:
The Committee recommends that should progress falter on the banking industry improving its code of practice, the Government take a stronger stand by considering imposing community service obligations on ADIs with an independent regulatory body to monitor and report breaches of the obligations.
4.112At that time, the PJCCFS did not believe legislation was required, despite being 'mindful of the weaknesses in industry self-regulation'. However, it argued for 'vigilant monitoring' of attempts at self-regulation through the ABA and foreshadowed the option to 'transfer this responsibility to an independent agency should the ABA fall short of expectations'.
4.113Many of the recommendations from the 2004 report have been enacted, including reviews of the Banking Code of Practice, and numerous updates, but this has had no impact on branch closures. Mr Billson said ASBFEO engaged in an ABA consultation process around reviewing the Banking Code, but felt that 'these things are presented as already etched in a tablet of stone'. He suggested the process resulted in 'the lowest common denominator', and that:
This protocol, or any code, should be the floor, not the ambition. We should guide the banks on what 'better' looks like and encourage those banks prepared to pursue that objective, and reward them with our custom.
4.114Dr Schmulow submitted that major banks have promised on multiple occasions that their 'branch rationalisation strategies' were complete, with CBA, for instance, undertaking in 2002 to maintain at least 1000 branches. Heconcluded that:
… the ABA's code for branch closures has had virtually no impact in ameliorating the persistency of branch closures in the bush, and was only ever a distraction: it was devised and implemented to mollify the ABA's members' critics, and give the appearance that something was being done.
4.115With branch closures continuing unabated under the current system of self‑regulation, ACP argued banks have not met 'appropriate voluntary [community service obligations]', and it is time to 're‑regulate the banks'. This could be achieved by imposing a 'mutual obligation' that requires banks to provide face‑to-face services.
Stronger regulation and oversight of closures
4.116There was consistent support among inquiry participants for stronger government regulation and oversight of bank branch network coverage and closures.
A regulatory 'blind spot'
4.117The committee invited the relevant departments, agencies and regulators to its Canberra hearing on 1 December 2023, seeking to better understand how existing regulation relates to branch closures. Along with confirming there is currently no regulation in place that could prevent banks closing branches, regulators clarified that they have a very limited role in relation to the Banking Code of Practice.
4.118Australian Securities and Investments Commission (ASIC) Commissioner, MrAlan Kirkland said, while ASIC has previously 'approved' the Banking Code at the ABA's request, it does not oversee its operation:
We don't have any powers to specifically enforce the code, but we do have a range of powers in relation to individual banks. Obviously, under the ASIC Act and under the [Australian Financial Services Licence] credit act licensing obligations, we'll be looking, over time, at whether institutions are complying with their obligations to provide services honestly, fairly and efficiently, whether they're making any claims that are misleading or deceptive and whether they're engaging in unconscionable conduct. There are some limits to our powers, under the current legislation, in relation to these matters, but where any issue to do with a branch closure potentially flags an issue in relation to those powers then we will consider it.
4.119APRA, which is responsible for maintaining the safety and 'soundness' of financial institutions, explained that its prudential regulation 'does not define the number of bank branches in Australia, nor impose particular business models on banks'. APRA collects and publishes data on points of presence. However, 'branch closures are not within APRA's regulatory remit'.
4.120Mrs Therese McCarthy Hockey, Executive Board Member of APRA, said while APRA collects data, it does not have a role assessing the behaviour of banks in relation to closures, or enforcing any sort of community service obligation. She also confirmed there are no requirements relating to branch coverage as part of a banking licence.
4.121ASIC was asked where people should go to make a complaint about a potential breach of the Banking Code. Mr Kirkland explained that the code is overseen by the BCCC, and is taken into account by the Australian Financial Complaints Authority (AFCA) when it considers individual consumer complaints:
Our general advice to consumers, if they have a concern about the way in which a bank has complied with the code, in a way that has impacted on their rights as a customer, is: whether that consumer is an individual or a small business, we would encourage them to go to AFCA because that is the body that has the power to determine complaints in those individual matters, and it can, where appropriate and where it's within its powers, make determinations that require remediation.
4.122However, AFCA declined the committee's invitation to appear at a public hearing for this inquiry, and submitted that it 'actually plays [a] limited role in this space':
A bank's decision to close a branch or to move some of its business bankers to other branches, is an example of a financial firm's commercial judgement and AFCA does not ordinarily deal with these complaints.
AFCA is unable to deal with complaints unless there are relevant legal or contractual obligations that AFCA considers have been breached by a financial firm and a consumer or small business has suffered a loss as a result. There are currently no such obligations.
4.123AFCA also explained that it generally excludes complaints it considers to be related to 'a financial firm's exercise of commercial judgement'.
4.124In its Money Matters in the Bush report, the PJCCFS suggested there could be an expanded role for AFCA (at that time, the Financial Services Ombudsman) to consider matters covering 'a much broader range of consumer interest such as ensuring affordable and ready access to financial services' and recommended this be actively explored. AFCA's response to this inquiry suggests this recommendation was never actioned.
Proposals from submitters
4.125Submitters and witnesses to the inquiry proposed a number of options for tightening regulation and oversight of branch coverage and closures.
4.126Latrobe City Council recommended that banks be subject to 'a higher level of transparency in decisions regarding possible closures' and be required to seek 'community input into options for banking services should closures be required'. LGAQ recommended a moratorium on further closures, followed by new regulation requiring government approval of any future closures. COSBOA recommended that future closures only be permitted 'after establishing and communicating a replacement "Community Hub" or consolidated service'.
4.127Ms Webster suggested a bank 'should be required under the terms of its licence to notify the government when it has decided to close a branch or remove an ATM'. This process could be managed by APRA and include a requirement for the public to be informed 'immediately'.
4.128The Combined Pensioners & Superannuants Association recommended that the closure of bank branches be 'a last resort', that adherence to the closure protocol be 'demonstrated at the branch level', and that, in cases where branch closures are implemented, 'other services such as Bank@Post and fee free ATMs be made available to ensure continued community access to cash'.
4.129Concerned with small business banking, the Australian Lottery & Newsagents Association (ALNA) proposed 'the establishment of regulatory frameworks to mandate minimum levels of small business banking services', including safe cash deposits and withdrawals, and suggested incentives be provided for banks to 'maintain and enhance access to safe financial services for small businesses'.
4.130ASBFEO recommended that banks be required to 'support the retention and convenient availability of small business and agribusiness bankers', who often have local market knowledge, and that small businesses seeking finance be 'supported and given fair treatment'.
4.131Isaac Regional Council suggested banks be required to submit a 'social impact assessment' to the regulators before closing any branch, and that the phrase 'where it is commercially viable to do so' be removed from any future closure protocol.
4.132Ms Davies recommended banks be required to 'ensure a whole of region assessment is made prior to the closure of any branch, including evaluation of distance between branches'.
Legally enforceable code of conduct and closure protocol
4.133Many submitters argued for a stronger, legally enforceable code of conduct and closure protocol for banks.
4.134The FSU suggested that the current industry code of practice is simply a 'public relations document' for the ABA, that member banks 'easily ignore their current voluntary code', and that 'punishment(s) are next to worthless'. In order to have any real 'substance', the FSU advocated for a mandatory code:
Based on the UK model the code should have three phases, phase one is the initial announcement, phase 2, post announcement and pre-closure, phase 3 is post closure. This code should be monitored and enforced by the appropriate regulator and strict penalties applied when the code is breached.
4.135Ms Webster said the closure protocol should be 'redrawn as a proper contract by independent lawyers and taken out of the hands of the banks'.
4.136Asked if the government should impose a mandatory code of conduct on the banks, Mr Billson said, 'There's certainly scope for that'. He did not believe it is 'too much to ask' of Australia's banks that they provide 'a more mapped out plan about what's going to replace that service offering they were undertaking to provide their customers and now aren't'. Mr Billson also argued communities should be given an opportunity to 'influence the decision' to close a branch.
4.137CBA was asked to outline potential impacts on its business of a mandatory code of conduct and closure protocol, including a requirement to consult with communities prior to deciding to close a branch. Mr Comyn said:
In our case I don't think it would have a significant impact because we're moving, I suspect, to the most telegraphed consultation process in banking history. We've made a commitment to 2026. We want to engage with the community of course to try to ensure that decision is valued, and of course if there are opportunities for us to serve customers more deeply we would welcome that. I suspect we'll be asked—and I've had this conversation already with a local representative—about providing progress and status updates along the way, which we'll be doing. I suspect at the end of that period, if we do make some decisions to change our footprint, that will be a challenging process.
A possible model
4.138Professor Schmulow recommended the government establishes a panel of experts to swiftly design a new regulatory model that would hold banks to account when closing branches. He suggested the regulatory model in the UK could provide appropriate inspiration for the Australian context.
4.139According to Professor Schmulow, in countries with more 'advanced and comprehensive regulatory frameworks', banks cannot 'simply shut down branches'—they need to first secure the approval of the regulator. This is only provided where banks can:
… satisfy the regulator that they have done very extensive research into who's currently using the branch that they intend to shut down and where those people who will be affected by the shutting down of that branch will go for alternative banking services as well as evidence that wherever they will need to go will not cause them undue inconvenience.
4.140Under the UK model, banks must notify the regulator 'before a decision is taken', allowing the regulator to 'negotiate' with the bank to ensure customers have satisfactory alternatives. Professor Schmulow was careful to explain that these regulatory models are not designed to dictate the size or distribution of a bank's network, but to hold banks accountable for ensuring customers have adequate and appropriate access to services. Asked if there are any 'metrics or measurables' under the regulation, Professor Schmulow said:
There are no metrics that I'm aware of that say, 'You need to maintain a certain number of branches per thousand head of population' or something like that. It's: 'If you want to move from where you are currently serving your customers, what's going to happen to the customers that rely on that branch?' … The banks can't just unilaterally take a decision to shut a branch. If they did, they would fall foul of the regulator's authority.
4.141Under this model, banks have to conduct a thorough analysis of 'usage trends, customer needs, and the manner in which those needs will be met if a branch is in fact closed'. This generally includes considering the availability of local face-to-face alternatives, such as other banks and cash outlets, the accessibility, longevity and appropriateness of these services, internet access, travel requirements, impacts on businesses, and any financial loss for customers. Alternative arrangements must be in place before a closure, banks must have a an extensive stakeholder engagement plan approved by the regulator, and are 'required to support customers who decide to switch providers as a result of a branch closure'.
4.142Where banks have failed to meet these expectations, the regulator has asked that closures be paused.
4.143According to Professor Schmulow, Australia's existing legislative and regulatory architecture makes a 'delegated or devolved' solution (involving new regulations around closures) the most appropriate model. However, he was 'very sceptical' about the ability of ASIC or APRA to enforce any such regulations, saying 'APRA has become so conservative in its approach to regulating the industry that they have, for quite some time, been a very faithful foot soldier to the needs and interests of the major banks'. Instead, he suggested the government could introduce 'something like a UK-style regulatory framework and empower the [Australian Competition and Consumer Commission (ACCC)] to enforce it'.
Addressing the 'stickiness' of customers
4.144A number of submitters talked about the complexity and cost involved with switching banks and suggested banks be required to make it easier for customers to switch to another bank when a branch closes.
4.145Riverina Joint Organisation explained:
Our residents and businesses are sometimes advised to just 'switch banks' as if this is a simple solution to the problem of a closure. However, this is a costly and time consuming activity sometimes beyond the resources of small business and residents. The loss of long-term customer benefits, the refinancing of loans and overdrafts and the associated administrative costs of changing credit cards, automatic payments etc, making changing banks anything but simple. Such costs are not taken into consideration because they are footed by the customer and not the bank.
4.146CatholicCare NT suggested that banks need to collaborate to 'expediate and streamline a process for customers to change banks', and Riverina Joint Organisation recommended requiring banks to 'provide resourcing to small businesses that are forced to change banks when there is a closure', including by providing:
… a dedicated customer service officer who would liaise between the banks to re-establish all the financial facilities that the small business had with the closing bank with a new bank. In addition, the closing bank should meet the costs of any fees or charges that must be paid to set up the new service. This kind of service would ensure that the bank that is closing would not be able to shift the costs of the closure to the small business customer.
4.147Bankwest explained that it already does this for customers 'who only use a branch and use it regularly'. However, it will only assist customers to switch to CBA, its parent company:
So we will be engaging with those customers on a one-to-one basis and offering to very, very carefully help them to transition to the Commonwealth Bank, if they choose to do so. What that means in reality is that we will support them in understanding opportunities for products and services that meet their needs, introducing them to CBA branch members and the branch manager and then supporting them if they want to transition across and doing that on a step-by-step basis. It's very important to us that those customers are supported through this.
4.148Recommendations from the Money Matters in the Bush report included that the ACCC should examine the competition issues involved in switching bank accounts. On 14 February 2023, the Treasurer directed the ACCC to undertake an inquiry into the supply of retail deposit products in Australia, including impediments to switching banks. The final report was provided to the Treasurer on 1 December 2023 and published on 15 December 2023.
4.149The final report confirmed high market concentration and barriers to entry for smaller ADIs, and found:
Relatively few consumers switch deposit products, despite there often being a range of alternative products offering better interest rates and conditions.
There are significant impediments to switching which take time and effort to overcome, and which occur at several points in the process. These include changing direct debits and other recurring payments, redirecting incoming payments and proving identity.
There have been a number of initiatives to date that have so far been ineffective at addressing both barriers to switching, and barriers in consumer engagement more generally.
Measures that could reduce or remove these barriers have the potential to facilitate more widespread competition between banks and enhance consumer outcomes in the retail deposits market.
4.150The ACCC recommended that the Commonwealth Government reviews 'the merits of bank account portability', considering the 'likely costs, benefits, risks and opportunities that different approaches to bank account portability would present'.
4.151In presenting its report, the ACCC noted that the funding for its 'financial services competition program'—initially announced in the 2017–18 Budget—was discontinued in the 2023–24 Budget. However, the ACCC would 'continue to investigate allegations of anti-competitive conduct in the financial services sector, as part of its economy-wide remit'.
4.152The Government has yet for formally respond to the ACCC's report.
Concluding comment
4.153The committee will outline its views on protecting the future of regional banking in the next chapter.