Roger Beaumont
Published in KPMG’s Financial Institutions Performance Survey Review of 2021, 8 March 2022
Two years since Covid-19 hit New Zealand it’s still dominating the headlines. In 2021 the global pandemic continued to have an extraordinary impact on households and businesses. Plans to re-open our borders have been a moveable feast and the emotional rollercoaster ride continues for many.
2021 was tougher than 2020 for some, especially for those in areas that experienced an extended lockdown. At the same time, the vaccination rollout provided greater protection and we had a better idea of what we were dealing with.
Same same but different
What did this mean for banking in New Zealand? We learnt a great deal very quickly in 2020, when Covid first hit. We learnt to work remotely and deliver relief for customers financially impacted by the pandemic. With help from the government, the Reserve Bank and credit reporting agencies, banks deferred or reduced repayments on around $70 billion in household and business loans.
The good news in 2021 was that we didn’t need to reintroduce the mortgage deferral scheme. While some sectors continue to be affected by the pandemic, many households and businesses are doing well, which is reflected in the economy’s solid performance and historically low unemployment. As was the case before Covid-19, banks continued to assist customers facing financial hardship.
While the government adapted its Covid-19 response from lockdowns and alert levels to the new ‘traffic light’ protection framework, banks and their customers also continued to evolve in the new reality. From September 2020 to September 2021, over the counter transactions in branches decreased on average 49% across the five major banks. The decrease was 86% in Auckland due to the lockdown, which saw banks opening fewer branches at reduced hours. This shows that Covid-19 has dramatically influenced changes in the way customers do their banking. While a significant majority of customers already preferred to bank anytime online or on their smart phone banking app, the pandemic has encouraged others to go digital out of necessity.
Customers in vulnerable circumstances
Banks recognise that not all customers have the capacity or resources to access general banking services in the same way others can. That may be because those customers are experiencing vulnerability. The Financial Markets Authority has identified four key drivers of vulnerability:
- Health and physical factors – health conditions or illnesses that affect the ability to carry out day to day tasks
- Life events – major life events such as bereavement or relationship breakdown
- Resilience – low ability to withstand financial or emotional shocks
- Capability – low knowledge of financial matters or low confidence in managing money.
We see vulnerability as being based on circumstances rather than types of people. Vulnerability may also be short-term or longer-term.
At NZBA we’ve been working with our members to develop a set of principles to help banks design and implement policies and processes to meet the needs of customers in vulnerable circumstances. Banks can’t agree on how they will collectively deliver services to customers experiencing vulnerability because they work in a commercial and competitive environment. The principles will provide them with a framework to help focus their response to those customers. Ultimately, each bank needs to develop and implement its own way of meeting these customer needs.
Regional banking hubs trial
In addition to responding to vulnerability issues, we have also been trialling practical solutions to banking in regional centres where branches are no longer sustainable due to lack of customer demand.
To date we have trialled regional banking hubs in Twizel, Stoke, Martinborough and Opunake. Each hub has a Smart ATM that allows for coin and note deposits, along with the usual ATM functions. There’s also a tablet for online banking and a phone with dedicated lines to the six participating banks’ contact centres. There are also staff available to help people access these services.
We are currently considering the performance of the hubs so far. That includes assessing customer and community feedback as well as usage metrics. We’d like to know how well the hubs have been received in the communities they serve, and whether locals find them useful. We’d also like to know if they can be improved to meet community needs and expectations.
The hubs trial is an example of industry innovation within a competitive environment. We hope to build on the work we’ve done to date.
FinCap partnership
We also have a partnership agreement with FinCap that helps people in small towns access banking services. We are in our second year of funding FinCap $5 million over five years. The funding is provided by our member banks.
As part of a suite of projects funded through the partnership, six budgeting services are currently providing banking support to people in small towns where there are no longer branches.
Each service is tailored to, and has been created in consultation with, the relevant community. They mostly involve a computer, a private space, and a financial mentor to help clients build financial capability and digital confidence. Some budgeting services also drive clients to a nearby branch.
FinCap expects to fund more services like this in the coming year through the partnership.
Tightened lending
Looking to the year ahead, there is already a high-profile issue that is likely to attract further public attention.
Changes to the Credit Contracts and Consumer Finance Act 2003, which came into force late last year, have created a stir. All lenders, including banks, need to collect more information from customers seeking credit and then check the information is correct. This means it takes longer to get a loan, and more applications may be declined because the deeper dive into your finances might show you’re less able to repay the loan.
We agree with the aim of the law change to help vulnerable consumers avoid unaffordable debt. It’s also affecting people seeking loans from banks, where there are traditionally very low rates of borrowers being unable to make repayments. That’s still the case, but the law change has tightened banks’ ability to lend.
Banks are responsible lenders and take their obligations under the law very seriously. The new rules are prescriptive and there’s less flexibility or room for lender discretion than was previously the case.
There’s currently an investigation into the unintended consequences of the law change. We look forward to working collaboratively with the government to find solutions to these issues.
All this happening in the context of an ever-changing global pandemic will make for another interesting year in banking.