Banks' IT keeping a hold over customers

Australian banks' antiquated payments systems make it easier for customers to get a divorce than to switch banks, according to Dutch bank RaboDirect.

RaboDirect says adopting European account switching systems would boost banking competition but Australian banks have to upgrade their old computer systems to do it.

"You get a new account number but the banks keep your direct debits and bill payments live for 13 months and they switch them for you," RaboDirect general manager Greg McAweeney says of the Dutch system that has operated for seven years.

The online bank, a subsidiary of global agri-business banking giant, Rabobank, says the big four banks in Australia have put consumers and businesses in handcuffs by maintaining barriers to switching accounts.

"The big banks say there's plenty of competition but they're hiding behind an antiquated payment system that's costing businesses and consumers dearly," Mr McAweeney says.

"It's almost easier to get a divorce than change your bank."

Mr McAweeney's comments come three days before former Reserve Bank governor, Bernie Fraser, tables the findings of his feasibility study on bank account portability to the Senate, and a day after the Bank of International Settlements reported Australian banks are the most profitable in the world.

Mr McAweeney says this may change if barriers to competition are lowered by better computer and payments processing systems in Australia.

However, the banks say making accounts portable between banks would be too expensive.

The big banks' rely on heavily patched 40-year-old legacy processing systems.

This means that electronic payments are processed overnight on business days and customers are forced to unwind direct debit and credit arrangements when they want to switch banks.

"There hasn't been the investment in (IT) over the years, and the major banks are the major stakeholders in that payments system," Mr McAweeney says.

"All it does is increase the cost for end consumers."

Mr McAweeney said that in Europe, by contrast, consumers enjoy same-day payments.

He said although a plan to make bank accounts portable was shelved in the Netherlands due to its 500 million euro ($A677 million) cost, account switching was instead introduced in 2004 at a cost of around 20 million euros ($A27 million).

A price war this year has yet to spur mass switching and a rush of borrowers seeking to refinance their home loans says mortgage broker Loan Market.

The big four's price war on home loans was ignited by National Australia Bank's (NAB) `break-up' campaign launched on Valentine's Day, and Commonwealth Bank (CBA) and Westpac retaliated with deals to lure NAB's customers.

The latest shot was fired by CBA on Sunday via a 13-basis point cut to the interest rate on its No Fee variable rate home loan.

Home loans are highly lucrative, with NAB having the biggest gross margin and return on equity, a measure of profitability, according to Southern Cross Equities analyst TS Lim.

NAB's gross margin is 3.56 per cent and its return on equity is 30 per cent, while Westpac has the lowest gross margin, at 2.76 per cent, and return on equity at 22 per cent.

Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

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