The Treasurer has publicly admonished ANZ over its larger than expected interest rate rise. He urged customers to switch. That is all very well but how is easy is it to switch? And does it make a difference anyway?
It is hard to tell whether a rate rise is “justified” (on the basis of costs or whatever). But there are issues in the market that don’t give us assurances that ANZ or other banks are responding in a competitive way. By this I don’t mean the number of them (more than 4 is pretty good in Australian markets) but the switching costs that are present in current arrangements.
If you have a mortgage with ANZ, switching means reapplying for a loan elsewhere and then going through the large task of changing account numbers, direct debits, etc. If you don’t have a mortgage you still face those latter costs. For a fraction of a percent lower interest rates right now, is either worth the hassle? What is to stop the next bank from doing the same on the next round of interest rate increases? A rational consumer could easily consider sticking with what they have currently got the best options; and that is precisely what banks know when they are thinking of raising interest rates by a higher than expected amount.
In telecommunications, we recognised that switching costs were a barrier to effective competition and introduced things like number portability to reduce these. We surely need to consider a similar treatment in banking. Account numbers are as important as phone numbers these days. And like our phone numbers, surely it is consumers and not banks who should own them.