Big 4 banks’ incentives to shut branches examined in regional inquiry

The committee’s objectives include assessing the economic and welfare consequences of branch closures in regional Australia as well as unravelling the processes employed by banks to close branches and the justifications behind these actions.

All four major banks reported their ‘over-the-counter’ transactions had fallen as customers migrated to digital services.

The committee questioned why, while customers are “choosing to go digital”, the banks are simultaneously encouraging this shift by reducing face-to-face services.

One example cited was the use of a concierge service to transition people from teller services to outside ATM or in-house digital services.

The inquiry heard more than 1600 bank branches have closed nationally in the past six years, with 309 of those in the past year, which is disproportionately impacting regional communities leaving many with no other option than to go digital or access Australia Post banking services through Bank@Post.

In light of the shift to digital, questions were raised about the statistics provided to the Senate on over-the-counter transactions, with many in-house transactions not included.

Furthermore, since digital transactions often incur higher fees, the committee questioned whether going digital was a “win-win” situation for the banks, allowing them to save money by closing branches.

Australian Banking Association chief executive Anna Bligh responded by stating that “fees and charges have decreased every year for at least the last 15 years” and argued against the notion that over-the-counter banking is free while electronic banking is not.

Regarding branch closures, the big four banks (excluding Australian and New Zealand Bank [ANZ]) stated that they ensure another branch is within a certain distance and a Bank@Post service is available before closing a branch. However, ANZ remains the only major bank not signed up for the Australia Post service.

Bank@Post services

ANZ’s executive director and chief executive Shayne Elliott explained that the bank was charged the same fees as the other three major banks despite being “half the size of our competitors”.

He pointed out the service costs the big four banks a fixed fee of around $20–$25 million, plus an additional fee for every transaction, while other banks’ charges were substantially less.

He also noted that the volume of transactions going through the post services was very small.
“When we looked at that … It didn’t make as much sense for us,” Mr Elliott said.

As such, the banks had been “forced to innovate”, such as partnering with Armaguard to provide cash collection and deposit services to eligible businesses.

Nonetheless, Mr Elliott said the ongoing conversation with Australia Post was welcome.

Branch closures

While Westpac’s managing director and CEO Peter King claimed that more than 95 per cent of banking activities that occur in a branch can also be done at a post office, the committee questioned this assertion, emphasising that certain services like home loans cannot be obtained at a post office.

The Senate committee probed how banks make decisions to close branches and what criteria they use to base these decisions on.

Mr King highlighted the dramatic changes in the banking system over the past few decades, moving from a single-channel model to offering services through multiple channels, including ATMs, call centres, digital banking, virtual banking teams, video banking, mobile banking teams, and the Bank@Post arrangement.

This complexity has made measuring branch profitability for closure decisions more challenging.

“Over time … we’ve gone from one channel to lots and so branch profitability isn’t something that we measure as such,” Mr King said.

In addition, the Senate raised concerns that National Australia Bank (NAB) indirectly benefits from branch closures, as the bank’s carbon footprint targets are linked to remuneration.

It was suggested that the closure of branches has resulted in reduced carbon emissions, potentially leading to indirect benefits for the CEO.

This connection was challenged by CEO Ross McEwan, who also faced questions about the bank’s decision to continue closing branches while the inquiry was ongoing.

He explained that they had carefully considered whether this was the right course of action for their colleagues, customers, and the bank itself.

Mr McEwan pointed out that in many countries facing similar issues and implementing moratoriums on branch closures, branches eventually close once the moratoriums are lifted.

“My view was we should just continue to do the right thing with our business making the decisions we need to make based around what customers are doing,” Mr McEwan said.

Meanwhile, the Commonwealth Bank of Australia (CBA) had postponed bank branch closures until 2026.

CBA CEO Matt Comyn highlighted the bank had held bank branch closures until 2026.

“We’re moving, I suspect, to the most telegraphed consultation process and banking history in the context of we’ve made a commitment to 2026,” he said.

Mr Comyn also pointed out that the “reality today” is that around 95 per cent of customers stay with their bank, even after it closes, leading to questions about the incentive to keep branches open.

“That’s been the past experience,” he explained.

Given these statistics, then the bank’s decision “to persist a much larger footprint and regional Australia over the next three years, commercially won’t be a good one”, he added.

“There’s no question that regional Australia is valuable to us. We might not be measuring that at an individual profit and loss statement at a branch, but to the question of, do we see value in supporting services? We absolutely do,” Mr Comyn said.

This marks the third round of hearings for this inquiry, which commenced this week in Launceston, Tasmania, on 19 September, hearing from MyState Bank and local councils.

The sessions will culminate in Junee, regional NSW, where Beyond Bank and Hume Bank will provide their insights.

[Related: Major bank criticised over regional bank closures]