Fighting the 'lazy tax': the change that will help us get the best deals

By | octubre 3, 2017
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Guess what “zero per cent” credit card balance transfers, “honeymoon” interest rates, and discounted mortgage package deals have in common?

These are all ways in which banks compete for your business, but they’re also sales tactics that can also have drawbacks for consumers.


Cheaper credit cards

Will consumers be smart enough to use new, cheaper credit cards coming out, or will they be caught by the “lazy tax?” Michael Pascoe comments.

That zero per cent deal may entice you to take out a credit card which then has a very high rate for new purchases. The generous introductory interest rate on a savings account may drop back sharply after a few months.

And the mortgage package may make it harder to for you take your business elsewhere down the track, while blurring comparisons with rivals.

To be fair, these offers can deliver good value – if you’re happy to read the fine print, do the sums and be prepared to shop around.

However, lots of us have better things to do with our time, and that means the benefits of these sorts of promotions can be questionable for many, a point recently made by regulators and consumer groups.

A Productivity Commission inquiry into competition in finance is putting the spotlight on these types of marketing techniques used by banks, all of which take advantage of consumer inertia.

Also sometimes dubbed the “lazy tax,” this is the reality that consumers will happily swap between Woolworths and Coles for cheaper groceries, but we are less likely to do so in banking.

There are practical reasons for the inertia. Figuring out the cost of a financial service is generally more complex than comparing the price of milk. Switching between banks may never be truly “seamless” for security reasons – the Commonwealth Bank’s money laundering scandal shows the importance of banks knowing who they are dealing with.

However, there is a big change brewing that can make customers much less “sticky,” and therefore curb the effectiveness of these sorts of sales tactics.

That change is called “open banking” – allowing consumers to easily share their “data,” such as their transaction history, with other banks or a host of new digital businesses.

The United Kingdom has introduced an open banking regime, and our federal Treasury is currently conducting its own review on this topic.

Consumer groups also worry open banking could result in vulnerable customers being targeted with expensive or inappropriate loans.

Both the Reserve Bank and the Australian Competition and Consumer Commission have told the Productivity Commission they are “strongly” supportive of open banking, and its impact on the market.

Why are they so excited?

Because open banking is a way to break open the banks’ stranglehold on customer data – one of the most valuable assets they have – and deliver some of the value to consumers.

Take the example of home loans. The Reserve Bank says one problem with the home loan market is that it “lacks transparency,” because individually-negotiated mortgage discounts mean it’s difficult to know if you’re paying too much.

Open banking could change this, as new apps may be developed to match your loan with a competitive lender. Similar services could be also be developed for other products like deposits, transaction accounts, or credit cards.

Open banking might also result in new apps that would remove some of the difficulties of switching, such as changing all your automatic direct debit payments.

The ACCC argues it will give smaller banks, and new technology businesses, a better chance of competing with the big four, and likens the changes to the rise of “phone number portability” in the mobile phone industry.

“We see the opportunity in the banking sector today as being similar to the opportunity in the telecommunications industry some 15 – 20 years ago where competition between carriers was stimulated by making it easier for customers to switch service providers,” the ACCC says.

Banks say they support the idea, but are demanding rigorous standards for protecting privacy and security. Some consumer groups also worry open banking could result in vulnerable customers being targeted with expensive or inappropriate loans.

Those concerns from banks and consumer groups are legitimate, but they should be manageable.

Sales tricks and gimmicks will probably never be removed. But they would be less effective if consumers were given simple information on whether they were getting a good deal, and they were able shop around more easily.

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