Banking in a Competitive Environment; National Australia Group Chief Executive and New AIBF President Frank Cicutto Gives His View on Issues Including the Credit Card Fees Debate, the Four Pillars Policy and the Economic Outlook. (Banking)
Cicutto, Frank, Journal of Banking and Financial Services
As the incoming president of the Institute I would like to pay tribute to the stewardship provided by John McFarlane over the past two years.
This is not only my first speech as the president of the institute but also the first public address I have given since September last year.
I would have gladly hit the speaking circuit however it was important to focus on the internal challenge presented by HomeSide during that period.
All organisations, from time to time, face critical challenges. It is how they cope with them that defines the organisation, not the nature of the challenge.
Since our announcement of the HomeSide provisions last year, we have focussed on dealing with what was a significant problem, managing our businesses and keeping the market fully informed. It is a measure of our success in handling this matter that our share price has recovered and moved to a new record high in subsequent months. The market has clearly moved on, and as an organisation the National is looking ahead, not behind.
We learned some hard lessons as a result of HomeSide but we did not lose our way, or relinquish our desire to make the national an organisation of true distinction.
So, despite HomeSide, I believe I can turn to the topic of banking in a competitive environment from the standpoint that the National has some of the best strategic options combined with robust banking, wealth management and wholesale businesses.
Competition is a marvellously broad topic and I intend to take full advantage of that and range across a number of areas.
Without doubt one of the most topical issue relating to competition for the industry is the current Reserve Bank review of credit card interchange fees. I wish to canvass some of the issues. My comments on interchange should be viewed in the context of a concerned banker and former chairman of the Australian Bankers Association.
As we currently stand, and having dispassionately reflected on the process of the last two years, I'm genuinely concerned that the process may lead to an outcome that impairs the system rather than improves it.
For the non-bankers among the audience interchange is the wholesale fee levied among financial institutions and retailers for the use of the payments system infrastructure of computers, telecommunications and terminals.
Interchange ensures merchants pay their share of the cost of the system since they get several benefits which include: credit lines and free credit provided for their customers; a payment guarantee and reduction in the use of costly payment mechanisms such as cash and cheques.
This complex system allows you to wander into a store in Sydney, using a credit card issued by a financial institution based in Brisbane and purchase goods through a merchant terminal provided by a bank from Melbourne.
In most cases the transaction takes place in real time with the consumer guaranteed against non-delivery of the goods or service and the merchant able to transact without a concern about the creditworthiness of the client.
Credit card interchange is one part of a vast electronic payments system. Our system is one of the most advanced, efficient and secure, in the world. It might be invisible to the man in the street but it should be recognised that this is a valuable part of our economic infrastructure created using the sound logic of user pays.
Whilst financial institutions have invested billions to create the payments systems we enjoy today, it is a service taken for granted by the community but one that requires sizeable on-going investment. Investment to maintain the system to the current high standards, plus the range of benefits it provides cannot be guaranteed if profitability is reduced to unrealistic levels.
A balanced debate about interchange is vital to preserve confidence, competition and investment in the payments system in Australia. …