Retail Deposits in Australia

Introduction

In the wake of the global financial crisis, banks have tried to strengthen their balance sheet by attracting a larger deposit base. With the dearth of affordable wholesale funding, retail deposits have become a more important source of funding. This report analyzes a retail deposit market in which competition is heating up.

Scope

*Includes a comprehensive overview of the Australian deposit market.

*Draws upon a large Datamonitor consumer survey of Australian deposit account customers.

*Forecasts upcoming market developments.

*Includes market overview, analysis of consumer behaviour, competitor dynamics and future developments.

Highlights

Household deposits have grown at a relatively fast pace in Australia over the last five years, with growth picking up in the last two years. Between April 2004 and April 2009, household deposits on the books of Australian banks grew from A$234bn to A$429bn.

In the Datamonitor AFS survey, 86% of respondents found it 'Very likely' or 'Quite likely' that unemployment would rise in the next 12 months. More than two thirds of respondents found it 'Very likely' or 'Quite likely' that Australia would enter recession during the same time frame, and 59% thought average property prices would fall.

Interest rates have converged over the last several years, with the difference in interest rates between different products becoming smaller. In many cases online savings accounts have driven up the rate of less competitive-priced products.

Reasons to Purchase

*Improve your strategic position using Datamonitor's in-depth analysis of the Australian deposit market.

*Understand the unique challenges the deposit market is facing, and benefit from forecasts of future product trends.

*Gain insight into the current mindset of Australian deposit customers.

Report Highlights
Highlights

Household deposits have grown at a relatively fast pace in Australia over the last five years, with growth picking up in the last two years. Between April 2004 and April 2009, household deposits on the books of Australian banks grew from A$234bn to A$429bn.

In the Datamonitor AFS survey, 86% of respondents found it 'Very likely' or 'Quite likely' that unemployment would rise in the next 12 months. More than two thirds of respondents found it 'Very likely' or 'Quite likely' that Australia would enter recession during the same time frame, and 59% thought average property prices would fall.

Interest rates have converged over the last several years, with the difference in interest rates between different products becoming smaller. In many cases online savings accounts have driven up the rate of less competitive-priced products.
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Table of Contents 9
Table of figures 10
Table of tables 11
Market Context 12
Deposits have grown strongly in Australia over the last decade 12
Total Australian bank deposits have almost quadrupled in the last 10 years 12
Product innovation has encouraged deposit growth 13
The global financial crisis has made deposits more attractive for banks and consumers alike 13
Household deposits have become more important in recent years 14
Household deposits have shown especially strong growth over the last two years 14
Household deposits' proportion of total deposits has grown in the last 18 months 14
Supplying retail deposit products has several important advantages for banking providers 16
Deposit products tie a consumer to the bank 16
Deposit products offer opportunities for cross-selling 17
Deposit products generate significant fee income for banks 18
Consumer Focus 20
Consumer attitudes toward deposits and banks have shifted 20
The global financial crisis has eroded consumer confidence 20
Consumers seek the safe haven of institutions that are considered safe 21
Many consumers intend to take up deposit products 22
A quarter of consumers without savings accounts are planning on taking up the product within 12 months 22
Action does not always follow intention when it comes to saving 23
Consumer satisfaction with deposit products is relatively high but has recently fallen 25
Savings accounts command a higher degree of satisfaction than transaction accounts 25
Satisfaction with providers has fallen for both transaction and saving accounts 25
Internet banking is highly regarded by consumers 27
Reasons for choosing account providers are changing 28
There is a complex relationship between transaction accounts and savings accounts 28
Savings account providers are often chosen based on rates 30
Online only savings account holders have distinct attitudes 32
Online-only savings account holders hold more money in their account 34
A significant proportion of consumers would like to arrange accounts via the internet 35
Product Focus 37
There are a number of competing products in the retail deposit market 37
Deposit products vary in terms of rates and conditions 37
The first home saver account is a new product type 38
Rates on deposit products are in a state of flux 39
Rates vary between different deposit products 39
Interest rates vary strongly 40
Average rates have recently fallen and converged 41
Term deposit rates and online savings account rates have converged 42
Bank margins on deposits have fallen 43
Competitor Focus 45
The major banks compete for household deposits 45
The major banks have grown their household deposit base 45
The 10 largest banks account for 96% of total bank deposits 46
The Commonwealth Bank has the highest market share of bank household deposits 48
The major banks differ in their focus on retail deposits 49
There are different strategies when it comes to retail deposits 51
Strategies vary in terms of cost and time horizon 51
The major banks face challenges which smaller players do not 52
Future Focus 53
Product innovation and evolution will continue 53
The internet will become yet more important for deposit products 53
Product convergence will create new deposit products 54
The convergence of account types will have a profound effect on the Australian deposit market 55
The eventual economic recovery will change the playing field in the deposit market 55
New entrants will return to the market 55
Competition will push rates higher and fees lower 55
Deposits 2.0 57
APPENDIX 60
Data tables 60
Methodology 79
Further reading 79
Ask the analyst 80
Datamonitor consulting 80
Disclaimer 80
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List of Tables
Table 1: Household deposit growth rates 6
Table 2: Deposit product types vary in terms of features 38
Table 3: Household deposit growth rates 46
Table 4: Household deposits and retail mortgages in April 2009 48
Table 5: Almost half of consumers would rather use the internet for managing finances, April 2004 57
Table 6: Total bank deposits, March 1999-Mar 2009 60
Table 7: Household bank deposits, April 2004-April 2009 61
Table 8: Proportion of total deposits that are household deposits, April 2004-April 2009 62
Table 9: Reasons for choosing provider of financial products, April 2009 62
Table 10: Bank fees derived from households, 1997-2008 63
Table 11: General economic confidence of Australian consumers, April 2009 63
Table 12: Personal economic confidence of Australian consumers, April 2009 64
Table 13: Attitudes towards financial services, April 2009 64
Table 14: Savings account holdings and intentions, April 2009 65
Table 15: Financial product intentions, April 2009 65
Table 16: Account satisfaction, April 2009 65
Table 17: Satisfaction with transaction account features, April 2009 66
Table 18: Reasons for choosing transaction account provider, April 2009 66
Table 19: How long different groups have held their transaction account, April 2009 67
Table 20: Reasons for choosing savings account provider, April 2009 67
Table 21: Reasons for choosing savings account split by account type, April 2009 67
Table 22: Attitudes toward savings account by account type, April 2009 68
Table 23: Attitudes toward savings account, April 2009 68
Table 24: Amount held in savings account by account type, April 2009 69
Table 25: Considerations if getting new savings account, April 2009 69
Table 26: Account arrangement and preferences, April 2009 70
Table 27: Average bank interest rates for different products, April 2004-April 2009 71
Table 28: Cash rate target, January 1993-June 2009 72
Table 29: Rate difference between online savings accounts and one-year term deposits, April 2004-April 2009 74
Table 30: Margin of three month bank accepted bill rate over different deposit products, April 2006-April 2009 75
Table 31: Household deposits by bank, April 2004-April 2009 76
Table 32: Household deposits on the books of banks, April 2009 77
Table 33: Market share of bank household deposits, April 2009 77
Table 34: Household deposits and non-household deposits by bank, April 2009 77
Table 35: Proportion of banks' total deposits that are household deposits, April 2009 78
Table 36: Reasons for avoiding the internet channel for arranging financial products, April 2009 78
Table 37: Ratio of bank interest expenses to bank deposits, June 2004-December 2008 79
List of Figures
Figure 1: Interest rates for different product types have converged, April 2004-April 2009 5
Figure 2: Total bank deposits have grown strongly in Australia over the last decade, March 1999-March 2009 12
Figure 3: Household deposits have shown strong growth over the last two years, April 2004-April 2009 14
Figure 4: The proportion of deposits that are household deposits has increased since 2007, April 2004-April 2009 15
Figure 5: In the last 18 months household deposits have become more important for banks, November 2007-April 2009 16
Figure 6: Transaction accounts frequently influences the choice of provider for other products, April 2009 18
Figure 7: Transaction accounts generate significant fee income for banks, 1997-2008 19
Figure 8: Most Australians feel that the economy will deteriorate over the next 12 months, April 2009 20
Figure 9: A significant proportion of consumers are concerned about their ability to pay their bills, April 2009 21
Figure 10: Consumers gravitate toward established domestic financial institutions, Apr 2009 22
Figure 11: A quarter of those without a savings account plans on taking one up within 12 months, April 2009 23
Figure 12: Many of those without a savings account plan on taking one up within 12 months, April 2009 24
Figure 13: Savings account customers are generally satisfied with their provider, April 2009 25
Figure 14: Satisfaction with transaction account provider has fallen, April 2009 26
Figure 15: Satisfaction with savings account provider has fallen, April 2009 27
Figure 16: Internet banking is the most highly regarded aspect of transaction accounts, April 2009 28
Figure 17: Savings accounts can drive choice of transaction accounts, April 2009 29
Figure 18: Choosing transaction account based on where savings are held has become less common, April 2009 30
Figure 19: Rates drive choice of savings account provider, April 2009 31
Figure 20: Online savings account holders are more rate-sensitive, April 2009 32
Figure 21: Online savings account holders are more active and rate-sensitive customers, April 2009 33
Figure 22: The rate is the most important consideration if getting new savings account, Apr09 34
Figure 23: Online account holders hold more money in their account, April 2009 35
Figure 24: A significant proportion of consumers would like to arrange deposit products online, April 2009 36
Figure 25: Online savings accounts have the highest interest rates, April 2009 40
Figure 26: The cash rate target has dropped sharply, June 1999- April 2009 41
Figure 27: Interest rates for different product types have converged, April 2004-April 2009 42
Figure 28: One-month term deposit rates are now closer to rates on online savings accounts, April 2004-April 2009 43
Figure 29: Margins of deposit rates over short-term money market rates have fallen, April 2006-April 2009 44
Figure 30: Bank household deposits have grown strongly, April 2004-April 2009 45
Figure 31: CBA has the highest amount of household deposits, April 2009 47
Figure 32: The two major banks control more than half of all bank household deposits, April 2009 49
Figure 33: Westpac has higher non-household deposits, April 2009 50
Figure 34: CBA derives the highest proportion of total deposits from household deposits, April 2009 51
Figure 35: Lack of interactivity is a common reason for avoiding the internet channel, April 2009 53
Figure 36: The proportional interest rate cost for deposits has increased, March 2005-December 2008 56
Figure 37: A unified online platform provides advantages to provider and consumers alike 58
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