KEY POINTS:
Banks are a part of everyone's lives and we have different relationships with them, sometimes close, sometimes distant. New Zealand is one of the most competitive banking markets in the world where banks work hard to keep their customers happy.
So, how do banks make their money? Banks
can earn revenue in many ways but at its simplest level, they earn revenue from the difference between the interest rate charged on loans and the interest rate provided on money invested with the bank, says the Bank of New Zealand.
Where demand for loans exceeds funds available to the bank from customers who invest their money with it, the bank secures additional funds from external sources, at a cost to the bank. For example, when you take out a loan the interest rate you are charged includes the cost of funds as well as a margin to cover the bank's operating and other costs that might apply.
Banks can also earn revenue from charging customers a range of fees, which can be specific to certain types of transactions or accounts for instance maintaining a current account, or more general service fees such as for establishing or amending an automatic payment.
"We are much like your corner dairy or your local supermarket on one hand, and like a service provider such as a window cleaner on the other," says a Westpac spokesman.
"'Banking at its most basic involves sourcing a commodity [in this case money] in bulk, at a certain price and making it available in smaller amounts useful to the consumer [for example, a mortgage or personal loan or through a credit card] at a slightly higher price [a margin]."
They also provide services such as money storage and products like credit cards
that offer convenience. In other words, customers can shop without having to carry around cash - where would we be without our Eftpos cards?
Fees are charged for those services and are non-interest income which contribute to how banks make money. It is in the banks' interests to sign customers up for as many products as possible as it will make it harder for them to leave.
A recent Nielsen Consumer Finance Monitor survey finds New Zealanders think banks have improved their service in the past 12 months.
New product developments have contributed to the feeling that banks are trying harder and improved service in the branches according to the survey. All the mainstream banks - ASB and National Bank, Kiwibank and ANZ and BNZ - have been patted on the back for high levels of service.
Big is not necessarily beautiful - TSB, BankDirect and PSIS are among those who have achieved the highest rating for service.
An almighty 95 per cent of TSB customers rate their bank as excellent or very good, with PSIS and BankDirect rating at 88 per cent and 86 per cent respectively, says the research company.
NEW PRODUCTS FROM THE BANKS:
Debit cards
One of the most important card products to enter the New Zealand market in the past year is the debit card, a chance for people to make a break away from credit cards but keep some of their benefits such as being able to pay for items online. In the case of the debit card the money is taken directly from your bank account at the time of the purchase.
As the Money and You went to press, Westpac was the only one offering the product although Kiwibank was on the brink of launching a similar product.
Debit cards, which are popular around the world, have won the approval of several groups of customers in New Zealand: specifically older people who don't agree with getting into debt, groups for whom it is against their religion to have a credit card, and teenagers who are not yet allowed credit cards
by their parents but want to buy music online.
BNZ's TotalMoney
TotalMoney launched in March 2007, is an inNovative way of banking that combines low cost banking, interest earning, pooling and offsetting.
TotalMoney allows family groups to pool accounts so all can earn a higher interest rate. Everyone can see each other's balances, which might be a deal breaker for some, but they don't have access to the funds and cannot see transaction details. Parents can help children earn better interest or pay off home loans more quickly, without having to take on their liability, by a pooling of credit interest rates and allowing home loan offsetting.