Queuing up for Kiwi-owned coin

Within the next few months green and red Kiwibank branches will be (almost) everywhere. KEVIN TAYLOR asks if we're going to get a good deal.

The numbers are starting to mount. So far Kiwibank, the political brainchild of former Alliance leader Jim Anderton, has cost $80 million to get started. It is signing 500 customers a day - which means it probably has about 20,000 altogether - and it aims to have 300 branches in New Zealand Post outlets throughout the country by year's end.

That would make the state-owned bank part of the shopping landscape in most towns and cities, with more branches than any other bank in the country. Even the biggest bank, WestpacTrust, has only 200.

Yet Kiwibank will have far fewer customers and only a fraction of the assets of its Australian-owned rivals, even if it reaches its goal of 150,000 customers in the next three years.

It does not expect to break even until then either. A return on taxpayers' money is some way off.

So is the return of a state-owned bank worth it for taxpayers and potential customers, who appear disillusioned with our existing banks?

Absolutely, says Anderton, who likes to joke that Kiwibank is opening branches faster than his former Labour colleague Richard Prebble closed post offices in the late 1980s.

The Deputy Prime Minister has praised Kiwibank's impact on its rivals, calling this month for Australian-owned banks in New Zealand to explain why they could afford to reduce their fees now, when they couldn't until the prospect of competition from Kiwibank arrived.

But banking sector specialists are sceptical about Kiwibank's ability to keep undercutting its rivals on fees and mortgage rates.

"You can't continue to discount for a year and a day," says KPMG banking and finance group chairman Andrew Dinsdale, whose firm released its annual banking survey last week.

David Tripe, senior lecturer at Massey University's Banking Studies Centre, also says Kiwibank's future will not be easy.

Tripe accepts forecasts the bank will not make money for two or three years. That would be consistent with the experience of other new banks. AMP Bank has yet to make a quarterly profit in New Zealand after four years here.

But he thinks profits may come to Kiwibank sooner - reflecting wider public enthusiasm for its services.

Will customers get a better deal?

When Kiwibank launched its products and services in February it boasted that a family switching their banking business would get a 50 per cent average reduction in fees and released comparisons to prove it.

Kiwibank also offered lower mortgage rates than the big five banks - WestpacTrust, ANZ, BNZ, ASB and National. Initially its floating rate was 0.6 percentage points lower and there is still a 0.55 per cent gap. Kiwibank customers can repay their home loans at 6.95 per cent, compared to 7.5 per cent at the big banks - a difference of $33 a month on a $100,000 mortgage.

The savings, coupled with a strong sense of patriotism, appeal to many new customers.

Wellington public servant Maurice Flood, 48, is going to transfer all his business to Kiwibank, including a mortgage.

He says his dealings with Kiwibank so far have been excellent and staff have been co-operative.

He likes the Kiwibank idea: "We are going to look after the people - it's coming back to what I was brought up with in the 50s and 60s."

Tauranga businessman Les Attwell yesterday opened an ordinary savings account with Kiwibank to save money for a rainy day. His prime motivations were lower fees and the large number of branches.

But Attwell, who is in his 50s and worked in the banking industry for 20 years, has another motivation - it is New Zealand-owned and the profits do not go overseas.

"Kiwibank is there for Kiwis and the other thing is all profits remain in the country."

Wellington man Andrei Triandafilidis, a Greek who has been in New Zealand for more than 50 years, is so enthused by Kiwibank he offered to forgo interest on his account for three years to help it get started. His offer was politely declined.

Triandafilidis recently transferred all his banking business to Kiwibank. The reason: keeping profits in New Zealand and Kiwi ownership. He also supports lower fees and the big branch network.

"We have got to help New Zealand. I do feel that every New Zealander should help Kiwibank get off the ground."

Aucklander Tomasina Stacey plans to open an account for her 2-year-old son, Olwyn, and a savings account for her husband.

The couple have a mortgage with another bank that is fixed for three years, otherwise they would shift all banking business.

Will Kiwibank survive?

Accolades from happy customers are a good start. But to survive, Kiwibank will have to fight several factors, starting with the sluggish switching habits of New Zealanders. Annually only 4 to 5 per cent switch banks, despite surveys showing high rates of customer dissatisfaction.

Tripe and other banking commentators point out that customer numbers are not everything. Kiwibank will need to attract its share of valuable clients - those who take mortgages and bank substantial deposits - as well as those just using the bank's transactional accounts.

Kiwibank says it is so far attracting a slightly higher socio-economic group than expected. Its term deposits are proving popular, as are its lower mortgage rates.

And while Kiwibank's huge branch network may be a plus for customers, surveys show many people no longer use branches regularly and internet use has boomed.

KPMG's annual financial institutions performance survey, out last week, showed the big five banks had 678,000 customers registered for the internet at the end of last year - up from 345,000 the year before. Phone banking is increasing as well.

Kiwibank says it will cater for this market. It offers phone and internet services and 10 per cent of its customers are doing business online.

The bank's economic future has always looked shaky, partly thanks to a stream of leaked Treasury and consultant reports in the past year.

Act MP and anti-Kiwibank campaigner Rodney Hide leaked reports from Treasury and consultants Cameron and Co in late 2000 which cast doubts on the project's viability and NZ Post's business case.

They questioned the assumption there would be no strong competitive response and raised the prospect that the new bank would need $100 million rather than $80 million.

Hide has also hammered Kiwibank's problems in bringing the 170 NZ Post franchises on board in the last few months.

The bank needs most of the franchises to take a branch to keep its main selling point - a bigger branch network than anybody else.

Because of the franchise problems, Kiwibank's managers have missed their initial target of opening 300 branches this month and are now aiming for the end of the year. The slippage has meant only 250 branches will be open by mid-July.

Did the other banks fail their customers?

Kiwibank grew out of a strong public perception - picked up and developed by Anderton - that New Zealand banks were blindly chasing profits, firing staff, closing branches (from 1510 to 832 between 1993 and 2001) and treating customers badly.

Certainly the big banks dwarf their new rival. The big five (all owned by the Australians except National Bank) made a combined $2 billion profit last year and total assets were $158 billion.

WestpacTrust, the country's biggest bank, has $37 billion in total assets and 1.3 million customers. At the end of December - before it started trading - Kiwibank had total assets of just $74 million.

Anger over high fees and poor service at existing banks was mentioned by several Kiwibank customers who spoke to the Herald.

Maurice Flood's reason for switching is dissatisfaction at what he calls unjustified fees and an underlying tone of arrogance.

Like Anderton, he thinks the big banks are starting to take better care of customers "because there's a new kid on the block called Kiwibank".

Tomasina Stacey says she does not generally like banks but Kiwibank is attractive because it is community-based and -owned. She disliked the banks in Australia, which charged huge fees, made huge profits and offered poor service.

"So the opportunity for a bank that does not charge big fees - and is just down the road - is attractive."

Tripe, who is researching whether there was a failure in the banking market, thinks there have been some failings but it is not yet clear if Kiwibank will fix them.

Some of Kiwibank's fees seem too low to cover the cost of the service and that appears to contradict Government claims the bank will stand without taxpayer support, he says.

Because of the complexity of banking relationships, Tripe says, people are reportedly having to spend an hour in a Kiwibank branch to switch.

"In such circumstances one must ask how many people whose banking relationship is of value will be prepared to endure the agonies and delays of shifting."

He also says the customer service gap with other banks will diminish - a trend already visible in last year's Auckland University business school customer satisfaction survey.

"This reduction in the service gap will also reflect some hardening in attitude by Kiwibank staff as they deal with some of the more aggravating bank customers," Tripe says.

"People get much more upset about their money than they do about buying a few stamps."

The OECD argues there was no market failure in this country to begin with. Its 2002 Economic Survey of New Zealand, released this month, says the decision to create Kiwibank "does not seem to have represented an efficient allocation of public funds, as it did not address any evident market failure".

Tripe says the balance of argument probably shows New Zealand is better off with a foreign-owned banking system anyway. Being bigger and more diversified, they provide significant back-up and muscle should anything go wrong.

Will politics keep Kiwibank in business anyway?

Kiwibank's political origins are well known. Its $80 million set-up cost was the price Labour - and the country's taxpayers - had to pay for the Alliance to chalk up a political victory as part of the Coalition Government.

National leader Bill English has promised to sell Kiwibank if his party returns to government but Tripe wonders if is viable.

"We may find that the cost of closing the bank down becomes one of the best reasons for keeping it in business."

Tripe says if Kiwibank was sold it would not generate "anything like" the $80 million used to start it.

It would also be hard to separate Kiwibank's operations from its parent, NZ Post.

"How is someone going to take over that business that's geared up to run through Post Shops? Maybe the sensible thing to do is to make it an agency outlet for other banks."

Another theory is that Kiwibank was created primarily to fulfil the business needs of NZ Post.

Tripe points out that the business case was straightforward - NZ Post needed to boost its range of services to keep generating revenue.

Whether that income stream problem could have been solved by running an agency service for other banks - as it already did for TSB - was another matter.

"One gets the impression they decided they were going to have a new bank and other approaches to it were not taken particularly seriously."

nzherald.co.nz/kiwibank