The mortgage evolves

If you cast your mind back 20 years, the world of financial services was very different to today. After a wave of consolidation across the sector, most of the major banks in Australia offered a variety of services to their customers and often charged what became known as an ‘annual package fee’. 

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With the package you received a discount on your home loan interest rate, fee waivers on some linked products, such as your home loan, or a credit card or personal loan. You could get access to financial planning advice at a discounted rate. And so on.

(And I’ve been in banking long enough to remember when the debate around fee per product, package fees and “free banking” was first being held. Three decades ago…)

“Customers are more likely to get their products from a range of financial services providers. The concept of loyalty to one banking provider has changed substantially over time.”

The composition of the package varied between banks but it was centred on paying one fee and getting a benefit from bringing all your banking services together.

Customers felt they were getting good value for that annual package fee, with the home loan being the cornerstone of that product.

ANZ was among the first banks to introduce such an offer under our Breakfree package. We’ll be the first bank to start removing these packages from sale in March, before discontinuing them in September, as customer preferences have evolved.

We get a sense that many customers no longer value some of the benefits that make up the package and some have preferred to move away from these more complex arrangements.

The search for value

Today customers are more likely to get their products from a range of financial services providers. The concept of loyalty to one banking provider has changed substantially over time and is now quite different to when these packages were introduced.

Customers are seeking to unbundle and get value for money from discrete transactions with different providers. This is similar to customer preferences in other sectors of the economy - like using multiple streaming services.

People used to just watch free-to-air television or they had a ‘one-size fits all’ pay television package for a fixed price each month. Now customers can subscribe to a number of different services to make sure they get access to the products they really want.

Customers are already looking for more choice so there was an element of necessity. But we believe the bigger driver here is the opportunity. We really think this is an opportunity to deal with our customers in a more relevant way. Of course, our aim is to make all our offerings so attractive customers will not wish to have multiple providers.

From March, we’ll simplify our three home loan offerings: the ANZ standard variable rate, the ANZ fixed rate and ANZ Simplicity Plus - essentially our ‘no-frills’ product.

All customers will have no ongoing ANZ fees. That means no loan approval fees, no ANZ loan or valuation administration fees, no progress payment fees or loan renegotiation fees. Customers who want an offset account can choose that option for $10 a month.

We’ve found offset accounts have become significantly more popular than they were 10 years ago and we expect that trend to continue. In the financial year ending 30 September 2021, the amount of money our customers held in offset accounts soared to $39 billion from $27 billion in the previous 2020 financial year.

Customers are increasingly smart with their money and they know where to look for value. Many have larger balances on their mortgages and they may decide it makes financial sense for them to pay $10 a month for an offset account.

If customers choose ANZ Simplicity Plus, it's a variable rate home loan but without the ability to attach an offset. We still have a lot of customers who prefer such a product.

Simpler, clearer

We have been speaking to our customers about what they prefer most in a home loan and they’ve told us it’s simplicity.

We understand customers want more choice today about how they structure their home loans and our new approach provides that while retaining a discounted interest rate and no annual package fee.

Customers who still want a credit card can choose to apply for one and we have various cards on offer so customers can choose a card that best suits their lifestyle and goals. Of course, we encourage customers to evaluate their credit products to ensure they continue to meet their current needs.  

We believe this simpler, clearer home loan structure will be good for both customer retention and acquisition. They will have more choice and only pay for the products and features they value and choose to use.

These simpler home loans have been designed to make it easier for customers to see their options clearly and make decisions with greater understanding and confidence. We also believe the changes will make it easier for brokers to recommend ANZ to their customers.

Our business has simplified many products in recent years at the same time as customers have sought to unbundle their banking services. They can now shop around for which organisation gives them the best deal on a credit card or a home loan or a personal loan or tailored financial advice (to name a few products).

They want the option of cheaper interaction or to access special offers with multiple players in the search for value for money. Banks too have to decide whether they follow that path. We believe we are doing so.

And again: our ambition is to ensure ANZ is the most attractive option for much of what our customers are after.

Mark Hand is Group Executive for Australian Retail & Commercial Banking at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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