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Business Services Industry

Banking in the Bush : a decade of change

Economic Papers (Economic Society of Australia), March, 2005 by Diana J. Beal, Sarath Delpachitra

Financial-services delivery in Australia has undergone rapid change in the last two decades with the closure of full-service face-to-face branch outlets being a particular facet of change in the last decade. The brunt of these closures has been borne by residents of non-metropolitan and more remote areas. The research described in this paper has investigated how Australians living in regional and moderately remote areas have adjusted to changes in financial-services delivery. Respondents to a survey reported the decreased use of cheques, in common with national trends, and increasing use of electronic delivery methods. However, abandoning cheques in favour of other methods has not been taken up as rapidly as is practically possible. Respondents reported being most satisfied with saving and investing services and least satisfied with business-banking services.

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Key words: Financial-services delivery, Electronic banking

1 Introduction

In 1993, the number of banking outlets in Australia reached a peak with 7 064 bank branches, 1 519 non-bank branches, 6 288 bank agencies and 2 645 non-bank agencies (RBA, 2004). This large financial-services distribution network, which supplied variously transactional services, loans, financial investments and advice, supplemented with limited services offered by the Commonwealth Bank of Australia through its agency arrangements with Australia Post, gave quite small towns some financial-services delivery. Although financial-services providers have opened and closed branches and agencies continually as part of their normal service supply management and reaction to changing population levels and demand, outlet closures have exceeded openings in most years in the decade since 1993.

The trend of outlet closures started slowly. By 1996, the aggregate number of the four types of outlets given above had only decreased by 2.5% (RBA, 2004). However, hidden within these data was the reality that the number of bank branches had decreased by 7.9% and non-bank agencies had decreased by 21.2% (RBA, 2004). Banks had decreased the number of their full-service branches and had substituted or opened more agencies (up by 10.5%) (RBA, 2004). The non-bank financial institutions had closed numerous agencies and withdrawn service delivery from many areas.

As can be readily appreciated, in their quest for efficiency the financial-service providers withdrew from smaller centres of population. The drop in the number of the four major banks' branches in non-metropolitan areas, for example, was 13.9% in the 1993-1996 period, with Victoria and South Australia losing 23.5% and 27.8% of their numbers respectively (RBA, unpublished data quoted by Beal and Ralston, 1998). In NSW and Western Australia, the percentage decreases were not so large at 15.8% and 9.3% respectively, and in Queensland there was a small increase in the number of non-metropolitan branches. However, the explanation for this apparent incongruity lies in the definition of 'non-metropolitan'. The decentralised nature of Queensland's infrastructure and population growth has meant that central places are prospering along the coastline, and the opening of financial-services outlets there has masked the closure of outlets in the 'bush', a generic term for non-metropolitan and smaller population centres. On this point, the Hawker Inquiry (1999, para. 2.17) reported that 44% of closures of the only branch of a bank in town occurred in towns of less than 600 population; 19% occurred in towns of 600-1000 people; 17% occurred in towns of 1000-1500 people; and 10% occurred in towns of 1500-2000 people. Thus 90% of closures happened in towns of less than 2000 people.

In the seven years after 1996, the trend of closures continued. The number of bank branches in 2003 was down to 4853, a decrease of 25.4% over the 1996 total, and the number of non-bank branches was down to 1247, a decrease of 18.8% over the 1996 total (RBA, 2004). While the publication of agency data ceased in June 2000, the aggregated bank and non-bank agency numbers at that time were 34.4% lower than the 1996 numbers (RBA, 2004).

This paper reports the third of a series of survey-based studies that have examined how Australians in rural areas have adjusted to the changes which have occurred in the last decade in financial-services delivery. As well as the closure of face-to-face outlets, these changes have included a major expansion of payment methods, changes in loan sales and origination methods, and changes in the traditional roles of 'banks' and 'non-banks'. To this end, Section 2 reviews the Hawker Inquiry (1999) and the two previous studies mentioned above. Section 3 briefly recounts the development of alternative delivery channels and Section 4 explains the method used for the collection of data. The following section reports the findings while Section 6 discusses the findings and concludes the paper.

2 The Hawker Inquiry and the Two Previous Studies

The Hawker Inquiry (1999) stemmed from the Wallis Inquiry (1997) into the Australian financial system, which clearly showed a financial system in transition from over-regulation to a new focus on competition and allocative, operational, and dynamic efficiency. The results of this change in focus included the closure of high-cost delivery channels such as traditional branches staffed by largely-indivisible sets of employees regardless of turnover and the cessation of cross-subsidisation of expensive services through inflated interest margins. The Hawker Committee was charged with looking into "alternative means of providing banking and like services to rural, regional and remote Australia to those delivered by the traditional bank branch" (Hawker Inquiry, 1999, para. 1.3).

Business Services Industry

Banking in the Bush : a decade of change

Economic Papers (Economic Society of Australia), March, 2005 by Diana J. Beal, Sarath Delpachitra

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