Another pressure point for the banking sector is falling fee income. Last year was the second successive year it has fallen, after steady growth in the past.
According to the latest Reserve Bank’s Bank Fees in Australia report, total fee income in 2019 was A$12.3 billion – down 0.7 per cent from the previous year. Lower fee income from households was driven by lower fees on deposit accounts, while fee income from businesses grew at a slower pace, as a result of changes to merchant service fees.
Banks earned fees worth $3.9 billion from households – down 6.8 per cent from the previous year. The biggest fall was in deposit account fees, which fell 18.4 per cent.
The biggest household item is credit card account fees, which were worth $1.7 billion – 43 per cent of the total. Credit card fees were down 0.2 per cent from the previous year.
The RBA said some banks reported reductions in late fees due to the use of SMS alerts to remind customers of payment due dates.
A couple of sub-components of credit card fees did rise: reward card annual fees rose 3.8 per cent; and foreign currency conversion fees rose 3.5 per cent.
Housing loan fees were worth $1.1 billion – down 7.5 per cent. All components of household fee income fell last year, except for income that cannot be directly related to an individual account.
The 18.4 per cent fall in deposit account fees, which were worth $744 million, reflected falls in account servicing fees, transaction fees and ATM fees.
There was widespread removal of informal overdraft arrangements and there was a reduction in associated honour and dishonour fees.
Total bank fee income from business was worth $8.3 billion – an increase of 2.3 per cent from the previous year.
The RBA said growth in business fees was largely a reflection of increases in business loan fees, which accounted for 40 per cent of the total, and merchant services fess from processing card transactions (38 per cent of the total).
The increase in fee income from business loans was consistent with a higher volume of loans last year.
Merchant service fee income rose 2.2 per cent, which is below the average annual increase of the preceding five years. The RBA said this reflected the ongoing shift from credit to debit cards for payments.
The RBA survey does not include fee income from operations outside Australia or from funds management or insurance operations.