Mortgages and debt: How lending culture is leaving Australians vulnerable

From ABC News.

A decade of housing price rises, low interest rates and relatively easy credit has left Australians carrying the second highest level of household debt in the world.

And despite efforts to tighten lending and to address problems in the lending culture, the ABC’s Four Corners program has learnt bank staff and mortgage brokers are still required to meet tough lending targets and some staff are threatened with dismissal if they do not meet the banks’ requirement to sign up more mortgages.

The problems in the lending culture were acknowledged by the banks themselves earlier this year in a review conducted by the former public service chief, Stephen Sedgwick.

Incentive payments and lending targets are still a primary motivator for bank staff.

Internal performance expectations for Westpac bank lenders, obtained by Four Corners, include targets of six-to-nine home-finance requests a week and between two and three home-loan drawdowns a week.

All the big banks have performance targets.

ANZ chief concedes need for further reform

Most bank CEOs, including Westpac, were unavailable for interview but ANZ chief Shayne Elliott did agree to talk to Four Corners.

Mr Elliott said changes had been made and not all the targets were simply sales targets.

“The targets are small in relation to their overall income,” he said.

Mr Elliott said, following the Sedgewick review, 70 per cent of ANZ’s targets were weighted towards good customer outcomes and customer satisfaction.

“[The targets are] not all about sales, not about the number of mortgages,” he said.

Banking regulators have also moved to tighten lending, forcing banks to make investor loans in particular harder to get — but bank staff told Four Corners they still had to meet tough performance targets.

Four Corners has obtained letters written to lenders by bank branch managers at NAB and Bankwest — owned by the Commonwealth Bank.

The letters warned lenders who had not met their targets that their positions were under review, and both canvassed the possibility of termination.

Mr Elliot conceded there was room for further reform in the industry.

“I think, in terms of our own staff, there will always be room for further improvement,” he said.

But he said there also needed to be a greater focus on the incentives driving the mortgage brokerage industry.

“We’re accountable for the lending, but [for] future reform we need to look at the way that the broking industry is also compensated,” he said.

Some brokers agree.

Philip Dempsey, a former mortgage broker, left the industry after growing increasingly uncomfortable with the commission-only payment system.

“Brokers are under extreme pressure — most of them don’t have a base salary,” he said.

Mr Dempsey said most brokers also had lending targets they had to meet — some as high as $3 million a month.

He said if the targets were not met, the brokers were forced out of the industry.

“There have been people in the industry who have been lending clients too much money, encouraging them to borrow more than what they can comfortably afford,” he said.

A ‘perfect storm’ of issues

Australian banks now hold at least 60 per cent of their loan assets directly to housing.

Concern is growing among some economists and former bankers about the impact of any housing downturn on the banks and on the wider Australian economy.
A shaded line graph showing a rising household debt to income ratio from 1990 to 2015.

 Finance data analyst Martin North gestures with his hands as he speaks to Four Corners.  Photo: Martin North said he had never before seen what he called a "perfect storm" of issues coming together. (ABC News) 

Finance data analyst Martin North conducts a continuous survey of individual household debt and mortgage stress.

He said he had never before seen what he called a “perfect storm” of issues coming together.

“We’ve got very high household debt. We’ve got very high house prices. We’ve got households in some degree of difficulty already,” he said.

“You only need a small consequential change, a small increase in the cost of fuel and stuff, to be able to actually really create that pain point.

“There are a good number of households who are really up against it now.

“It’s a house of cards, I think. It doesn’t take much to see how it could actually go pretty bad.”

Another economist who has raised the alarm is former banker Satiyajit Das.

He said the 60 per cent exposure to mortgage debt in Australia’s banks was “extremely high”.

That figure “is at least 20 per cent higher than Norway, and also higher than Canada, which is a very comparable economy to Australia”, he said.

Australia’s feverish housing market has contributed but Mr Das said other countries that had experienced rapid house price rises did not have the same potentially dangerous exposure.

“One of the biggest housing bubbles in the world is Hong Kong, but the Hong Kong banks have only got exposure to the housing market of around 15 per cent,” he said.

Exposure to housing debt at Australian levels, Mr Das said, would leave banks more vulnerable in the case of any housing downturn.

“If there is a downturn then obviously the losses will build up quite quickly,” he said.

‘Massive affordability problem’ will exacerbate downturn

Gerard Minack, the former head of developed market strategy at Morgan Stanley, said Australia had been led down this path by current tax arrangements and lenders who had been increasingly willing to leverage up borrowers.

This, he said, had created “a massive affordability problem” that will exacerbate the pain associated with any downturn.

Australia now has a household-debt-to-income ratio of 190 per cent.

“For every $1 of household income, there’s [nearly] $2 of debt,” Mr Minack said.

“I can’t think of a single economy that’s had a downturn with that much debt where it’s not been a deep downturn.”

Mr Elliot said ANZ was comfortable with its current loan exposure.

“It is a healthy mix at about 60 per cent, ” he said.

“The reality is that housing loans are pretty good because they’re quite diverse in terms of lots of really small loans across the country.”

Mr Elliot said the impact of a downturn on the bank would depend on its nature.

“It’s something we look at incredibly seriously because it’s in our best interest to make sure that our risk is well managed,” he said.

ISA accuses banks of dodging FOFA

From InvestorDaily.

The industry super lobby has accused the major banks of attempting to evade the FOFA regulation within their superannuation products.

Industry Super Australia (ISA) recently posted a submission to the Productivity Commission’s inquiry into the efficiency and competitiveness of Australia’s superannuation system.

ISA called for a crackdown on big banks and other for-profit entities who, it said, have been allowed to exploit superannuation fund members in the name of increasing sales.

The lobby group said the current superannuation system is like FOFA – where for-profit companies like the big four banks have been able to circumnavigate or “work around” legislation and exploit consumers for increased sales and insurance commissions.

“From inception, FOFA has been subject to substantial lobbying efforts that seek to weaken it, and for-profit entities have immediately sought to ‘work around’ and adapt to FOFA in a way that maintains as much of their lucrative businesses as possible,” ISA said in the submission.

“For so long as the superannuation system allows participation by entities that have a strong culture of prioritising themselves rather than serving others, this will happen. The inquiry’s proposed default [superannuation] models will certainly be subject to the same dynamic.”

ISA pointed to exemptions in FOFA which currently “allow bank staff to earn volume-related bonus for selling superannuation under general advice”.

FOFA also “allows the payment of commissions on individual life and income protection insurance on policies paid for out of choice superannuation products which provides strong financial incentives for advisers to switch members out of default superannuation products,” ISA said.

ISA pointed to research from the Roy Morgan Superannuation and Wealth Management in Australia 2011 and 2015 reports which showed the big banks shifting away from selling products via financial advisers and an increase in direct sales to consumers instead.

“This activity has almost doubled across the four major banking groups from 10 per cent in the 2011 Report, compared to 19 per cent for the three years to December 2015,” ISA said.

“[This takes] advantage of the lower levels of consumer protection outside personal advice to aggressively sell super directly.”

ISA said regulation and further competition are not the answers for cracking down on misconduct from for-profit entities in the superannuation sector.

“Regulation alone has never been enough to ensure good behaviour. Regulation is particularly unreliable in relation to the finance sector because that sector is especially vigorous in its efforts to influence policy makers,” ISA said.

There is a concern that “each of the inquiry’s proposals seeks to remove superannuation from the industrial system, and envisions private sector, for-profit financial institutions bidding for and winning pools of default superannuation members,” the submission said.

“Such an outcome will deliver to the for-profit part of the super system a ready-made, government-sanctioned, and generally disengaged customer base at a very low acquisition cost.”

Instead there needs to be a focus on culture and values within organisations ISA said.

“The reason why some funds tend to consistently perform well, and prioritise members, is an amalgam of culture, values, institutional objectives, and governance.”

US Housing Bubble 2.0: Number Of Homebuyers Putting Less Than 10% Down Soars To 7-Year High

From Zero Hedge.

A really long, long time ago, well before most of today’s wall street analysts made it through puberty, the entire international financial system almost collapsed courtesy of a mortgage lending bubble that allowed anyone with a pulse to finance over 100% of a home’s purchase price…with pretty much no questions asked.

And while the millennial titans of high finance today may consider a decade-old case study on mortgage finance to be about as useful as a Mark Twain novel when it comes to underwriting mortgage risk, they may want to considered at least taking a look at the ancient finance scrolls from 2009 before gleefully repeating the sins of their forefathers.

Alas, it may be too late.  As Black Knight Financial Services points out, down payments, the very thing that is supposed to deter rampant housing speculation by forcing buyers to have ‘skin in the game’, are once again disappearing from the mortgage market.  In fact, just in the last 12 months, 1.5 million borrowers have purchased a home with less than 10% down, a 7-year high.

Over the past 12 months, 1.5M borrowers have purchased a home by putting down less than 10 percent, which is close to a seven-year high in low down payment purchase volumes

– The increase is primarily a function of the overall growth in purchase lending, but, after nearly four consecutive years of declines, low down payment loans have ticked upwards in market share over the past 18 months

– Looking back historically, we see that half of all low down payment lending (less than 10 percent down) in 2005-2006 involved piggyback second liens rather than a single high LTV first lien mortgage

– The low down payment market share actually rose through 2010 as the GSEs and portfolio lenders pulled back, the PLS market dried up, and FHA lending buoyed the purchase market as a whole

– The FHA/VA share of purchase lending rose from less than 10 percent during 2005-2006 to nearly 50 percent in 2010

– As the market normalized and other lenders returned, the share of low-down payment lending declined consistent with a drop in the FHA/VA share of the purchase market

On the bright side, at least Yellen’s interest rate bubble means that today’s housing speculators don’t even have to rely on introductory teaser rates to finance their McMansions...Yellen just artificially set the 30-year fixed rate at the 2007 ARM teaser rate…it’s just much easier this way.

“The increase is primarily a function of the overall growth in purchase lending, but, after nearly four consecutive years of declines, low down payment loans have ticked upward in market share over the past 18 months as well,” said Ben Graboske, executive vice president at Black Knight Data & Analytics, in a recent note. “In fact, they now account for nearly 40 percent of all purchase lending.”

At that time half of all low down payment loans being made involved second loans, commonly known as “piggyback loans,” but today’s mortgages are largely single, first liens, Graboske noted.

The loans of the past were also far riskier – mostly adjustable-rate mortgages, which, according to the Black Knight report, are virtually nonexistent among low down payment mortgages today. Instead, most are fixed rate. Credit scores of borrowers taking out these loans today are also about 50 points higher than those between 2004 and 2007.

Finally, on another bright note, tax payers are just taking all the risk upfront this time around…no sense letting the banks take the risk while pretending that taxpayers aren’t on the hook for their poor decisions…again, it’s just easier this way.

CBA credit card scandal ‘just the tip of the iceberg’

From The New Daily.

The Commonwealth Bank credit card insurance scandal is the “tip of a very large iceberg”, legal experts have warned.

Philippa Heir, a senior solicitor at the Consumer Action Law Centre, welcomed the bank’s promise to repay $10 million to 65,000 students and unemployed people sold dodgy credit card insurance.

“Unfortunately it’s very widespread,” she told The New Daily.

“We’ve seen misselling of this sort of insurance on a large scale.”

On Monday, corporate regulator ASIC revealed that CBA – already mired in a money-laundering scandal – had agreed to refund about $154 to each of the 65,000 affected customers, who were sold ‘CreditCard Plus’ insurance between 2011 and 2015 despite being unable to claim for payouts.

CBA told the market it “self-reported the issue” to ASIC in 2015, and that the insurance was “not intentionally sold to customers who were not eligible”.


It was an example of what Consumer Action calls ‘junk insurance’, which is where inappropriate insurance policies are slipped covertly into the paperwork for car loans, credit cards and other financial products, or where the salesperson pressures the customer to buy unsuitable coverage.

Ms Heir said the CBA example was by no means an isolated case, and that many victims were poor.

“People who’ve spoken to us say they were told they had to [pay for insurance] or they would not qualify for finance for the car they needed to support their family. So this is affecting people on lower incomes significantly.”

Last year, ASIC published the results of a three-year investigation of add-on insurance sold by used car dealers. Its sample group paid $1.6 billion in premiums for only $144 million in payouts.

This amounted to an average payout of nine cents per dollar of premiums, compared to 85 cents for comprehensive car insurance, ASIC reported.

Consumer Action has set up a website to help Australians claim refunds from insurers. More than $700,000 has been claimed so far.

Here are the potential warning signs that a policy may be unsuitable.

Be wary of pressure selling

Consumer Action’s Ms Heir said high-pressure sales tactics were a danger sign.

“The key is, if you’re being put under pressure to buy insurance, that might ring alarm bells that you should shop around.”

An independent review of the banking sector, released in January, contained shocking revelations from bank staff who reported being forced to oversell financial products, including unnecessary insurance.

One anonymous bank teller said: “If I do not meet my daily sales target I have to explain how I will catch up at morning meetings of the team. I am behind in sales of wealth and insurance products and need to catch up to keep my job.”

Be wary of add-on insurance

ASIC’s recent investigation related specifically to add-on general insurance policies sold by used car dealers. It found “serious problems in the market”.

These add-on policies cover risks relating either to the car itself, or to the car loan. Examples include ‘consumer credit insurance’ and ‘tyre and rim insurance’.

Consumer Action agreed it was a high-risk area.

“One person we spoke to spent $20,000 for add-on insurance on a $60,000 car loan, so it took that loan from $60,000 to $80,000, which is hard to even comprehend,” Ms Heir said.

Be wary of insurance for small losses

An expert on investor behaviour, Dr Michael Finke of Texas Tech University, warned in a recent financial literacy series that fear of losing money temps consumers to buy unnecessary insurance.

Buying a policy is “rational” only when the probability of losing money is low and the size of the potential loss is high, Dr Finke said.

“It’s a good strategy to make sure that you let the small ones go so you can focus on insuring bigger losses.”

He recommended setting a “risk retention limit” – a dollar figure below which you don’t insurance yourself.

“This limit should be based on your wealth and your ability to cover a loss if it happens,” he said. “This may mean keeping a little bit more money in a liquid savings accounts just in case.”

CBA ‘falls short’ on climate policy

From InvestorDaily.

CBA released its first ‘Climate Policy Position Statement’ yesterday as part of its annual report, in which the bank committed to both decrease the intensity of its business lending and reduce its own emissions.

However, according to environmental financial group Market Forces, CBA has failed to honour its previous commitment to the Paris Agreement goal to limit global warming to 2 degrees.

Market Forces executive director Julien Vincent said CBA’s position statement demonstrated they were “not even pretending” to make an effort.

“Unlike the bank’s peers in Australia and overseas that are taking concrete steps to avoid the most carbon intensive sectors, Commonwealth Bank clearly lacks either the interest or competency to fulfil its commitment to help hold global warming below two degrees,” Mr Vincent said.

According to CBA’s position statement, the bank would “target an average emissions intensity decrease of our business lending portfolio consistent with our commitment to a net zero emissions economy by 2050”.

However, the Market Forces analysis suggested this statement was vague and lacking in detail.

“The wording of this statement is very concerning as it is aspirational but no hard targets are being set,” the analysis said.

“It also covers the bank’s entire business lending, leaving room for some sectors to increase while others decrease. It is also a target that could conceivably be met by adding more renewable energy to energy portfolios (which is of course positive) but not necessarily requiring reductions on exposure to fossil fuels.

“This offers no confidence whatsoever that Commonwealth will reduce its fossil fuel exposure.”

Mr Vincent said the policy statement left “the door wide open” to continue lending to fossil fuel projects.

“That in itself should be enough to conclude this flimsy document has no relationship with the goal of holding global warming to less than 2 degrees,” Mr Vincent said.

The analysis also compared CBA’s commitments in renewable energy lending with its peers and found it to be “a slightly lower commitment pro rata than those of the other major banks”.

In light of what Market Forces called a “dismal” position statement, the environmental group has declared its intention to lodge a shareholder resolution against the bank.

CBA provides an update on customer and employee review and remediation actions

CBA released another update itemising the status of a number of open compliance and other process issues and their remediation programmes. Clearly disclosure is on the minds of the CBA currently!

In the course of reviewing our products and processes and where we see issues, we report to our regulators and fix these for our customers. In addition to updates on a number of customer review and remediation programs in the Annual Report 2017 released today, we are providing an additional update on other issues we are putting right for our customers and employees. This is not an exhaustive list of all regulatory matters, however the following have now reached some key milestones:

Our review of superannuation payments

Earlier this year, we started a review of superannuation payable to our part-time employees working additional hours at single-time rates. As part of this review, we also expanded the scope to all employees and all types of payments going back eight years. This included looking at superannuation and the impact on leave and allowances paid since 1 July 2009 when the Australian Tax Office’s Superannuation Guarantee Ruling was issued.

This review is ongoing and the precise amounts are to be determined. The first tranche, which will commence shortly, is estimated to be $16.7 million plus interest, equating to an average amount per employee of approximately $463 plus interest. The expected total payments and program costs have been conservatively provided for in previous financial years.

We will be contacting the 36,000 current and former employees who are eligible for additional payments.

Refund for some Credit Card Plus insurance customers

In 2015, we identified that some customers who purchased Credit Card Plus insurance (providing cover for a range of circumstances) may not have met the employment criteria, meaning they may not, if the need arose, have been able to receive certain benefits under the policy. We self-reported this issue to the Australian Securities and Investments Commission in 2015, fixed the issue and began working with ASIC on a remediation program.

These customers remain eligible for various benefits of Credit Card Plus insurance such as Death and Terminal Illness, but may not have been eligible to receive benefits for Involuntary Unemployment, Temporary and Permanent Disability. It was not intentionally sold to customers who were not eligible. We have agreed with ASIC to refund these customers who were not eligible to receive these benefits for the period between 2011 and 2015. We will shortly commence refunding customers.

We expect the refunds to total approximately $10 million, including interest, for around 65,000 customers, with an average refund of approximately $154 including interest.

We will continue to engage with ASIC on their wider industry review into consumer credit insurance.

Refund for some Home Loan Protection insurance customers

In February 2016, we identified that some customers who had purchased Home Loan Protection insurance had been charged an incorrect premium amount or had incurred premium charges before the home loan was drawn down. Both issues were self-identified and reported to ASIC in 2016.

This investigation is ongoing, however so far we have refunded approximately 9,600 customers a total of approximately $586,000 including interest, with an average refund of approximately $61 including interest.

Essential Super

ASIC has expressed a concern that some customers may have been given personal advice rather than general advice during the sale of Essential Super. We continue to discuss this topic with ASIC.

Charges on disputed card transactions

In July 2017, we proactively notified ASIC that when refunding disputed transactions on customers’ cards, while the transaction itself was correctly reversed, certain charges associated with the disputed transactions were not always correctly adjusted. We reviewed the 4.5 million disputed transactions going back to 2009 and will shortly commence refunding approximately $5 million including interest for around 355,000 customers, with an average refund of approximately $14 including interest.

Deceased estates

Today, ASIC was notified about an issue affecting some insurance products, where for a number of accounts, a confirmation of the cancellation of an existing insurance policy may not have been sent to the deceased estate. At this stage, the number of customers impacted is expected to be below 1,000. We are currently undertaking a detailed investigation back to the year 2000 to confirm the number of affected customers and will contact their estates and remediate if appropriate.

All of the above amounts have been appropriately provided for in previous financial years.

More CBA Bad News

Ian Narev, will retire by the end of the 2018 financial year it has been announced.

The Chairman of the Commonwealth Bank of Australia, Catherine Livingstone AO, said today that the Board had decided to provide details of its planned Chief Executive succession process to ensure the market is fully informed and to provide certainty for the business.

Managing Director and Chief Executive Officer, Ian Narev, will retire by the end of the 2018 financial year, with the exact timing dependent on the outcome of an ongoing comprehensive internal and external search process.

Succession planning is an ongoing process at all levels of the Bank. In discussions with Ian we have also agreed it is important for the business that we deal with the speculation and questions about his tenure. Today’s statement provides that clarity and will ensure he can continue to focus, as CEO, on successfully managing the business.

Separately, ASIC said the Commonwealth Bank (CommBank) will refund over 65,000 customers approximately $10 million, after selling them unsuitable consumer credit insurance (CCI).

CCI is a type of add-on insurance, sold with credit cards, personal loans, home loans and car loans. It is promoted to borrowers to help them meet their repayments if they become sick, injured or involuntarily unemployed.

CommBank sold ‘CreditCard Plus’, insurance for credit card repayments, to 65,000 customers who were unlikely to meet the employment criteria and would be unable to claim the insurance.

CommBank is also refunding approximately $586,000 in premiums to around 10,000 customers after it over-insured these customers for Home Loan Protection CCI taken out with a Commonwealth Bank home loan, resulting in the over-charging of premiums.

ASIC Deputy Chair Peter Kell said it was unacceptable that customers were sold insurance that did not meet their needs. ‘One of ASIC’s priorities is addressing poor consumer outcomes associated with add-on insurance, including CCI. Consumers should not be sold products that provide little or no benefit, and banks should have processes in place that ensure this.’

CommBank and CommInsure identified and reported this issue to ASIC.

CommBank will be contacting eligible ‘CreditCard Plus’ customers shortly.


CreditCard Plus

CommBank will remediate customers who were sold ‘CreditCard Plus’ between 2011 and 2015 who were either:

  • unemployed; or
  • students.

They were therefore not eligible to claim for unemployment or temporary and permanent disability cover provided by the CCI.  The vast majority of customers were students with lower credit card limits.

Home Loan Protection

Between 2007 and 2015 CommBank did not adjust the amount of cover under the CCI policy where the amount the customer borrowed was less than the original loan amount they applied for.

In charging these customers premiums based on the loan amount applied for rather than the amount that was actually borrowed, CommBank charged these customers for more cover than they needed under the policy. In some cases, cover was also provided and paid for before a loan was drawn down.  CommBank will continue its review to ensure all affected customers are identified and remediated.

Bank compensation bills for scandals hit $355 million

From The New Daily.

The bill for the big banks in recompensing clients over financial scandals is continuing to rise, with the ANZ last week ordered by regulator ASIC to boost by $6 million to $10.5 million its compensation to mistreated OnePath superannuation customers.

That news “is a shock but not a surprise” said Erin Turner, campaigns director with consumer group Choice, although “it shows another disappointing outcome”.

While the extra cash will be welcomed by wronged ANZ customers, it’s small beer compared to what the banks have had to pay all up. In recent years a series of scandals have seen the big banks hit with compensation bills of at least $355.4 million.

Most of that money came as a result of mistreatment by bank financial advisory arms which, among other things, involved forging client signatures to switch investment choices without permission. Banks also charged clients advisory fees without giving any financial advice.

The figures are staggering with ASIC demanding the banks pay back a total of $204.9 million and of that only $60.4 million has been paid to date. The banks still owe $144.2 million, plus an interest component which has not been detailed.

A spokesman for ASIC said the shortfall in payments is not the result of a time payment regime drawn up by the regulator.

It is the result of the fact that the banks are having to trawl through their records to find details of the customers concerned and how much money they are owed, which apparently takes time. Just how much time presumably depends on the banks.

The list provided does not include all the high-profile scandals of recent years. The cost to the CBA of the money laundering scandal involving 53,700 transactions breaching reporting laws is yet to be determined and there are other issues under investigation or legal challenge.

There are also bank-related issues like the $500 million collapse of Timbercorp and the $3 billion Storm Financial collapse where incentives and lax lending saw the life savings of thousands go up in smoke, often at the latter stages of life when recovery was impossible.

Where recompense is made it doesn’t necessarily fully compensate for losses. For example the CBA repaid Storm Financial investors around $140 million when estimates of losses by those who borrowed through CBA were far higher than that.

Naomi Halpern, an activist who suffered personal losses in the Timbercorp collapse, says often compensation arrangements are inadequate. ANZ was a significant lender to Timbercorp investors.

“They’re not even giving back all of what has been lost. There is no recompense for the trauma and suffering people go through, you only get a percentage of the loss,” she said.

Ms Halpern is working with the review of banking dispute resolution led by Professor Ian Ramsay. She said while the committee is consulting widely the banks to date have only agreed to a prospective scheme that will compensate for future wrongs.

“They’re not interested in a retrospective scheme,” she said.

To date CBA has been hit with the biggest bills for compensation following the banking scandals. Payments will total $245.8 million when its compensation over financial planning misbehaviour are completed.

The bank reported a record profit of $9.88 billion last week and its theoretical liability over the money laundering issue totals almost $1 trillion.

Any settlement is likely to be far lower than that but with ASIC now pledging to look at the actions of CBA directors over the issue, there looks like being considerable personal and financial angst experienced at the bank before the issue is laid to rest.

Banking with a chatbot: a battle between convenience and security

From The Conversation.

Soon, you will be able to check your bank balance or transfer money through Facebook Messenger and Twitter as banks experiment with chatbots. Companies like Ikea have used customer service chatbots for close to a decade. But their use in financial services represents a new tension – do we want convenience or a feeling of security from our banks?

Research shows that when it comes to online banking, customers are prepared to trade security for convenience. But when customers think there is a threat to their security, this feeling reverses.

Researchers at QUT recently found that a sense of insecurity is one of the reasons consumers do not already interact with financial institutions on social media. And the feeling of insecurity actually increased between 2010 and 2014, as social media became more popular.

This means banks will likely have to design their chatbots to give a sense of security, just like they do with bank branches.

The trade-off between the convenience and security of a service comes down to trust. Trust in the service provider to protect our personal details (“soft trust”) and trust in the platform and infrastructure you use to access the service (“hard trust”). Both types of trust are important to ensure a sense of balance.

For instance, it’s of little use having an impregnable vault if consumers don’t trust the person with the key. Likewise, trusting a staff member is of little value if consumers can see there are safety flaws in the system. Consumers need to know that their trust (both hard and soft) is well placed before they can enjoy the added convenience of emerging technologies.

Designing a sense of security

Banks previously used physical design to create a sense of security and trust. This is called signalling and involved the use of marble floors, metal bars, and imposing vaults in bank branches to reassure us that our money is safe.

As our banking shifted into apps and websites, we faced the same problem as chatbots currently do – the internet was undoubtedly more convenient but at the expense of a feeling of safety. This was also solved with design.

Websites and apps were designed to send similar signals as that of the physical bank branches. For instance, by using security symbols (such as the green padlock next to the URL of this website), logging customers out if they’re inactive for too long, and moving keyboards for entering online banking passwords.

Research has found consumers feel more secure when a system generates a unique password for each login, than they do when they are allowed a permanent password. Even seeing the initials of an employee in a Tweet can humanise the interaction and instil trust.

All of these design aspects evolved to signal trust and security. But chatbots do not have access to these same design capabilities – you can’t do something as obvious as having a big vault or green padlock.

So what does all this mean for chatbots?

Research from Accenture indicates Australians are ready for artificial intelligence in the financial sector – 60% are open to entirely computer-generated banking advice.

And a World Retail Banking Report found that while 51% of consumers still prefer face-to-face interaction for more complex products and services, they also demand greater levels of digitised customisation and personalisation from financial institutions.

All of this means chatbots could work for banks. On the back end, chatbots can be secured just like websites and apps – using two-factor authentication and encryption etc.

It’s important to promote this feeling in users too. A big part of it will be “humanising” the interaction. For instance, chatbots can be programmed to seem more human – achieving the same thing as staff members’ initials on social media. They can be given names, personalities, and even emotions.

But this will just be the start. As artificial intelligence and chatbots become a part of daily life, the trust signals will need to be built, one digital brick at a time.

Authors: Kate Letheren, Postdoctoral Research Fellow, Queensland University of Technology; Paula Dootson, Research Fellow, PwC Chair in Digital Economy, Queensland University of Technolog

ANZ pays further $10.5 million to consumers for OnePath breach

The Australian Securities and Investments Commission (ASIC) has confirmed an additional $10.5 million in compensation for 160,000 superannuation customers who were affected by breaches within the OnePath group between 2013 and 2016.

ASIC has been monitoring the resolution of a number of OnePath breaches. This has resulted in ANZ (the parent company of OnePath) providing further compensation, mainly in relation to incorrect processing of superannuation contributions and failure to deal with lost inactive member balances correctly.

ASIC has also confirmed the finalisation of all recommendations made by an independent review of OnePath’s business activities. The final two recommendations were the last to be implemented after an independent review of OnePath’s compliance functions was announced in March 2016.

The independent review was sought by ASIC, following ANZ reporting a number of significant breaches. The review addressed OnePath’s life and general insurance, superannuation, and funds management activities.

OnePath has contacted the majority of affected customers and finalised the majority of these additional compensation payments. Customers who have queries about whether they are owed compensation or another form of remediation should contact OnePath on 133 665.

ASIC will continue to monitor the breaches reported to us by ANZ until the matters are resolved, including any remediation where appropriate.


The ANZ Group’s subsidiaries with AFS Licences include OnePath Custodians Pty Ltd, OnePath Life Limited, OnePath Funds Management Limited and OnePath General Insurance Pty Limited.

From early 2013 to mid-2015 around 1.3 million OnePath customers were affected by breaches requiring refunds and compensation of around $4.5 million, rectifications and other remediation of around $49 million.

An ANZ spokesperson said:

In March last year we estimated we would reimburse about $4.5 million in relation to compliance breaches that affected 1.3 million customers.

Following detailed analysis this has increased $10.5 million impacting 160,000 customers.

While this work is ongoing, we don’t expect the majority of these customers to receive significant further reimbursements.

As soon as we became aware of issues in 2013 we reported these breaches to ASIC and have fully cooperated with their review of this matter.

In January 2016 we appointed PwC to conduct an independent compliance review, and reported the findings of that review in December 2016.