Money-go-round still spins but the pace is changing

Press, 5 July 1983, Page 29

Money-go-round still spins but the pace is changing

• By

DAVID JOHNSON,

Visiting Associate

Professor, Dept of Management Studies, University of Auckland.

WE HEAR a lot about change these days - and especially about the rate at which change occurs. It seems to be an undisputed fact that changes occur far faster than most of our minds can absorb.

Recent moves in the financial markets have been the latest in a series of changes made by financial institutionsof all shapes and sizes, all keen to buy more money, sell more money, and earn a margin for their shareholders. For them to succeed they must offer more services to customers, or dress up old services to give greater convenience, greater confidence, or greater understanding of

what's going on. And it’s not easy for the man in the street to understand just what is going on. Many of the financial services now accepted as common place were only being talked about a decade ago. Yet everything done by financial institutions now is essentially the same as it’s ever been:

accepting a deposit for which interest is paid, then loaning the funds to someone else at a higher rate.

So long as some people have more funds than they need for their immediate requirements and others need more than they have available, the financiers have a job to do. Money saved for retirement gets invested. It provides the funds for young couples to buy a car, or a house, or a fridge.

Money earned by a wife going back into the workforce and starting to accumulate her own nest-egg might be lent (with a lot of other nesteggs) to the owner of the factory down the road. And so it goes on, the money-go-round.

So if the basic business is the same, what has changed? The changes have been in the way in which the financiers have packaged their products. This packaging - the services, choice of names and colours, the extra convenience that gives the particular bank or company concerned a greater appeal than that of its competitors - often mean more than the interest rate paid on deposits or charged to

borrowers. And in these days of controls. interest rates on deposits are inclined to be much the same anyway. Consider just some of the changes that have taken place in recent years - changes not in the basic business, but in how the product - money - is presented to customers.

• Longer hours. For years the trading banks ruled the roost with a 10 a.m. to 3 p.m. day, later extended to 4 p.m.

If you wanted to do business outside those hours, bad luck. With the introduction of the main street money shop - Broadlands was the first with its Takapuna shop in 1972 - business hours were 9 a.m. to 5 p.m. Today finance companies and building societies line most main streets. Some have

late nights, a few open on Saturday mornings. e Automatic teller machines. The convenience factor was further extended with the installation of ATMs in walls up and down the country. These machines, easy to use, are available day

and night, seven days a week. The first on the scene were the Saverpoint machines of the Northern United (now United) Building Society early in 1981, closely followed by the Cashflow machines of the trustee savings banks.

Since then we’ve seen the Autobanks of the ANZ and BNZ and the Anytime machines. The cost of installing machines of this type is high. It makes sense; therefore, for financiers to share. The Anytime machines are a cooperative venture of Broadbank, the Post Office and a number of building societies. ATMs aren’t as familiar as the comer letterbox - yet. But they’re heading that way. • Plastic cards. From the early 1960 s when Diners Club had the New Zealand field to itself we’ve seen wallets becoming progressively fatter as one innovation follows another. American Express, Bankcard and Visa are all well known.

Last year saw the launch of the Amex Goldcard by Broadbank - a move towards a semi-banking role. Since then Visa has moved upmarket with its Premium Card - also coloured gold.

® Prospectuses. Those boring documents issued by all financiers other than banks

and building societies are becoming more readable. Later this year the Security Commission's new regulations will allow further streamlining of the information flow. In the meantime Broadbank has developed a shorter prospectus for use with a passbook: the Savercentre concept. Other financiers have developed their own variations.

• Frequency of interest payments. Years ago when someone quoted you a percentage per annum they meant just that: you got your cheque at the end of each year. Then payments became six monthly, then quarterly. Occasionally someone offers interest paid monthly, but it’s generally a gimmick. Quarterly, however, is now the general rule.

It makes a difference to the cost to the financier and the return to depositors. The rule of thumb if you’re investing money is to get the interest payment dates as close together as possible (assuming that the interest rates being offered to you are the same). If you’re borrowing, the reverse applies.

Throughout this period of change the barriers between different types of financial institutions have been crumbling.

Not so long ago the trading banks, the savings banks, the building societies, the finance companies, the superannuation funds all had their own corners of the marketplace. Not so today. No longer are the boundaries black and white. They’re a murky sort of grey as the very definition of a bank becomes open to question.

A bank used to be a place where you deposited money, where you raised a loan, and on wh ch you could draw a cheque.

In the New Zealand scene, we now have many financial organisations with which you can deposit money and from whom you can raise a loan. But you’ve been able to draw cheques only on trading bank and, more recently, saving bank accounts.

(Some building societies offered cheque accounts not so long ago, but lost that privilege. A few stock and station agents still issue cheque books, and so strangely enough does one of our wellknown retailers, but for all practical purposes we’re talking about banks in the traditional sense). But that was before the introduction of the plastic card with a magnetic stripe on the back.

New Zealanders love writing cheques. We’re amongst the greatest cheque writers in the world. But we can use plastic cards when it suits us

too. So now we have financial institutions that take deposits, make loans, and allow their customers to withdraw deposits or to draw on their loan accounts by use of a plastic card. Is it any wonder the boundaries are crumbling? To do its best for its depositors (whose interests - in the widest sense of the word - are best protected by having their funds invested with a profitable organisation) and its shareholders (who aren't in business solely for fun - they expect to get a return on their money too) financial institutions must adapt to change: to changing demands, to changing needs, to changing fashions. The fact that a financier changes its marketing approach, its colour scheme, even its name, doesn’t mean that it’s taken leave of its senses and become flighty. On the contrary, it’s more likely to be adapting to the times. We’ve recently seen Broadlands adopt the Broadbank name as the family title. There’s nothing new about that. The Broadbank name has been part of the Broadlands group since 1971. What’s happening is a change in emphasis. With the introduction of the plastic card (through Anytime for cash access or through Goldcard for day-to-day spending or for access to a credit limit), a

passbook scheme (Savercentre) and the restructuring of the prospectus rules to allow a simpler more common-sense approach to providing information to prospective investors. Broadlands is a lot more bankish than it was ten years ago.

The recent adoption of a new trust deed and the transfer of all deposits in the Broadlands/Broadbank group is one more move in this direction. So Broadbank has now come to the fore. It makes sound marketing sense.