Can the planets align? We believe they can!


Lisa Gray, Group Executive Personal Banking - National Australia Bank
Address to National Consumer Congress 2010 - Sydney, Tuesday 16 March 2010

Good afternoon, I want to thank CHOICE for inviting me to speak here today.

I head National Australia Bank's Personal Banking business. We employ more than 10,000 people across Australia and are responsible for delivering banking products and services to more than three million retail and small business customers.

About 18 months ago, as part of a monthly review of the financial performance of our business, I was questioning my team about our credit card performance and why our revenue was declining.

The team rolled their eyes and said that an unusual level of customers had stopped rolling their debt from month to month and had started to pay it off when it was due.

I naively asked: "But surely it is a good thing that people are paying down debt and managing their household cashflow sensibly, in times of uncertainty?"

They replied: "It means we will earn less income if they pay down their debt more quickly – and that's no good."

It was at that moment that I had what is affectionately known as a BFO or Blinding Flash of the Obvious.

It became clear to me that something was fundamentally wrong with our industry when:

  • we bemoan customers for managing their money well, and paying down debt in times of uncertainty, because we make less money; and
  • for turning a blind eye when they aren't managing their money well, the industry generates more value.

Things had become completely out of alignment.

I knew we had to look at things differently – that we needed to shift how value was being shared.

We needed to "align the planets" such that we could simultaneously do the right thing by customers - and in doing so, make good sense for our business.

Done correctly, we knew it would set us apart in the marketplace – move us away from the perception that we are part of the pack and make us more competitive.

It's important to us that our customers have a strong relationship with us, and we want to say to customers of other banks: ‘look at NAB, we have a competitive edge'.

And we believe that in order to achieve this we need to do more than just run some sort of marketing campaign or glossy ads. We want change to be based on real, measurable and tangible benefits for our customers.

This is why NAB is taking important steps to change the way we do business.

In the past few years, we have undertaken a number of initiatives. You might have heard of some, such as removing a range of bank fees or giving the disadvantaged better access to financial services.

These initiatives are not a marketing gimmick, a PR stunt. They are integral to our long-term business model. They are unashamedly strategic, commercial, and part of a game changing Fair Value agenda.

This agenda is about providing a more fair "value exchange" between us, our customers, our people, our shareholders and the broader community. As we say publicly, "more give, less take".

The notion of fair "value exchange" was lost over the last several years as the sharing of value in our communities became completely out of balance. I believe that this was one of the major drivers of the Global Financial Crisis - where financial institutions simply forgot that we live in a community, not an economy.

I also believe our customers and communities will not let us return to such an imbalance and therefore the status quo and doing things as we always have done is not a sustainable option for banks going forward.

In the short term, it will hopefully have Australians seeing us stand for something different.

In the longer term, I think it will change the economic model for retail banking in Australia; as our customers grow and increase their wealth, we will grow and share in that – this is how banking should be for all Australians.

Our Fair Value agenda has four key foundations:

  • Quality products and services
  • Fair fees and charges
  • Help, guidance and advice
  • Compassion and support

So, what have been some of those initiatives.

Firstly Providing quality products and services:

We doubled our ATM network to make it one of the biggest in Australia. By doing this, we gave customers more access to direct charge ATM fee-free banking at more than 3,200 locations across the country. It's saving them millions of dollars a year.

We are taking a transparent stance on mortgage interest rates.

Interest rate movements will always provoke public debate – informed and illinformed. But I believe that more and better information about the factors contributing to interest rate movements will, over time, allow our customers to better understand how their mortgage works.

What influences interest rates is one of life's major misunderstandings. While the cash rate does drive changes to bank's interest rates, so do movements in the wholesale money market and competition for consumer deposits. Both of these continue to be persistently high. If that situation does not subside, we can't rule out considering moving interest rates outside of the ‘official' cycle.

It's our policy to continue to be open and provide details on how NAB sets interest rates. We want our customers to clearly understand what to expect from us on what is, for the vast majority, one of the biggest decisions of their life.

But of course, it's also about being competitive – and we have been. For the past nine consecutive months, NAB has had the best standard variable home loan interest rate of the major banks.

Australians are starting to notice our actions – they're seeing us do things differently and bring more competition and choice to bank customers.

Secondly we are fighting unfair fees and charges:

In terms of customer complaints, fees are our biggest bugbear. Last year, they represented more than 70 per cent of complaints.

Last September, we started by removing fees … the ones that sparked the most complaints.

Don't get me wrong; fees are a legitimate part of any service business. We will continue charging fees – but on what we believe is a more sustainable and fair basis.

Fees should be for services the customer values, has chosen and has agreed to be charged for. They must be clearly explained.

Over the past eight months we have abolished overdrawn account fees on our most popular personal and business transaction and savings accounts, monthly account keeping fees also on our most popular personal transaction accounts and credit card over-limit fees.

We have to improve our relationship with our customers, and getting rid of these fees is an important part of this process.

Already, we are seeing the benefits. It's not just anecdotal – although there's plenty of that from customers and employees:

  • customer complaints have fallen 40 per cent – the biggest fall ever experienced by our bank;
  • new accounts have increased 25 per cent; and
  • account closures have dropped 22 per cent this financial year.

These are significant numbers.

But it's not only our customers who are benefiting; our people are too. Dealing with customer complaints can be de-motivating and time consuming. Getting rid of them means our people spend more time with them on real banking issues and, not only that, the response from our people has been overwhelming as they now believe we are doing the right thing.

Providing Help, Guidance and Advice:

We've started providing free alerts on SMS to advise customers if they are about to overdraw their account or credit card – so they are in control. There is a lot more to be done in this area.

Finally, showing Compassion and Support:

We are embarking on a training program with Good Shepherd Youth and Family Services to increase understanding among our people about hardship and poverty.

To our employees it hasn't always been immediately obvious that a customer is suffering financial hardship. The way we treat people experiencing hardship can have an enormous impact on how they cope.

We believe this training will be the start of a cultural change and better equip our people to understand the extent and nature of hardship in Australia, therefore allowing them to better identify and deal with customers experiencing financial difficulty.

Creating a better awareness of this issue and training our people to handle these customers in a sensitive, caring manner, is just part of the solution.

To reflect our commitment, last December we re-branded our Hardship team NAB Care. More importantly, we more than trebled the size of the team to over 50 dedicated employees – with an additional 100 people available to take hardship applications over the phone.

Currently we are getting about 200 requests a day from customers requesting assistance. 40 per cent are not yet in arrears, but are experiencing some form of lifechanging event requiring assistance.

But perhaps the most exciting initiative involving NAB Care has been our recent pilot of introducing a customer-care coach into our business. The coach works with these customers to help them establish financial goals and devise plans to achieve them, such as developing budgets and providing guidance about government assistance programs and tools.

All the evidence to date suggests NAB Care is on the right track. That said, what we have done to date is not our last word on how we handle these customers. There is still much to be done. We are genuinely committed to getting it right, and what we have done so far demonstrates we are taking large steps in that direction.

Addressing financial exclusion and providing financial services to all Australians, including people too often marginalised or excluded from mainstream financial services, has become a priority for NAB and it is something I am personally passionate about.

Successful micro-finance programs require a whole-of-community approach, with collaboration from government, corporate and community groups to deliver the best outcome.

And with the help of many of the community and government organisations in this room our programs have achieved some important milestones.

This month NAB will write its twenty-one hundredth (2,100th) Step Up loan.

Step Up is a not-for-profit personal loan scheme that provides loans of up to three thousand dollars for people who, for a range of reasons, can't access mainstream credit to buy those things many of us take for granted – a car, fridge, or that much needed dental work.

In another milestone, NAB's 15 million dollar in capital support for the Good Shepherd's No Interest Loans Scheme, or NILS, will help this community lending program write in excess of 7,000 loans by the end of March 2010.

Last year, with Good Shepherd, we also launched AddsUP … a matched-savings plan to promote financial independence for people with a NAB Concession Card account.

AddsUP is open to people who have successfully repaid their NILS or Step UP loan and once $300 is saved, NAB will "once-off" match every dollar up to $500.

The Federal Government's commitment late last year to provide 18.5 million dollars in funding to Good Shepherd Youth and Family Service and to more than 300 community agencies gave these programs a real boost. This funding means that over the next two years we will be able to double the number of families we can help through these programs.

The numbers are important. But it's the human stories behind them that bring home to me and my colleagues the importance of this work. Many are unemployed women bringing up children alone. There was one woman reduced to washing her clothes in a bath for hours on end until help was arrange via a NILS loan to purchase her a washing machine.

The NAB micro-enterprise loan program offers loans to the smallest of small businesses, people taking a very big step who would not normally be able to access finances.

These people often have great ideas – but can't get their hands on the capital to get business ventures off the ground. In many cases they simply lack the bricks and mortar to use as collateral for such a loan.

Since 2007 we've written about 300 of these not-for-profit loans to help establish micro-businesses across the country.

In mid-2008, NAB embarked on the Small Loans Pilot … a pilot program to explore the viability of a lending model operating in the fringe credit market and offering small loans over a year at break-even.

It wasn't a commercial venture for NAB, but an extension of our micro-finance investment in programs to help financially excluded Australians gain access to fair and affordable loans.

Under the pilot, NAB provided up to $1 million in loan capital to a non-mainstream lender, called Money Fast, to fund small personal loans of between $1,000 and $5,000.

We wanted to find out what is the minimum interest rate you need to charge to have a sustainable lending program in this sector.

To monitor the pilot, NAB formed an independent Advisory Group - a forum that provided a rich context and extensive level of expertise to the pilot program and research. Many of the organisations that participated are here, and on behalf of NAB I'd like to thank you.

Today I'm pleased to launch our final report on the NAB Small Loans pilot.

There were a number of findings but let me share with you the four key ones:

  • It is possible to lend small amounts of money in this market and make a modest profit.
  • More attention needs to be brought to the alternative lending market - primarily around interest rates. Customers don't understand them and they challenge regulators.
  • We believe there are benefits to having alternative lending products available on the market for those excluded from mainstream credit.
  • We gained deep insights into consumers in this market.

The report will be available at the [back of this room] at the end of today if you would like a copy.

So you can see that we do truly believe the "planets can align" – that you can bring together strategic and commercial aspirations to build ongoing relationships with your customers with a clear agenda to do the right thing by customers and communities.

In fact it is the very act of bringing together an agenda that is both good for customers and good for our business in the longer term, that gives us the most energy and hope.

Of course, it is a long road - Australians are rightfully cynical and distrusting of financial organisations. It won't be our first or second or third gestures but our eighth, ninth and tenth that will show that we are genuine about improving our reputation and relationships and creating a fair value exchange.

We know we'll probably make the occasional mistake along the way but I ask you to judge us on how we respond – now that we got something wrong.

We look forward to you giving us plenty of robust and raw feedback along the way!

Finally, I would like to thank CHOICE for selecting NAB Classic Banking for the award for the best low fee bank account. We are honoured and believe it's further evidence that the initiatives we have been undertaking are getting public recognition.

Thank you.