the mozo blog

As GFC mud was slung in the States, Congress ducked for cover behind its credit card reforms — which were passed in May last year and have just come into effect. Whether similar changes should be expected in Australia remains uncertain, and will be some time off if they do eventuate. As far as the US reforms go, there’s both good and bad news for consumers.

On the upside, random interest rate changes have been abolished, as the centrepiece of the reform. How and when banks can raise interest rates is now tightly regulated, and they must give at least 45 days’ notice before increasing their interest rates. Furthermore, a review of penalty rates and fees is scheduled for later this year.

The major lenders have responded, however, by hiking up fees, and inventing new ones. So your balance transfer with JPMorgan Chase will now attract a 5% fee. Let’s hope that one doesn’t emigrate down under.

And credit card rewards have also been hit with various creative penalties, such as no points accrued on purchases if the customer is late with a payment (courtesy of American Express co-branded cards).

One of the big wins (for consumers) is restrictions on credit limits, and more stringent credit cards application processes, with lenders tightening up access to credit. Which may seem rough to those struggling to find a provider, but will hopefully lead to fewer borrowing more than they can afford.

Australia is usually a couple of years behind American credit card trends (for example, the 0% balance transfer), so it’ll be interesting to see which, if any, changes trickle through to the domestic market.

compare credit cards at mozo.com.au

It’s time to pull out your calculator and do some simple sums on those mortgages. And the sum to do is to take your current interest rate, add 2%, and see if you can cope with the adjusted repayment amount. Because that’s where we are headed.

There is now no doubt that the RBA is done with its rate lowering cycle. We’ve all been hypothesising on this for a while, and the RBA itself has now essentially confirmed it.

In fact, Glenn Stevens has gone further, and indicated that rates need to go back to “normal” levels, which he defined as “a good deal north of where the cash rate is now”.

Reading between the lines, I think the RBA is indicating that 5% is more normal to it. That’s a 2% rise from here. And given that we’ve all got used to “unusually low” rates (as Glenn Stevens refers to the current state of play), that will feel like a large rise.

This prediction may be unsettling for first home-buyers or those looking to refinance – for a typical loan of $250,000, this 2% hike will mean an extra $300 in monthly repayments. Use the Mozo Home Loan Health Check to see if your loan is costing you more than it should.

So the only question now is WHEN rates will start to move up…
My prediction is that it isn’t when the RBA next moves on rates that we need to worry about, it’s when the banks do, because I think they’ll be first. Regardless of when the RBA decides it’s time, I’ll place a $20 bet that the banks move before it does anyway.

And it may be sooner than we think. No bank will want to be first, but one of them will go at some stage, and as soon as that happens, the one thing you can be completely sure of is that the rest will follow quickly. They act in unison – always have, always will.

So just when we least expect it, at a time when the news flow will allow it to get through without too much push back, one bank will move rates up, and the rest will follow.

Given all that, and a world where rates are about to start moving in a one way journey north, it’s a good time to do some quick sums and make sure you can cope with an extra 2% on your mortgage.

Compare home loans with Mozo.com.au

The question I get asked more than any other right now is – should I fix my home loan?

My answer, as from an hour ago, is clearly yes…

The reason is that the Commonwealth Bank has just put its standard variable home loan rate UP! The NAB has said that rates are under review, and the other big banks are no doubt doing the same. This means that regardless of whether the RBA keeps cutting rates or not, the banks are clearly signalling that they are done with cutting theirs.

I also think that we are at, or very near, the bottom of the Reserve Bank rate cutting cycle anyway. There is light at the end of the economic doom and gloom tunnel, our resources driven economy continues to show signs of strength, our government continues to announce spending plans, and there is renewed optimism. All this points to a recovery of business activity and growth. In fact we are seeing it as well, with things like advertising rates going up in the last month with our own advertising. All this growth reemerging means the RBA can stop the rate cutting, probably now but perhaps a small additional cut or two at most.

Even before CBA’s move today, the banks have stopped passing on rate cuts. The last RBA cut was a Claytons rate cut, because the banks didn’t pass it on anyway (well only 40% of it to be precise). It was a clear message, they’re done going down. CBA’s move today is simply a continuation of that message.

It is also worth considering that picking the exact bottom isn’t necessary anyway if you take a long term view. Even if there is a little further to go (and if there is we can only be talking small drops, we’re already at the lowest rate level ever), over a long term view we’re so close to the bottom that long term decision making should be rewarded.

So all that says to me that it is a good time to lock in a fixed home loan rate while we’re at or near the bottom of the rate cycle. If you lock in a fixed rate for say 5 years, it’s hard to see how that won’t be a lower rate in 2014 than the variable rate will be by then. In all likelihood we’ll be back in booming economic times and the rate cycle will be up already or on the way. A decision you make today could lead to a pleasant experience reading your home loan statement in 5 years!

In fact I happened to see an email newsletter from March 2008, just over a year ago, and it advertised the My Rate Home Loan at 8.44%. My Rate Home Loans are now at 4.99%. If rates can come down that fast in a year, then think how much they could move up over the next 5 years.

And locking in a fixed rate today can get you rates well below this March 2008 level. For example with RAMS Home Loans you could get a 3 year fixed rate at 5.89% and a 5 year fixed rate at 6.49%. To lock in that sort of rate for that sort of time seems nothing but sensible to me.

Fix now before the banks move their fixed rates up. This is inevitable now in my mind, as they try to quickly adjust. Be savvy and move before they do.

So fix away and sleep well. Over the long term it will be a winning decision.

Compare fixed rate home loans with Mozo.com.au

While attending the Finovate conference in the US recently one thing was clear – the face of online banking is changing. And when I say the face, I am talking about just that, the face of it to users.

There are some exciting new applications in the online banking space in the US, in the form of internet banking platforms that are designed to go beyond the transactional nature which it is today, and move into the realms of helping consumers with their finances in a broader sense. Rather than the generic “one size fits all” approach, they are offering users genuine personalisation of their online banking experience to meet their needs.

Leading the way is Jwaala who market their product as BOB (“Better Online Banking”). And unlike every second coffee shop in Sydney claiming they have the best coffee in the city, I think Jwaala can sit safely behind their call, because it IS better. It offers several tools which help users manage their personal finances, do budgets, integrate their accounts from other institutions, and get personalised reports and alerts. And it is all highly customisable as the user wishes. It’s all a long way ahead of the current offering in Australia.

Another more recent player (only launched in January 2009) is iThryv who are doing some great things with a genuinely consumer friendly interface, and highly targeted content. Beyond just transactional information, they deliver highly targeted content to the user, in a form the user chooses. For example they have developed an interface designed for and focused on kids aged 5 to 11. It’s a long leap forward from the CBA Dollarmite account!

Given that ANZ was the only Australian financial institution at the Finovate conference, I think we can expect ANZ to lead the way in Australia with some innovative new customer focused online banking tools in the months ahead, either partnered with one of these companies or taking their ideas and developing them on their own. Hopefully personalisation of the online banking experience in Australia is not far away.

In the US, a lot!! Because for reasons I will not even try to understand, the US Senate has just passed a bill that cracks down on credit card fees , with an attached measure that would allow guns in national parks. What the…..?

Like me you likely have at least one eyebrow raised right now.

Though at least the attempt to attach an immigration provision to the same bill, that would have banned credit cards from going to anyone who isn’t an American citizen, failed. Phew, at least some dose of reality.

So apart from the sheer absurdity of connecting guns in national parks to credit cards, this is a very significant change which will have a major impact on the US credit card industry. And of course what happens in the US often trickles down under eventually, so let’s take a closer look.

Essentially the changes, headed to Obama’s desk for signing today, will:

• ban interest rate hikes on existing balances
• dictate that 45 days notice must be given for significant interest rate, fee and finance change increases
• enforce the ‘good’ type of payment allocation (thereby stopping one of the banks’ sneakiest practices of all, where they apply money paid back to the lowest rate first, such as a balance transfer rate, and leave the high interest rate purchases or cash advances accruing)
• cease the practice of automatically taking a card over the credit limit and then applying a fee without warning.
• limit the number of cards and the amount of credit limits for people under 21

What an incredible victory for the consumer!!

Of course the US banks have tried every argument they can think of to stop this going ahead, and are essentially now threatening that interest rates and fees will have to go up for everyone. But those who respond by doing that will see consumers vote with their feet.

Happy days for US consumers.

I wonder if Canberra is watching?

I’ve just come back from showcasing mozo.com.au at the Finovate conference in San Francisco, which bills itself as “the visionaries creating new ways to bank, manage personal finance, and appeal to financial consumers”.

Being a US focused conference (Mozo was the only Australian site presenting), it was a chance to see the latest and greatest in finance based innovation to come out of the US.

My first observation is that the level of innovation in the US, in the internet based finance space at least, is a long long way ahead of Australia. The level of product proposition and sophisitication is simply much higher than we have.

BUT, and for me it is a very big but…

In many cases there were no clear business models associated with the innovations.

I saw presentation after presentation (companies gave a 7 minute demo of their site) with nifty functionality and tools, but for most of the 7 minutes I looked for, and failed to find, the associated business model. It was simply unclear to me how many of these companies intend to make money.

So it got me pondering the question – can innovation come before business model? Is it a valid strategy to develop a product or application, without thinking through the business model up front?

On the whole, the US seems to think so. Because many of these ‘no revenue in sight’ companies have been exceptionally well funded, some of them in excess of US$10m before seeing any revenue. And that’s for an internet business, which is by it’s nature low cost to set up. That’s a lot of money to invest in an unknown business model! In fact in their list of “highlights” many companies were listing the money raised as an “achievement”, with a sense that the more the better. Big teams, fancy offices, all before starting to code the website. On the whole the US seems to operate on the principle of raise the money first, start the business second.

I think it’s fair to say that on the whole Australia operates the opposite way around. For a start, we tend to guard our financials very closely to our chest. We also tend to startup our businesses differently, by first trying to get the business going for as low a cost as possible, prove up the business model, and only then seek greater capital to expand. We have small teams and very basic offices, often working from home for the early stages. We tend to take the view that the less we spend on getting things started the better. Quite the opposite path.

I have to say that I struggle with the concept that innovation can come before business model. So for me the answer is no, you shouldn’t develop an application without a clear view of how you’ll get back your investment in it. It doesn’t need to be immediately obvious to everyone else, and to be fair many of these early stage companies may have longer term views of their revenue models which are not yet apparent, but to leap and hope doesn’t cut it for me.

Of course people will counter this view with examples of companies which developed a product first and successfully went on to later work out how to make money. But these are the exceptions, and for each of these there are many many more failures. Which is why I struggle with it being a starting point of how to go about things.

So I predict that while the list of new ideas from Finovate may deliver one or two big successes, I fear that for many trying to log in to their websites in five years will deliver a “site not found” message.

Of course there were also some standout companies at Finovate that had BOTH great innovation AND a clear business model. I’d tell you which ones, but then I’d much rather keep that to myself and rollout those ideas for mozo.com.au instead!!

I had to pinch myself yesterday as I absorbed the headline “John Symond defends banks’ decision to pocket rate cut”  (check it out, and the reactions, at Lending Central)

What the….? Is this THE John Symond. The world really has changed.

When John Symond starts defending the banks you know something is wrong. The problem is, there are no challenger brands left, at least not on the lending side. In recent years the most successful challenger brands in lending have been Aussie, Wizard and BankWest. They have connected with consumers in a way the old players just cannot do, and have brought really strong products to market. And surprise, surprise, all were successful in attracting large volumes of customers away from the big banks.

So how does Commonwealth Bank respond, by competing with them on product and marketing? No, they take them out of the market instead. They bought BankWest, bought a stake in Aussie, and Aussie bought Wizard and swiftly killed the brand entirely. So we wake up today with a very different world where competition in banking is just not what it was. And that’s bad news for consumers.

So essentially Commonwealth Bank is now left to develop products and marketing as they see fit. Here’s an example I just saw on a banner ad this morning - ”No annual fees forever on the Low Fee MasterCard. That wasn’t so hard, was it?”

No, it wasn’t hard at all. Which is why I want to know why it took so long to do it? The no annual fee ever promise has been in the market for 6 years.

But worse than that, let’s look behind the headline message and see what the offer really is. Clicking it takes you to a page which then says:

“No annual fee for Commonwealth Bank customers who take up a new Low Fee credit card and spend $1000 per year. Annual fee $24 for non-Commonwealth Bank customers”

So in fact it isn’t even a no annual fee forever card at all!! And why market something on a widely shown banner ad that is actually only available for your own customers?? And never mind the fact that the interest rate is 18.49%.

When product development and marketing is left in the hands of the big banks it’s not happy times for consumers unfortunately. Let’s hope some new challenger brands are on the horizon, because Australians need them.

The consumer sentiment index came out today, and it measures 85.5. What does that mean to the average person exactly? Not quite sure.

I have a far more useful index, the Taxi and Café Index, which I think is a highly accurate gauge of the economy. That’s because taxi drivers and café owners are right in the heart of everything, day in day out, and they feel the effects of people’s actions before anyone else.

Two experiences this week illustrate my point…

Yesterday I got in a taxi and asked my standard question “how’s your day going. The answers you get from taxi drivers tell you everything you need to know about how the economy is. The driver grumbled “terrible”. Ok, so nothing unusual about a Sydney taxi driver grumbling. But ask him why and he’ll happily tell you over the 20 minute journey. “Nobody takes cabs any more. Today I’ve only been to the airport once, whereas I’ve usually gone five times by this time of day. And everyone is walking more, look at all those people over there on the footpath”.

Earlier this week I asked my local café owner the same casual question, “how’s things?”. Now that’s the sort of question which normally just gets Aussie politeness, “good thanks, and you?”. But not any more. I had innocently hit a nerve and got another “terrible”. She went on without any need to prompt her – “my regulars are all changing their habits. Some used to come in three times a day, once for breakfast, once for a coffee, and once for lunch. Now they all tell me they’re making their own lunch. Next they’ll stop buying breakfast. I can’t cope with that, we’ll go broke.” [Note that coffee is the last thing to go!]

So I’m not sure what 85.5 means, but I do know what these stories from taxi drivers and café owners mean. So I just can’t believe the government when it says we’re not going into a recession. These stories don’t sound like 2% growth to me. Growth is growth, certainly no growth in the taxi and café industries.

So let’s set up the Taxi and Café Index, and we’ll all have a better read on whether we’re moving towards recession or not.

Today we open the doors to Mozo!

We’ve been building Mozo for over 18 months, but as the world is under the spell of tough financial times, our launch timing seems just right. It’s a time when everyone needs to take care of their hard earned money more than ever before. Mozo is here to help you do just that – get your finances sorted.

So have a play around the site and let us know what you think. I’d love to hear from you directly, so why not email me on rohan.gamble@mozo.com.au with any feedback or suggestions.

So what is Mozo then?

Mozo has everything you need to make a financial decision on the one website, combining personalised financial product comparison tools with customer ratings.

Whether you’re looking for a new savings account or a great mortgage lender, it’s important to look beyond the big budget marketing campaigns, which don’t tell the whole story. The difference at Mozo is, we do. We’re here to level the playing field and help Australians make better financial decisions.

For the first time, Australians get to have their say on what they think of their bank. Mozo doesn’t make subjective judgements. We’ve designed the ratings system, but the rest is up to real customers to have their say.

To kick things off we partnered with research firm Roy Morgan to survey thousands of Australian banking customers. The results are fascinating, and we already have over 10,000 product reviews on the site. We’ll blog about some of the more interesting results in future posts.

In the meantime, we’re now inviting all Australian banking customers to rate your bank. So join the conversation, and put your mouth where your money is!

Mozo is here to help Australians navigate the money maze, and our public journey begins today.

After the traditional nine months of incubation, we’re ready to give birth. So today we have unveiled our baby for the first time outside the walls of our Surry Hills office.

As our site is only a baby, it is likely to have teething problems! So as our first foray out into the real world we’ve invited our family and friends to check out the site and give us all their feedback – the good, the bad and the ugly. Once we’ve spent a few weeks ironing out the kinks from all that we’ll open the door to everyone else.

Of course while our public journey starts today, the Mozo history goes back a little further.

It all started because I think that too many of us put up with bad deals from our financial providers because it is just too damn hard to do anything about it. We know we should, but we just don’t act. So in early 2007 I decided to do something about it. The initial idea for Mozo was born, and since then we have set about putting together all the pieces to make it a reality.

Our vision for Mozo is to empower Australians by giving them everything they need to find and select the best financial products, all from the comfort of their own lounge room. In doing so we will become the best way for financial providers to connect with new customers, thereby creating the Mozo marketplace.

So what is Mozo exactly? Well Mozo is short for Money Zone, and that’s what we intend to be, a zone to help people with all things money related.

So as soon as we’ve made the changes our helpful family and friends suggest, we’ll open the door to Mozo and let everyone in. See you in the money zone soon!