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Competition within the Australian banking sector

CHAIR —Welcome, Mr Strong. Do you wish to make an opening statement?

Mr Strong —I would just like to say that I got here at eight o’clock in the morning because I own a shop in town: Smiths Alternative Bookshop—some of you may know it. It is Christmas. It is a busy time of year, so I need to back there. In some ways it would be good to be here when it is all busy and bustling, but I hope the shop is busy and bustling. My opening statement is that the Council of Small Business has recently reviewed what we have been doing for the last 30 or 40 years and has decided that we have not done a lot for small business. Nobody has done a lot for small business. In the last 20 years, red tape has gone through the roof: GST, superannuation, super choice—you could go on and on and on. Interest rates are higher than they have ever been for small business when compared to mortgages. Finance is hard to get compared to what it used to be. It is not good for small business.

More interestingly, we are being treated more and more as nonhumans. Our human rights have been taken from us in many ways when we are dealing with shopping centre owners and banks. Unfair clauses in contracts are fine when you are dealing with a small business and they are not fine when you are dealing with a person—quite interesting. We want to get our human rights back, and part of the process of our submission is to get those rights back.

A person from the Department of Health and Ageing came into my shop—by the way, the shop is the headquarters of the Council of Small Business; we make a statement that way that we are a small business—saying to us, ‘We’d like to involve small business more in the healthy workplace scenario.’ That is fine, and I will work with them on that. I then said, ‘So your healthy workplace scenario picks up everybody, from the CEOs of Coles, Woolies and BHP down to the most casual of workers?’ and the reply was: ‘Yes, it does.’ I then pointed out that it missed 2.4 million people, the self-employed, who are invisible when it comes to health—which is quite unbelievable. The woman I was talking to, to her credit, was also stunned and said, ‘How or why did we miss so many people?’ That is an issue, and that is what COSBOA is looking at now—driving the fact that, firstly, we are people and we want to be treated like people and, secondly, we are an integral part of the economy. Without us we would not have an economy. We need to stop and look at the business health and personal health of small business. That is what a lot of our submission is about.

CHAIR —I think you made some valid points in your introduction about where small business is at and the way that it is being viewed—or not viewed, depending on how you look at it—by a lot of bureaucratic organisations, but there was not a lot about banks, though, in your introductory remarks.

Mr Strong —Yes. When it comes to the banks and loans, the fact that we are people is what we are talking about. If a small business person goes into a bank and gets a loan for a house or whatever, they are treated as a consumer. Once we say we want a business loan, it is different issue—interest rates go up, charges go up and we are likely not to get the loan. Even though it is the same house as collateral, even though it is the same person, even though it is the same bank and even though it is the same bank manager, all of a sudden things change and they want more from us or they will not give us any.

Senator XENOPHON —The banks and others who have given evidence to this inquiry say that that is because the risk profile for small business loans is higher and therefore there is a weighting in terms of interest rates for that risk. The security may be the same, but the risk is higher. Do you think that is a fair comment?

Mr Strong —Our answer to that first of all is that we do not have any data from them. Another issue that we have is that the banks say lots and lots of things but they pull out no facts to support what they are saying. We have said to them quite often, ‘That’s fine; show us the risk profile. Show us how many loans you have given out and how many have failed.’ In conversations with them one of the things they say is, ‘We don’t want to repossess someone’s house; it will make us look bad. That is our fear. In theory, business is more risky and therefore we don’t want to lend money to people who have a high risk.’ Our answer to that, of course, is do not lend it to people who have a high risk. It is a really simple answer. If someone is at risk and you do not think the loan is going to work, do not give them the money. And the banks have a good history of not giving money to people who are going to fail. So we still believe they are using that as an excuse to charge extra interest. It actually fails the test of reality. As I said, we need information. We need them to give us the information to prove what they have said.

CHAIR —I hear what you say. We have had a lot of evidence from banks and others, including regulators, over the last couple of days, and small business finance has been raised in that context. Senator Xenophon, Senator Williams and I have all raised that issue. The point that you made is probably a valid concern—that they do not want to be seen to be foreclosing on people’s houses and small businesses to get the money back that was not repaid because the business failed. Foreclosing on farms is a very high-profile example of where they may see that they are just going back to get money that they are owed but, ultimately, it does not go down very well in the public eye when they start foreclosing on farms and taking them away because they have had a few bad years of drought or whatever it might have been.

In terms of not loaning the money to those who they do not think will pay it back, I guess that is where the risk premium comes in. Banks do not always know, though, they have pretty good ways of weeding some out from others. There are probably some good businesses that do not get a fair chance to get off the ground, particularly with the bigger banks, where they have higher lending standards for small business, but ultimately banks are in the business of lending because they want to actually make a dollar out of the lending. So they do want to try to lend money but they have to draw the line somewhere. I think it is probably in the interest of the economy that they are more likely to give small business a go with some money than not. If they took the approach that you are suggesting—that is, just do not lend because of risk—I do not think we would see an awful lot of business loans out there, particularly for new businesses.

Mr Strong —I take your point. The interesting side of that that we hear a lot—and you always have to test anecdotal evidence, as we all know, but I hear this far too often to know that it is not true, and I have been through the same experience—is banks saying, when I am looking for a business loan: ‘Don’t do that, Peter. It’s too hard and it costs you more. I’ll just give you a line of credit against your house, and all will be good.’ I know that is quite probably illegal from what I have been told, but a lot of bank managers out there get around it and say: ‘Don’t bother. You mightn’t get it. It looks like a good loan to me. We’ll just do a line of credit.’ They get around it. When the banks come along with their information, they have lots of information that is useless. It is useful for them to present cases, but it is not useful for me if I want to know what is going on and why people get rejected. Our banks are very profitable. That is fantastic; let us not stop that. But when it comes to the economy—and I will talk about other things to do with that—we need the banks to treat us like people. As I have said to the bank several times, do not lend me the money if it is not a viable loan. I have no problems with that.

I need information about how many small loans have been rejected for small businesspeople and what the amounts of those loans were so that I can use to build policies and programs to get out there and help small businesspeople who are putting in small applications. We might find that the rejected loans are only small loans—$10,000, for example, for retailers going through changes that want to put in coffee machines or whatever. If they give us more information, we can come up with solutions to the problem. But if they just give us broad information and walk away, nobody can come up with a valid solution. If we find out that the applications are poor, great: we will put more training courses in, provide more support and mentor people in writing good applications. Or we will say to them: ‘Don’t bother. You’re not going to get the loan.’ That is a response to a person. Have you had the Financial Services Ombudsman in yet?


Mr Strong —They came to a COSBOA meeting once and made a point of saying that they get more complaints to do with small business loans against banks which have their small business loan area based in their business area. The banks which base their small business loans in the mortgage get complained about less. If you treat someone like a person, they will probably understand and you will get fewer complaints. If you treat one person like a business, you will get more complaints. That really tells us how the financial sector should approach small business. Treat them like people, give them the information that you give to people, assess them like people and help them like you help people. The banks that do not are the ones that have more complaints. That is a really good example.

CHAIR —Do you have further comments to make in your opening statement? You mentioned that you were going to get onto some other things.

Mr Strong —One of the big issues that we have is the EFTPOS payments. I bank with Bendigo Bank. I did not know that other people had this problem until it was explained to me. When anybody comes into my shop and buys through EFTPOS it is then in my account by six o’clock the next morning. Every morning: Christmas Day, Boxing Day or Anzac Day. It does not matter—every day of the year, any sales from the day before go in. If you bank with any of the big four, any sales made on Friday, Saturday, Sunday and public holidays do not go into your bank until Tuesday.

Senator WILLIAMS —Or Wednesday.

Mr Strong —Or Wednesday—thank you. It is interesting. Some banks are worse than others. This year, Christmas Eve is on a Friday, which is a trading day. Then there is Saturday for those that trade. Then there is Sunday. Monday and Tuesday are public holidays. Any sales from those days, and Wednesday, will probably not go into your account until Friday and potentially the following week. There are many problems with that. First of all, it is not their money. If it was happening to me, it would be my money. If I have sold goods, that money would belong to me and I would not have it. The next problem is, if I have an overdraft, I am paying extra interest on that overdraft because the banks are not putting the money in? They say no. I say that you would need an actuary to work out if that is true or not. Based upon what they send you in the mail, who would know whether they are charging you extra interest? The next problem is: what do they do with my money? We say that they put it in the short-term money market. They say that they are not allowed to put it in the short-term money market and that they do not. They came to a council meeting a year ago and we asked them that question. We asked: ‘Where does the money go? It is billions of dollars?’ They said, ‘It just goes.’

Senator WILLIAMS —It evaporates in the wind.

Mr Strong —That is right. They have an accounting package called, ‘Mind your own business,’ in the true sense of the phrase! It just goes. Giving that response, I might add, showed no respect at all to the council. We believe that they are using it to shore up their own liquidity and using it in the short-term money market. Whatever they are doing with it, it is billions of dollars of money that belongs to small businesses that they are using elsewhere.

Senator XENOPHON —With the bank that you bank with, Bendigo, there is no problem?

Mr Strong —The Bank of Queensland is not a problem; St George is not a problem.

Senator XENOPHON —Does it go in on the same day?

Mr Strong —The next day. With anybody buying stuff today, it goes in tomorrow.

CHAIR —Even on the weekend?

Mr Strong —Yes, even on Saturday. I have checked many times—Saturday, Sunday, Christmas Day.

CHAIR —They have paid on Saturday and it has shown up in your account on Sunday.

Mr Strong —Every time. It has never failed for me.

Senator WILLIAMS —Mr Strong, I find that very relative. I have spent all my life in farming and small business. On Saturday morning, I pulled my credit card out and put $5 into my shop account. I had my computer on internet banking. The $5 was gone in no time, off the credit card, and on the following Wednesday my business got the money. So it is a very valid question. One bank can do it—Bendigo Bank. I was with the Commonwealth Bank then for EFTPOS and I bank with St George, but it disappeared from Saturday morning until Wednesday. That is a certain cash flow loss for small business. Many businesses need that money now, not in two days time.

Mr Strong —I do my accounts on a Sunday morning. I do them then because I am doing my BAS on other days. Lots of people do their accounts on the weekend. If you do not have the money in there, how do you pay people? Our former chairman was on the phone yesterday talking to me about this very issue. He said that at that moment he had in front of him, on his computer, his bank statement and his sales sheet and was trying to work out his cash flow over the next few days—he owns a mini mart, which has high cash flow—to work out who he could pay. He said he could not trust what came from the bank. They finally gave us the reason why—it took a long time to find out why that happens for only the big four: their technology is too old. This is a real concern for us. We have looked at this and said, ‘This is not just a concern—

Senator WILLIAMS —We will put that to Mr Norris later today.

Mr Strong —There are a few questions. What happens to the money? I would love to know what happens to the money.

Senator McGAURAN —On the same point, if I transfer money, via the computer, from one of my accounts to another account, it is instant. This opens a whole question.

Mr Strong —That is right. As you say, you walk into a shop on the weekend and buy something—

Senator McGAURAN —Of one of the big four.

Mr Strong —and it is gone. They blame technology. They told us what happens. In the middle of the night in every major capital of Australia, at 12 o’clock or 2 o’clock—he could not remember—the big four meet and swap tapes. That is how old their technology is. We could not believe that. Who would believe that in this day and age? What is really terrifying is that, two weeks ago, NAB had a technology melt down, and yesterday CBA had the same problem. To me it is indicative of the fact that they are probably right: they have old technology. That is a very dangerous thing for us all. It broke down two weeks ago. The banks normally follow each other, so I would imagine Westpac and ANZ will have a technology crash of some sort as well—

Senator McGAURAN —Everyone is boasting about their technology.

CHAIR —The CEO of National Australia Bank told us on Monday that they were spending $1 billion on their IT systems this year.

Mr Strong —NAB told our chairman the other day: ‘There’s some really good news. We’re going to start transferring EFTPOS overnight, every night, and on weekends,’ and we thought that was fantastic. He said, ‘It’ll only take three years.’

Senator WILLIAMS —To set up.

Mr Strong —My chairman is 74.

CHAIR —It takes a while to spend a billion dollars, I guess!

Mr Strong —That is right! We are asking: why haven’t they upgraded their technology? We are saying they have not upgraded it on purpose. We are all going to suffer, as with the NAB meltdown. They have done it on purpose because they know that they can make money out of it. Have they not done it because they do not have the money? They have billions of dollars. Every year they get that money. That is not on. Have they not done it because they did not realise the importance of technology? I do not believe they did not realise that. So why did they not upgrade their technology from what I can gather is 1980s technology? The reason is that they cannot transfer EFTPOS and they make a lot more money from small business. I think someone should go back and have a look at all this and say, ‘Okay, if you have been charging interest on overdrafts—and we want proper proof that you have not been—then you should pay the money back, and all the people who have lost interest on that money that should be in their accounts should also be reimbursed for that interest.’ That is a lot of money over a long time. You cannot reimburse them for the time and effort they have wasted in chasing accounts, trying to work out things and doing cash flow management.

CHAIR —Do you have a couple more points to make?

Mr Strong —Yes—beyond EFTPOS. We think there is quite a crisis. Moody’s have to do credit ratings based on a whole range of things. One has to be technology, the recency of that technology and the capacity of that technology. They will twig one day and our four banks will be rated ZZZ based on that. They have done it on purpose and we have to find out what they are doing with the money and get some compensation out of them. Another issue is unfair contracts. I will talk more about that. That is an issue right across small business when dealing with shopping centres et cetera. If I am negotiating a mortgage, I am treated as a consumer and I am given that protection; if I am negotiating with the same person, as I said before, I am not given that protection. We need to be given the protection that any other individual in society is given.

Senator XENOPHON —What is the threshold, though?

Mr Strong —On the amount of money?

Senator XENOPHON —At what level do you get the same or similar protections as a consumer? What do you say is a cut-off for a small business?

Mr Strong —My understanding is that there is a cut-off for consumers as well. Exactly the same. I would say, ‘Treat us like consumers.’

CHAIR —The legislation as enacted I think is at phase 1. There are more phases to come which may include business, but there was a deliberate decision made to exclude business. It is actually excluded by the changes that were put through earlier this year, I think.

Mr Strong —At the last election Bruce Billson and the coalition put up a proposal to give business the same protection from unfair contracts as a consumer, and interestingly the banks came out and said: ‘No, you can’t do that. That’s bad for business.’ It might be bad for their business but I do not think it is bad for our business, and that is something we should take into account as well—protection from those sorts of things. EFTPOS is one issue, and the computer systems.

CHAIR —Switching banks? Your submission addresses—

Mr Strong —Thank you, yes, I will come to switching accounts. This is something a couple of academics put up to a Senate inquiry some years ago. It came from these fellas based in Melbourne, and we have had a look at it. The logic to it all is: at the moment in business if I need to change my account I have to go and tell all my customers my new account numbers. It happens to me, because I have suppliers. I will get an email, a letter, a phone call or whatever saying: ‘Here’s the new BSB and account number. Please change it.’

Senator WILLIAMS —Yes. They take months to do.

Mr Strong —And I forget. I am a person. Again, there is this expectation that I behave like a business. I am just a person. Quite often I do it because I am managing the cash flow, I am paying something at the time and it is there in front of me. But if I forget it will bounce back. I think, ‘What’s going on here?’ and I ring them up, and it adds time and effort. And then there are the poor old people at the other end.

I have never gone through this, and one of the reasons I would not go through it is that you have got to tell everybody. You have to change your credit card details, you have to do a whole range of things and it becomes very difficult. Most small businesses do not do it because it is difficult. It is not so much that they do not want to do it; it takes a lot of time and effort. You are walking out the door to do it and a customer walks in or something else gets in the way. It is a very difficult thing to do. The Commonwealth Bank, as far as I understand—this may have changed—actually makes you go in there physically to do it. Some banks will help you through the process. But it is quite a pain for business and it can affect your cash flow as people stop paying you for a while. It also gives the wrong impression: why are they changing their bank? What is going on?

With regard to the portable bank account number, let me say I understand that we do not rush into this. Some fellow came out on the radio this morning saying it could disadvantage smaller banks or businesses even more. And that is fine. Every change we make in the financial sector we think about—we think about it twice, we think about it 10 times—because the big banks in particular will be looking at what opportunity these changes present to them. So with the portable bank account number: yes, we have got to make sure that it is even for everybody, it is easy and it is something that can happen for everybody, not just for businesses.

One issue that has been brought up to me is that every time you open a new bank account you have got to bring your passport in and a whole range of things and prove who you are.

Senator WILLIAMS —A hundred points.

Mr Strong —The feeling is that if you have a portable account number you only do that the once. Another issue is that we would need to investigate to make sure that it does not give opportunity for fraud as people carry the same number through 40 or 50 years, but we do anyway. When we investigate this, we would like to be part of the whole investigation scenario. One of the issues we have looked at is the complete lack of transparency from the big four—or from all banks. You have no idea what they are doing. They turn up, they talk gobbledygook, they mention the word ‘bonds’, they carry on, and nobody knows what they are talking about really. I do not think they know what they are talking about. But it does protect them from questions or from people who might challenge them. So let’s be involved in this whole process. What the Treasurer brought out the other day we think is good. It is the first time ever someone has really shirt fronted the banks, and let’s stick with it but let’s make it as transparent as possible. COSBOA wants to be involved all the way—seeing what is happening, challenging, saying: ‘Will that work for all businesses? Will it work for retailers and for home based businesses?’ We want to challenge this all the way through so it works and it cannot be used by the banks to rort us.

CHAIR —I think you have raised some very good points there. We have heard a lot about the challenges of consumers in general switching banks, with a normal household account where you have a mortgage and you are trying to get a better mortgage rate by switching, yet you may have a few direct debits here and there paying this, that or the other. That is a hassle. But for a small business, I think you just made a very good point that it is even more complex because you have suppliers which pay you directly. There is another layer of complexity and challenge for a small business in switching banks, combined with the pressures that most small business people are already under with their paperwork. Another aspect that has not been raised in terms of switching banks is the actual challenge of the paperwork involved in applying for another loan with a different bank and going through all the requirements of proving your worth to them as a customer.

Mr Strong —I forgot to mention that there is also stationery, because you have your bank details on your stationery.

CHAIR —Yes. So there is another layer. In your opinion, that would be solved to a degree, provided the other issues can be worked through by portability of account numbers?

Mr Strong —That it is right. The other exciting thing is that we have a few brokers in the organisation. They say that they would become more motivated to develop new products if they could walk into my shop and say, ‘Mr Strong, this is what we have for you,’ and go through it. They would know that I could change quite quickly. Whereas now they would not bother, because they said, ‘We’d walk in there and you’d go, “Fantastic, but, no, sorry, we don’t have time”.’

Senator XENOPHON —Your existing bank may be keener to keep you in the first place?

Mr Strong —It creates competition. It adds this new process that does not exist at the moment. The small banks are the ones which are dynamic. Obviously, they have good technology and the old banks are lumbering old elephants. They have no idea and they would have to catch up. Making them do that would be fabulous. I bet you that their technology would come in very quickly, not in three years. I reckon it would come in in six months, if it worked its way through. As I said, we have to be careful. We looked at this package, and we said, ‘We have to be careful, because we’ve had changes in the past which have bitten us.’ I think Glenn Stevens said that the other day.

CHAIR —With any of these things, one of the purposes of the committee is to look at these things in a bit more detail. If you make changes to a system like this and the way things work there is certainly potential for unintended consequences. We try to shake those out before we do that. You also mentioned the reform package. I think you used the term: ‘It’s good to see, for the first time, the banks being shirt-fronted.’ Most feedback from the major banks on the reform package was to the effect that they are not upset by it, whereas the strongest objections, in the evidence we have had before us and from what I have read in the media, seem to be coming from a lot of the small players who we are supposed to help. In that sense, do you think that the government really has shirt-fronted the banks?

Mr Strong —It is a terrifying thing that you just said. We still support the fact they are doing something. The worst thing we could have had is nothing. The fact that the big banks have come out and said, ‘This is fine; the small fellows have said “We’re worried” is an indication that we need to do what you are doing—that is, tread carefully and have a look at the impact of every decision.

Senator CORMANN —Doing something is only better than doing nothing if the something you do makes it better, though, isn’t it?

Mr Strong —In the past—

Senator CORMANN —You should not just do something for the sake of doing something, should you?

Mr Strong —I agree with you; we need to do something that is planned, strategic, and tactical and we need to ensure that everything is assessed along the way. Looking at it over the last 20 years, every Treasurer, Prime Minister and minister has attacked the banks, verballed them, said awful things, threatened them, wept and cried. They did everything, but nothing has changed.

Senator CORMANN —The government, supposedly, wants to improve competition. We had John Symond from Aussie Home Loans in front of us yesterday, who made a credible claim that the non-bank lenders are the one sector of the banking sector that was able to impose some competition before the GFC. Yet they are very critical of the package and the big banks, which are supposed to be exposed to more competition, are very complimentary of the package. That would make one a bit suspicious as to how effective it will be to achieve its objective, wouldn’t it?

Mr Strong —We are always suspicious.

Senator CORMANN —Healthy scepticism is a very good position to start from

Mr Strong —We support that totally. As I say, it is still good to see something started, although there is not much mention of small business. To us, that was a glaring omission.

Senator CORMANN —There is nothing in there for small business, is there?

Mr Strong —Not specifically, no—nothing. We have said, ‘Okay, this is good in that we are addressing something. Now, let us step back and have a good, close look at it. What’s missing? Small business is missing. We need to take little steps at a time.’

Senator CORMANN —As long as they are little steps in the right direction. I just stress that. Often people are just happy to see something happening, but something can be counterproductive if they are small steps in the wrong direction. We have got to be quite assertive on that.

Mr Strong —I agree with you totally. Let’s take some steps in the right direction, but let’s take them. What I am worried about is that we will not do anything and we will end up in the same situation, with technology that is not working and that will crash soon. The four big banks are in trouble at the moment with technology; we have not seen the last of these crashes. So I totally support you, Senator. Let’s do something; let’s assess it. That is what you are doing as part of this committee. Let’s criticise what is missing, and there is plenty missing from the package—but there is a package.

CHAIR —Mr Strong, is there anything else you would like to offer before the senators ask you questions based on comments and the submission?

Mr Strong —The last thing I was going to talk about is the code of the conduct.

CHAIR —Could you briefly outline that?

Mr Strong —We have put out quite a large paper with our submission, pointing out that the code of conduct is a sham and that we need to step back. Part of what we are talking about is to step back and look and say, ‘Is this self-managed code of conduct working?’ It is not, so before we move on perhaps the first thing to do is to say, ‘Whatever we do, let’s forget about that for the moment. How are we going to assess it, how are we going to monitor it and how are we going to make sure we are doing the right thing?’ That is one of the things that I think has caused the problems we have got now. They have been able to get away with whatever they have wanted, to a degree, because they have run the code of conduct and the code of practice, and it has not been as efficient as it should be.

CHAIR —I think I might start with Senator Williams.

Senator WILLIAMS —Mr Strong, if I worked for your business and you were a small business and I earned $60,000 a year and my wife earned the same, I would have no problem going into the bank and getting a home loan, especially if I had 20 per cent deposit. They disregard the business you work for. But if you, who own the business, go in to get a loan, ‘Aha! You are a risk, you are a bad egg.’ What can be done here? You put up your house for security, it is 100 per cent secured, and your business is showing a healthy profit. I, as an employee of your business, have no problem getting a tick-off for a loan, with a cash flow and a deposit, yet you, with a healthier set of books and so on, could not. I see it as so unfair. I did watch the interest rates when they started to fall on 3 September 2008 through to April 2009. We had 4¼ per cent reduction in interest rates. Small business and farm loans went down one per cent, 1½ per cent at max in many cases—which is so unfair, in my opinion. What can you recommend to this committee as far as competition in banking? How can we fix this or make it fairer?

Mr Strong —Thank you for the question, because this is something that the council talks about constantly. How can we do this without intervening in the marketplace?

Senator WILLIAMS —Could I suggest to you: we used to have the Commonwealth Development Bank. We used to have the Primary Industry Bank. Do we need a bank that is focused on small business wholly and solely, or do we rely on the big four to keep doing what they are doing? In many respects a couple of the big four do not want to know small business. What is the answer?

Mr Strong —The answer is not to rely upon the big four, and the answer—I think you are right—is to set up a small business development fund.

Senator WILLIAMS —How would we set that up?

Mr Strong —We would set that up through a government agency. I know this is intervention and I know it is what a lot of people do not like, but we can see no other way of doing it. We have talked about this ourselves. If you trust the banks it will not happen. It just will not happen. They are not people who can do this sort of thing. So you set up a government agency and you set it up with a deadline, so you say it exists for three years. You say, ‘This is its job; this is what it has to do and we will assess it as we go along and see if we need to continue,’ and we talk and negotiate with the banks to see if they can take it over and give fair dealings with small business.

We go back to the code of conduct as well, and we have a look at that and see what we can do within that to monitor the banks and make sure that they are not rorting people just because they can. They should treat farmers and small business as people. That is the issue. They are not.

CHAIR —Just on that, Mr Strong, are you aware that the Australian Chamber of Commerce and Industry, in their submission, have recommended that the government explore the feasibility of a temporary small business loan guarantee scheme?

Mr Strong —I did not read that bit.

CHAIR —Apparently there are similar schemes operating in the US, UK, Canada and elsewhere. Is that something that COSBOA would support?

Mr Strong —We would absolutely, totally support it. I am surprised to see the chamber come out with it, because we have seen that as intervention for too long. I am very pleased to hear that.

CHAIR —They say they are very keen to support small business.

—The problem I have, Mr Strong, is that small business seems to be on a very uneven playing field. Big business, corporate business—borrowing millions—will probably get a rate of seven per cent. Small business, 10 per cent. My fear is that, as time goes on, in 40 or 50 years time with creeping acquisitions, big business is going to get bigger and bigger, and we are going to destroy our free enterprise system where people can have the choice to go into business but have no hope of surviving in business. Do you see us going this way, where the big will get stronger and the little ones either get taken over or squashed out?

Mr Strong —I absolutely see that. One of the things that have caused our problem in the banking sector now is our competition policy. We have almost a quadropoly with the banks; we have got the four big banks. We have got a duopoly in the grocery markets. We have got the three big players in retail tenancy. I think there are two players in petroleum. This competition policy has allowed, exactly as you said, the big fellas to come along and grab hold of everything. One of the ways around this is to start treating us like people. In the shopping centres, instead of negotiating on business to business, which is completely unfair, you say, ‘No, they’ve got the same protection as anybody else.’ If we start treating small business like people right across all those sectors then we are going to start protecting our economy.

Senator WILLIAMS —Here is an example. The corner store can buy their Coca-Cola cheaper from Coles and Woolworths that they can from Coca-Cola. Perhaps we need the Trade Practices Act amended to have truth in pricing so we can see what the big end of town is paying, or what kickbacks they get at the end of the year after their lump purchases, and see how small business can compete. My fear is that small business is going to do it harder and harder, to the stage where they simply will not exist—and down goes our free enterprise system.

Mr Strong —I have been moving away from the finance area, but it is all connected. When you put a big mall into a town, as you know, choice disappears for the consumer. It disappears totally. Again, the way we look at it is: treat us like people. The banks, the shopping centre council and the franchise council have all objected to getting rid of unfair clauses in contracts. They have said, ‘No, don’t do that’, and the reason they do not want that to happen is that they know they will be brought to task on a lot of the unfair practices that they have had in the past. People will be able to sue them much more easily because they will be treated as consumers. That is the way to do it. I know that is a big picture view of it, but then we go down to the level of: why can I walk over to Big W and buy books cheaper than I can get them from my wholesaler? That is what I do.

Senator WILLIAMS —Exactly.

Senator XENOPHON —That, Mr Strong, raises issues of price [inaudible]. It is pertinent to this inquiry that we should raise issues of price discrimination and competition laws in this country. In relation to the issue of portability, of transfer or being able to switch from one bank to another, you know that Bernie Fraser, the former Reserve Bank governor, will be looking at the technological feasibility of that. But CHOICE, in their evidence yesterday in Sydney, indicated that in the Netherlands there is a legislative mandated requirement that if you want to switch from one bank to another you fill out a form with the new bank that you want to go with. They then send it to your existing bank, and that existing bank has a statutory responsibility within a certain period of time to switch things over. From your point of view, would that be a good interim step pending any technological solutions to a more rapid switching?

Mr Strong —That is perfect. It has got to apply to business.

Senator XENOPHON —Sure.

Mr Strong —Does it apply to business over there? Did they say?

Senator XENOPHON —Yes, I understand it is across the board.

Mr Strong —Good.

Senator XENOPHON —But I need to get that advice from CHOICE.

Mr Strong —I know plenty of people who would start to change and I know they would not change to the big four. They would change to some of the little banks. Bendigo, Bank of Queensland and those sorts of banks have a good reputation out there and people would change. I support that, yes.

Senator McGAURAN —Your concern about the EFTPOS payment delays for a small business is critical. It is not a minor thing at all. It sounds as old fashioned as the cheque. The cheque might beat it to the balance, which makes all the big banks’ technology laughable. So we will have to ask them those questions. What is that all about?

By the way, I recommend you read the submissions by the Commonwealth Bank, and we had the NAB before us, because they wax lyrical about their small business sections. There would be a lot of questions I could ask on that—and for you to probably have the wry smile that you have got. My question is this: given that this is about competition, there is a second tier. You mentioned Bendigo. I do not want you to go into your personal relationship, but it sounds like, a la the EFTPOS situation, Bendigo has got it right and down pat.

Mr Strong —They have.

Senator McGAURAN —There is competition right there—significant competition. So are those second-tier banks, Adelaide, Bendigo—anyone else?

Mr Strong —Bank of Queensland.

Senator McGAURAN —What about ING? Do they do business?

Mr Strong —They have a different process. A lot of them have much better—

Senator McGAURAN —Shouldn’t all those second tiers trigger competition at a rapid pace? And are they? Why are you and COSBOA just thinking in terms of the big four when these lower tiers have got it over the big banks? That in itself should create enormous competition—not just at the fringes; this is enormous.

Mr Strong —Again that is a good question. It is one of the questions we asked ourselves at the council meeting a couple of months ago when we met with some brokers who said that they have a capacity to help small business get loans beyond the big banks. We asked each other why we had not thought of that. I wondered why I had never thought of brokers and most at the council meeting said the same thing. For some reason or other—and you are quite correct—small businesses focus on the big banks and that is where we look.

Part of the package put up on Sunday I think was about promoting and doing a lot more work to get people to understand the small players and the second tier, which is a good thing. Last year we did a promotion to a lot of our members about changing to banks that offer better services and EFTPOS. The problem is that it is so hard to change banks. That is what came back to us all of the time. People would ask for the address of the local Bendigo Bank, the local Bank of Queensland or whatever and when you asked them if they changed banks they said they did not have time. There is still that issue.

Senator McGAURAN —But could you split your business? That is probably easier said than done on the shopfloor, but you could have your major loan or base loan with NAB and carry an EFTPOS account with another bank. Why don’t you just do the split?

Mr Strong —That is a good idea. One of the issues is getting that information out to small businesses. Being people we often do not see what is in front of us because we are so busy. I think what you are saying is perfect. We have talked at the council about promoting particular banks; going out and saying to everybody, ‘Think about these banks.’

Senator McGAURAN —It is probably very hard because COSBOA has limited resources. I have known COSBOA for 20 years. We do have the second-tier banks coming in. We ought to ask them about that. Here there is a marketing and competitive tool they should be able to use.

Mr Strong —That is right. Having somebody else’s EFTPOS machine is a good idea, Senator.

Senator WILLIAMS —With your EFTPOS you said you went with Bendigo. You can have your EFTPOS machine with Bendigo and still bank at other banks, of course. And it is Bendigo that gets it through overnight even on Christmas Day?

Mr Strong —Yes.

Senator WILLIAMS —When you have EFTPOS with a bank they might charge 1.5 per cent commission on EFTPOS transfers and two per cent on credit card transfers. Are the commission rates at Bendigo competitive with the big banks? Do they charge more?

Mr Strong —I get good rates from Bendigo.

Senator WILLIAMS —It often goes on your turnover. A service station, for example, that turns over millions and makes the smallest of profit obviously gets a smaller discount. But you are finding Bendigo as competitive as the big four when it comes to commissions on EFTPOS transfers?

Mr Strong —They are competitive. I should state, by the way, that I am an ex-chair of the local Bendigo Bank. Bendigo are competitive. It comes down to the package they give you. The machine might cost you nothing whereas a big bank might charge you a fee every month to have the machine. That is the beauty of having someone walk in and say, ‘Here is the package.’

Senator WILLIAMS —So they are competitive?

Mr Strong —They are competitive, yes. If they pay EFTPOS over the weekend, that makes them competitive straightaway.

CHAIR —Thank you, Mr Strong, and good luck.

[8.44 am]