Excellent informative interview.
Thanks for the link.
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I hate to say this again but Heartland's app is truly, truly terrible. Every time I try to do something meaningful with it I discover a new bug. Today I tried to transfer $0.15 out of a Notice Saver account (I wanted to empty out the dregs to tidy up my accounts) and was greeted with the attached error. Utterly ludicrous.
That’s weird. I am one of those annoying people who sometimes transfer small amounts, as I like round numbers :D but I have never seen this message and my transfers have always been accepted.
I just did one now to test it, and it worked fine (1c)
EDIT: oh! You were doing it from a Noticesaver. You can’t transfer from that account without giving the required notice.
Yes that's right. I've given the "notice" prior to the error turning up - the app schedules the payment for one day after the notice period ends, which all makes sense and I have actually done this many times before. But today it gives me this bizarre transfer limit error.
Thanks for the link, very interesting.
My own selected notes from this podcast
Quotes from Jeff
"Fairly early on we made the decision that we wouldn't succeed by being a smaller version of a bigger bank."
"Scale, branch networks and lots of people are things we don't have."
I hate to say it but many of the big banks do not have scale any more. I spend some time in the Kapiti district where I own a half share in a house. In the particular community where I hang out (Waikanae) only Kiwibank and ANZ are left. And the ANZ only has limited hours two days per week. During the strictest lockdowns I had to drive for 30 minutes to get to my own nearest bank branch (Westpac). This was so unsatisfactory, it will necessitate me changing banks after close to 40 years I think (although it must be said I never joined Westpac, it was Trusteebank Canterbury back in the day). Other priorities mean I am only just rolling out my account changes next month. But the Westpac bank network is almost completely gutted. There is only one branch open for full banking hours in the whole of Wellington City now, as an example. Wellington suburbs have largely lost their branches entirely, although Kilbirnie and Johnsonville hang on with very restricted hours for a few days a week. The reason why I mention this in detail, is that Heartland are using Westpac to conduct what were Heartland bank functions on behalf of their clients. And with the Westpac footprint largely gone, Heartland are in effect a fully on-line bank already.
"We made the decision fairly early on to dispatch with our branch network, and to digitalize our business."
Closing of the Heartland branches -on a 3 or 4 billion dollar book of deposits-, saw Heartland lose only $20m of customer deposits in that 'bad week'. It seems a bit odd that Heartland's impact on the decision to close their branches could be measured over just the one week after they announced that decision. But I digress.
Branch closures are fine for some. But not being a fan of digital banking for security reasons, it means I will never open an account with Heartland myself (despite being a shareholder), as I have little confidence in their 'paid back up branch network' over at Westpac.
Talking about product offerings:
"(Heartland decided to) adopt a best or only strategy."
I am fully behind this and approve of Heartland adopting "reverse mortgages (Of the $6.5b total Heartland loan book, about $2b is in reverse mortgages across both Australia ($1.2b) and New Zealand ($0.8b), motor finance (counted as coming under the household sector umbrella) and livestock funding (currently $1.1b of the loan book)" as targeted markets. Furthermore there are $2.3b in 'other business loans' on the books. But motor vehicle financing seems to be motor dealer group initiated (nothing wrong with that although I question if such dealer funding provides a sufficient business case moat) and the livestock funding seems almost a legacy 'wind down' business (PGG Wrightson's new GoLivestock finance arm was created because Heartland farm business loans, which PGG Wrightson used to use, were just taking too long to process). Jeff makes a foot-shot later in the interview when talking about the risks of lending to Small and Medium Enterprise business customers (35% of the Heartland loan book).
"SME is high risk, and every company is slightly different. There is always a nuance that you need and the average loan balances aren't particularly high. There is not enough scale in lending to justify all the associated costs and risks"
Back on the topic of Heartland's niche loan products of interest.
"We sell our customers one product at a time. We don't try to cross sell which allows our team to be totally focussed on what we need to do."
"If we can do something on a mobile phone via an app, it is the best way of doing things."
"The waiting times in bank branches are somewhere between 20 minutes and 40 minutes. Not a great experience."
The above is a self fulfilling prophecy. Provide poor service in a physical branch and suddenly a digital interaction looks better. As Jeff notes, digital interactions are more cost efficient from a bank perspective, which is the real reason for pushing banking services on line.
Moving onto deposits
"Heartland are underweight at the short end of the market, at call and around the 30 day level compared to other banks. The reason being that we don't offer transactional banking services so we don't need that short term money. Nevertheless the short term of the market is the lowest cost of funds, which is why the term rates we do offer can be very rate competitive."
Notwithstanding the above, the higher interest rates that Heartland charge over and above the big banks (because Heartland do not compete hard in the low margin conventional mortgage market) allow them to feed more of that 'loan income' down to depositors, while still retaining a high net interest margin to reflect loan risk.
"Smaller banks tend to have a cost to income ratio of 60 cents in the dollar, whereas Heartland's is 42 cents. This is a similar cost to income ratio that is achieved by larger banks, which we have achieved with technology."
"From the early days of Heartland bank the loan book has expanded by three times, but profitability growth has been five times."
On the move into reverse mortgages, particularly into Australia
"It is much better to buy reverse mortgages rather than start the business up, because interest capitalizes (is added to the loan) and the book (Loan balances) on average pay back (only) after 7 or 8 years."
"From a lenders perspective there is no cash returned for several years, so you need a deep pocket of cash to start the business up." "The Challenger bank acquisition in Australia is to allow Heartland to tap into that vast pool of retail depositors to gradually replace the wholesale funding arrangements that are in place to support the growth of Australian reverse mortgages now."
Current market share in Australia for reverse mortgages is 37% (the largest of any player) but spend is probably 100% of the total Australian sector marketing budget (IOW competitors are small and passive). Loan to value ratios of the reverse mortgage book are currently sitting at 20%. To get a picture of outlier risk, in all of Australia there are currently only two borrowers with a loan to value ratio >75%, and none in New Zealand. Despite the current market being 'the tail end of the baby boomers', the projection is for the market for the growth in the reverse mortgages to continue before levelling off in the late 2030s. The current total market in Australia is about $3.4b. But the potential, with more market awareness, Heartland believes is between $10b to $15b.
The listing of Heartland in Australia is purely to allow Australian institutions who have a mandate to invest only in Australian listed entities to participate in Heartland capital and debt raisings.
SNOOPY
I’ve been to a bank branch once in the last 15 years I reckon
Yep agreed, I'm considered a significant banking customer with BNZ and never once stepped in a branch. I don't need cash, what even is a cheque?
Did all of our development finance in a cafe, relationships don't count for anything in the decisions of banks now.
Meet with our personal manager over teams, she's based in the Hawke's Bay. Introduced to her via our broker who I've only spoken to on the phone because he's based in the Manawatu.
The problem, with the full commoditization of banks, is that by closing down the branch networks, the commoditisation is largely self inflicted. You fit in as the digital 'cookie cutter customer' or you do not. Carry on down this path and the fact you are a 'large bank' with a history counts for nix, because your cost base is higher and you are pissing off your traditional customer base.
There are some areas where you do need to go into a branch, like overseas currency payments into nominated accounts. I had to do it last week and it cost $28 (ANZ this time) and well over half an hour once I had waited in the queue. And then the teller had to call on back up help to do such a complex thing. If it wasn't for the complication of dealing with financial issues, I am sure most banks would offer far better service. However, the ANZ service was one better than Westpac who simply refused to process my overseas transaction, because I didn't feed my 'salary' through the current account I had with them. This is despite all my dividends and contract work payments going into the said account as they had done for years (I don't have a salary, and haven't had for decades).
SNOOPY
I’d like to see demographics of heartland banks customer. It seems like the only person it can and wants to service is simple, average Joe who doesn’t have overseas currency payments to make or any investment properties.
If I just had one, smallish mortgage it would be an idea service for me but those days are long gone.
How about that 5% boost today though :)
I imagine that a fair few customers will simply be those chasing a higher deposit interest rate. People like me, so yes, simple average Joe people ;)
As I have mentioned before, I have multiple bank accounts with multiple banks, for multiple purposes. I consider banks to be nothing more than a “tool” for money management. I have zero need for branches and do everything online, so a digital only bank works fine for me.
So sensible to have such a system .
My wife was scammed just before christmas-a text message posing as the IRD and they emptied our joint accounts in a few minutes before our accounts were closed .
Took a week before we knew it was all recovered and accounts re-opened .
Intend to open a highlands account today !
I think Overseas Swift transfers (telegraphic transfer) into your existing account can be done without a visit. Fees are usually charged at both ends. Cheques and cash are obviously different. Are foreign cheques even accepted these days?
I remember several decades ago an Ulster Irish relative sending me a cheque as a gift. It took ages for the foreign currency forms to be filled in duplicate or triplicate by the bank teller at a large Auckland branch of the ANZ. These then had to be checked by the manager, who was in a meeting. It was a long low-tech process, using hand calculators I hadn't seen since the 1980's!
Worth noting : Fitch downgrades Outlook for Australasian banks
https://www.skynews.com.au/business/...e9b6c2047bc9f2
The quote from Fitch in that story states:
"In both countries [Aus|NZ], the risk of a sharper-than-expected economic slowdown and higher unemployment remans a key threat for bank metrics, particularly if this were to push house prices lower than we project"
Could be valid headwinds for HGH but overall they have much lower ratio of residential mortgage lending compared to the big aussie banks.