As digital banking rapidly overtakes in-person services, regional communities across Australia are feeling the impact of widespread branch closures. But a confidential Treasury report, seen by sources close to the matter, is proposing bold measures to ensure banks maintain a “baseline” level of service in non-metropolitan areas – or face financial penalties.
Steep Declines In Regional Banking Presence
Data from the Australian Prudential Regulation Authority paints a stark picture of the retreat of physical banking services from regional Australia. Between June 2017 and June 2024, the number of bank branches across the country plummeted by a staggering 41%. In regional and remote areas, the decline was only marginally less severe at 36%.
The majority of these closures have been driven by the “big four” banks – ANZ, Commonwealth Bank, NAB, and Westpac. While some have implemented moratoriums on further regional closures until 2026 or 2027, many communities have already seen their last bank branch shut its doors for good.
Treasury Proposes “Baseline” Service Levels
The Treasury report acknowledges that branch closures have had “notable economic flow-on effects” in regional areas, with impacts extending beyond an individual bank’s customers. It also highlights that certain demographics, such as elderly Australians, people with disabilities, and Indigenous communities, are disproportionately reliant on in-person banking.
To address these concerns, Treasury has put forward two key proposals:
- A “community service obligation” that would require banks to meet minimum standards for branch and ATM availability in regional areas, based on their market share. Banks falling short could offset their “deficit” by funding services provided by other institutions.
- A mandatory code of practice for branch closures, similar to models used in the UK, to ensure comprehensive community consultation and consideration of the broader impacts of shutting down a branch.
Preliminary analysis suggests that under the “community service obligation” model, most major banks (excluding NAB) and digital-only banks would currently fall below the proposed baseline. They would need to bolster their own regional presence or contribute funding to support services provided by other banks or institutions like Australia Post.
Balancing Digital Shift And Community Needs
Treasury emphasizes that its proposals are not intended to wind back the clock on branch closures that have already occurred. Rather, it seeks to foster better coordination and distribution of in-person banking as Australia progresses towards an increasingly digital financial landscape.
“We’re always looking for ways to ease pressure on people and it’s no secret that the decline of banking services in rural and regional areas is a challenge for many Australians.”
Treasury spokesperson
The report acknowledges that Australia Post’s “Bank@Post” service has absorbed much of the cost and responsibility for providing basic banking in regional areas as banks have departed. However, it cautions that this model is “not sufficient on its own” and cannot replicate the full range of services a traditional bank branch offers.
Australia Post itself has flagged the financial strain of meeting the escalating demand for banking services, especially withdrawals, in locations where it has become the last resort. In August, the government-owned corporation reported an $88.5 million pre-tax loss, with Bank@Post fee structures not fully covering the costs being incurred.
A Reckoning For Regional Banking
As Treasury undertakes confidential consultations with the banking sector over its proposals, it’s clear that finding a sustainable equilibrium between the march of digitization and the needs of regional Australians will be no easy feat.
The specter of legislated service obligations or mandatory levies to fund baseline branch and ATM access marks a significant escalation in the long-simmering debate over banks’ responsibilities to non-metropolitan customers. Some will undoubtedly argue that market forces should be allowed to dictate service levels, while others will welcome Treasury’s muscular interventions to arrest the atrophy of regional banking infrastructure.
Ultimately, policymakers and bank executives face a delicate balancing act in channeling the efficiency dividends of digitization without leaving already-struggling regional communities even further behind. With the Treasury now taking a proactive stance on the issue, the future of banking outside Australia’s major cities looks set to command a growing share of political and regulatory attention in the coming years.
