The aggregate fee income of banks in Australia was unchanged in 2010, according to the Reserve Bank, which has conducted a survey on bank fees each year since 1997. The results of the latest survey show fee income from households declined as exception fee income and ATM revenue fell sharply, while fee income from businesses grew.

Banks’ fee income from households declined by16 per cent in 2010, to $4.2 billion. This was its lowest level since 2006. Almost 80 per cent of the decline can be attributed to exception fees. A number of banks reduced, and in some cases abolished, exception fees in late 2009, such that income from these fees roughly halved in 2010.

Exception fees are charged when a customer breaches the terms of a banking product, typically overdrawing a deposit account, making a late payment or exceeding a credit limit. Around 80 per cent of exception fees are paid by households.

Steven Münchenberg, Chief Executive of the ABA, said:”At a time when budgets are under pressure from rising prices, this fall in bank fees is a welcome result for families and individual customers.”

“For households on low incomes, the report shows they pay the lowest amount on transaction account bank fees and the lowest amount as a proportion of their income.”

“And households are paying less for banking even though they are using banking services more often. Customers are completing more transactions on more accounts and are buying more products and services from banks. Also customers are choosing lower cost accounts.”

Exception fee income associated with household deposit accounts fell by $395 million in 2010, or 57 per cent. Exception fee income from household credit cards fell by $220 million, accounting for more than the entire decline in credit card fees from the household sector. Exception fees on housing loans also declined, despite an increase in the share of housing loans that are non-performing.

Another significant driver of the decline in banks’ fee income from household deposit accounts was a decline in revenue from ATMs. The ATM reforms introduced in March 2009 have led to a marked shift in transactions away from ‘foreign’ ATMs towards the use of cardholders’ own institutions’ ATMs, which are generally free of charge. In addition, households have reduced their overall ATM usage in favour of using EFTPOS transactions, which are also typically free of charge, to obtain cash.

On the other hand, banks’ fee income from businesses increased by 13 per cent in 2010 to $6.9 billion, despite business credit outstanding falling over the year. Most of the growth in business fee income was driven by growth in fees from lending, including both loans and bank bill facilities; total lending fee income grew by about 25 per cent.

RBA said this largely reflects the repricing of establishment and line fees, which are charged by banks to maintain a line of credit regardless of use.