Westpac NZ CEO David McLean says the bank's still waiting to hear whether it'll retain its role as the Government's banker.
Westpac has been the Government's bank since 1989. However, last year the Ministry of Business, Innovation and Employment (MBIE) received expressions of interest in the Government's banking business after issuing a tender for it.
An MBIE spokeswoman told interest.co.nz on Friday that MBIE's on track to announce the results of the tender in mid-2015, without being more specific about the likely date.
McLean told interest.co.nz he's yet to hear anything about the result of the tender officially, but acknowledged Westpac could lose at least some of the business.
"The Government did break it (the tender) into four component parts. And looking at it from the outside, not knowing why they did that, one could extrapolate from that one of the reasons they might have done that is to possibly award different banks different parts," said McLean.
"Another possibility is (with) several of those pieces, for example low value FX is one of them, you could imagine a scenario where they set up a panel for banks to provide low value FX."
"This is just pure speculation from the outside but it could well be when you look at those things that one outcome might be that some of it does move away from Westpac. So it's not just a binary thing. In the past it was all wrapped up yes or no, black or white, Westpac or no Westpac, whereas now I think it's more complex and there's more nuances. So there could be three outcomes all Westpac, no Westpac or some of Westpac," said McLean.
'It's not very profitable'
However, McLean played down how big of a loss the government business would be to Westpac if it was lost.
"it's not very profitable at all because the Government is the biggest customer in town.There is a certain amount of status attached to the Government and they've got huge flows through MSD and IRD and so on, and so therefore they command by far the sharpest price in the market," said McLean.
"So when you look at what we might be making from it and what the successful bidder might make from the Government, it's a piddlingly small amount of money really in the context of everything, compared to what people think. People think it's worth hundreds of millions. It's like nothing compared to that," McLean added, declining to specify just what it is worth to Westpac.
"When you look at the size and scale of the business on a cost per transaction or anything like that, it's very, very, very cheap. So the Government gets fantastic value."
In February McLean told interest.co.nz it was important for Westpac to retain the business because the Government was the biggest customer in town, and it was important for Westpac's status of being the Government's banker.
And last November McLean told interest.co.nz Westpac was confident it could meet the bulk of the Government's future banking needs single handedly, and people would be surprised at what "fantastic value" the Government was getting out of its existing deal with Westpac.
What the Government wants
Last October MBIE tendered four sub-categories of banking services saying consortia bids could be submitted. Furthermore, panels of providers will be appointed for three of the sub-categories in the tender. And MBIE said respondents could tender for one, some, or all four sub-categories.
The Government has sought:
1) One provider of transactional banking, including the Crown’s Consolidated Cash Management Process, for a term of eight years. The business on offer here excludes IRD's Crown banking and over the counter payments business which will stay with incumbent Westpac for at least eight years. (Only ANZ, ASB, BNZ, Westpac are eligible for this category).
2) A panel of providers to provide foreign exchange transactions, described as low value ones, for a term of up to eight years, potentially comprising an initial term of three years and two rights of renewal, for a further period of three years and two years respectively.
3) A panel of providers to provide merchant facilities and inward payment collection services for a term of up to eight years, potentially comprising an initial term of three years and two rights of renewal, or a further period of three years and two years respectively.
4) A panel of providers to provide card services for a term of up to eight years, potentially comprising an initial term of three years and two rights of renewal, for a further period of three years and two years respectively.
A MBIE spokesman told interest.co.nz last year MBIE was pleased with the number of responses received to its request for proposal, with responses expected from banks, payment service suppliers and "organisations that deliver correspondent banking and foreign currency services, amongst others." Independent payment suppliers and foreign currency service providers are also expected among the applicants.
The request for proposal outlined 93 crown accounts, 78 departmental accounts and 175 trust accounts. Combined, the accounts handle $448 billion worth of transactions a year. MBIE last year said it expects to have a contract awarded by May 2015 with a contract in place by mid-2015.
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