Defined Terms and Documents    

80–20 Rule means (also known as the 'the Pareto principle') in many areas of finance 80% of a company's profits come from 20% of its clients. Mathematically, the 80-20 rule is roughly followed by a power law distribution (also known as a Pareto distribution) for a particular set of parameters.

'The Pareto principle' is only tangentially related to Pareto efficiency.  Pareto developed both concepts in the context of the distribution of income and wealth among the population.

In the early 1980s, the Writer worked in Commonwealth Savings Bank Head Office, known as CSB Head Office.   We had access to a 'print out' of average balances of all savings bank accounts across the branch network which summarised the number of accounts within a balance category:

<$10,000

<$20,000,  > $10,000

<$30,000,  > $20,000

<$40,000   > $30,000

<$50,000   > $40,000

<$60,000   > $50,000

<$70,000   > $60,000

<$80,000   > $70,000

<$90,000   > $80,000

<$100,000 > $90,000

>$100,000

The Writer  -

(i)         pays no annual fee on either of his two Credit Cards;

(ii)        has paid no interest or late payment fees on his two Credit Cards for at least 20 years, as he has monthly debits set up to draw his monthly Outstanding Indebtedness from his CBA Streamline bank account; and

(iii)       believes that -

             *           many other Australians over the age of 18 classified as Level 3, 4 or 5 Financial Literacy in the Productivity Commission Staff Working Paper "Links Between Literacy and Numeracy Skills and Labour Market Outcomes" dated Aug 2010 'et al' are similarly not making any meaningful contribution to the profits earned by Credit Card Issuers; and

             *          nearly half of the Australian population over the age of 18 [assessed at either level 1 (the lowest level) or level 2 in the Productivity Commission Staff Working Paper] do not possess the ‘minimum required literacy, numeracy and prose skills to meet the complex demands of everyday life and work in the emerging knowledge-based economy’ and are contributing 80% of the the profits earned by Credit Card Issuers. 

Footnote:

Whilst working in CSB H.O. in the early '80s, the Writer used to liaise with John C_rlett, who worked in CBA's Accounting Dept.  John explained that profitability of a branch was measured on its accounts average balances and its operating costs.  Nearby North Shore branches like Lindfield and Roseville were highly profitable because the customers had high average balances and generally did their banking at Chatswood branch to then shop at Chatswood's regional shopping centre, so Lindfield and Roseville had low operating costs.

Below is an extract of the 'NB' in the postscript of The Writer's  submission to the RBA on CD dated 8 Dec 2011:

"NB:     In 1985 when I worked in Representational Network at CBA, the then Chief Manager, Deposit Services, Peter Andrews, asked me to write a paper on CSB introducing explicit fee pricing for the traditional passbook accounts because customers were increasingly depositing cheques into their passbook accounts, thereby reducing fee income from CTB cheque accounts and increasing servicing costs on savings accounts.  Coupled with this, the implicit interest margin between where CBA bought money through savings investment accounts (capped by regulation @ 6½%  'til 1980) and deposits into savings accounts (capped by regulation @ 3¼% 'til 1980) and where it sold (lent) money through loans was eroding due to NBFIs (building societies, credit unions, Estate Mortgage Trusts, Equiticorp 'et al') attracting a lot of previously high balance savings account balances.  A month later after reading copious banking journals from the USA and the UK about how their banks addressed the same problem, my 15 foolscap pages titled "The Application of Fee Based Income to CSB Passbook Accounts" which sought to apply the User Pays Principle went up to Peter Wilson, Chief General Manager, Retail Banking HO.  I was told later that Peter Wilson had supported my paper, but thought it better for one of the other Pillar Banks to be the first to introduce such fees which would be politically sensitive, and Commonwealth Bank was still viewed by Australians as the peoples bank.  The need for 'fee-based income' re-surfaced in CBA in 1987 whereupon I sent my memo submission to the new Chief Manager, Deposit Services, Jim O'Ryan, who sent back a thank your response note after reading it.  I retain a copy of that submission paper. 

            Times have changed with bank fees these day applying the User Pays Principle scrupulously, except to the Retail Supply Side of credit cards which is All Smoke and Mirrors."