For the first time in more than a decade Australians are feeling the squeeze of interest rate rises, and rapidly increasing inflation is creating cost of living pressures.
It is times like these that highlight the need for variety and competition in the banking sector. Yet, with the prospect of the fourth largest bank swallowing the ninth largest bank, the increasing footprint of the major banks is limiting options for most Australians.
How can Australia maintain – and enhance – its banking competitiveness?
Firstly, you need a vigilant competition regulator. In performing this role, the Australian Competition and Consumer Commission will take a close look at the proposed acquisition of Suncorp Bank by ANZ.
Secondly, you need to make sure that barriers to entry are not too high. We can see that although neobanks are getting licences, most of the first wave of new licensees have also made quick exits.
Thirdly, government and regulators can create an environment that continues to provide consumer choice and market diversity, by giving a fair go to the customer owned banking sector and its unique customer-focused model.
Customer-owned banks have a different ownership structure to other banks, meaning their entire reason for existing is different to the major banks. They’re owned by their customers, not by a separate group of shareholders, so profits are returned to customers via competitive rates and fees, and continuing investment in outstanding customer service and community initiatives.
Customer-owned banks can take a longer-term view compared to listed banks that must focus exclusively on maximising shareholder returns. That’s why the customer owned banking sector has been around for 150 years and is serving more than five million Australians.
Most customer-owned banks are headquartered outside the traditional Sydney and Melbourne finance hubs. The largest mutual bank, Great Southern Bank, is based in Brisbane. Heritage Bank is based in Toowoomba. Newcastle Permanent is based in Newcastle. People’s Choice and Beyond Bank are based in Adelaide. P&N Bank is based in Perth. IMB Bank is based in Wollongong.
This not only provides employment and economic opportunities that would otherwise be lost to the capital cities, it also ensures these areas have banking services that put their communities first.
As the most recent crop of new entrants have discovered, it’s not easy competing against an established oligopoly where the four major banks hold substantial market power over their competitors and consumers.
The announcement of ANZ’s proposed takeover of Suncorp Bank follows the recent exit of neobank Volt, the sale of Citigroup’s Australian consumer banking business to NAB, the sale of ME Bank to BoQ, the sale of neobank 86 400 to NAB, and the exit of neobank Xinja.
The market dominance of major banks – their sheer scale and brand recognition, coupled with significant customer inertia – is difficult for smaller banks to overcome. But there is some policy action that can be taken to support competition and consumer choice and give customer-owned banks and other challenger banks a fair go.
More consistent and transparent regulatory coordination will reduce the costs of regulatory change. These costs disproportionately impact smaller banks. Improving regulatory design, implementation and review will make regulation more efficient and targeted – promoting a more competitive and diverse banking market that benefits consumers compared to the current approach that entrenches the scale advantages of the major banks.
Introducing a corporate diversity clause into APRA’s and ASIC’s mandates would ensure that regulators explicitly consider the mutual structure when developing regulation. This will embed customer-owned banks into the ‘business as usual’ of regulatory policy development, ensuring that Australia does not end up with a regulatory environment fit only for profit-maximising, listed entities.
Lastly, expanding the GST-reduced input tax treatment that applies to credit unions to include building societies – and therefore all customer-owned banks – will support greater collaboration across the customer-owned banking sector, lowering costs. This will boost our sector’s capacity to lend and invest and will help level the playing field between customer-owned banks and the major banks.
A competitive banking market – home buyers and savers depend on it.