It’s tough being in business in Australia. It doesn’t seem to matter what industry you are in, the size and market power seems to coalesce around a couple or a few large players.
It’s as true of supermarkets as it is of airlines, and most certainly banking.
But while size and incumbency has always favoured the big players there are signs, in banking at least, that it’s not only Australia’s prudential regulator, APRA, and its new requirements that the big players hold more capital that is leveling the banking playing field.
Rather, KPMG says in a new report that changed technology is giving Australia’s smaller lenders – the mutual sector made up of credit unions, building societies and mutual banks – the kind of competitive advantage that they once could only have dreamed of.
That’s important because the mutual banking sector serves around 4 million customers and holds more than $90 billion in assets. But its biggest member, CUA, only has a balance sheet of around $12 billion.
That makes the mutuals, collectively, a significant player in banking but without the financial clout to compete with the major banks at an individual or institutional level.
But that is about to change, KPMG says in its Mutuals Industry Review 2015.
“In a new world, small can be a competitive advantage as it allows the opportunity to seamlessly join the digital ecosystem and grow without prohibitive start-up costs,” the review said.
That’s because the emerging players, as disruptive as they are for the traditional banking model, offer mutuals an opportunity to piggyback on their offering through partnerships. This will allow mutuals to “expand market offerings and extend their service capabilities. This will help innovation and competitiveness.”
Capabilities that were once beyond the reach of smaller banking institutions will soon become possible for them. That means that the opportunities open to mutuals will also be open to Australia’s second tier of banking which includes Bank of Queensland, Suncorp and Bendigo Adelaide.
That will help establish some real competition across Australian banking which in the ends benefits the customers. At the same time, strengthening mutuals and other smaller financial institutions will help maintain the biodiversity within Australian banking and, if KPMG is right and the competitive ground is shifting, make for a healthier and more resilient Australian financial system.
In the end, KPMG says that start-ups and other fintech disrupters can help smaller players in Australian banking:
- Boost operational and technology efficiency
- Engage with younger demographics
- Value add to customers
- Cut through the complexity of choice
The key here is that the review says as fintech startups change the face of modern banking, and the customer experience, the customer remains the key. As a result, KPMG says that mutuals can “rent core capabilities and focus on what they do best – add real long term sustainable value to the customers they serve.”
Custom is all about the customers, isn’t it?
Greg McKenna is a director of a mutual bank and is excited by what new technology offers the industry and Australia’s competitive landscape.
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