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What is the 'fifth pillar' of Australian banking and what will it mean for you?
01 August 2011
In recent months, you may have heard talk about a new ‘fifth pillar’ of Australian banking and how it aims to create more competition, better rates and better service when it comes to home loans. But what exactly is this fifth pillar, why has this change come about, and what impact will it have on you?
On its Treasury website (www.treasurer.gov.au) the Government says it intends to ‘build a new pillar in the banking system based on the combined competitive power of our mutual credit unions and building societies’ so as to ‘support smaller lenders so they can put more competitive pressure on the big banks’.1
Why has this new pillar come about?
This planned reform reflects an existing trend in the marketplace.
According to Abacus, the industry body for the Australian mutual financial services sector, more and more customers are turning to mutuals for their banking. On its website, Abacus points out that the mutual banking sector – which includes credit unions and building societies – grew by 9.8% in the year ended March 2011, compared with 7.1% a year ago.2
Similarly, an article in BRW magazine states that when it comes to mortgages, customers are ‘inundating credit unions and mutuals with loan enquiries’.3
What will the new fifth pillar mean for you?
The introduction of a more robust and ‘official’ fifth pillar in our financial industry is set to deliver some very significant benefits for consumers.
Even better rates
Mutuals tend to offer more competitive mortgage rates than the major banks – a trend that’s certainly set to continue. Research by Canstar Cannex reveals that ‘the interest rate on a typical credit union standard variable rate home loan is nearly half a percentage point below that on a big bank loan’.3
More choice for you
Consumers all over Australia are set to enjoy a selection of new, more cost-effective options when it comes to their banking. Mark Bouris, the Executive Chairman of financial advisory firm Yellow Brick Road, is quoted in The Daily Telegraph as saying, ‘The problem with the big four banks in this country is not that they don’t compete with each other; the problem has been that there’s no one to compete with them as a block. Creating a fifth pillar of lenders will create consumer choice… if there’s a viable alternative, that’s when you have competition’.4
Better service
Mark Bouris is also quoted in The Daily Telegraph as saying, ‘while competition pushes down prices in the short term, it’s customer service that becomes the real differentiator with the introduction of competitors.’
Louise Petschler, Abacus CEO, adds that, ‘Credit Unions and mutual building societies have a solid history of building relationships with members. This relationship then leads to take-up of loan products (among other products), representing a broader plan and approach to service. It becomes a key differential when comparing the mutual banking sector with the banks - who sell you the product first and then decide how they will form a relationship with the customer.’
1. http://www.treasurer.gov.au/DisplayDocs.aspx?pageID=003&doc=../content/pressreleases/2010/091.htm&min=wms. 2. http://www.abacus.org.au/media-a-resources/media-release-alerts/748-mutual-sector-prospers-asset-growth-for-credit-unions-a-building-societies-outstrips-major-banks.
3. “Building the Fifth Pillar”, BRW Magazine, 14-20 April 2011. 4. http://www.dailytelegraph.com.au/role-reversal-very-welcome/story-fn6e1lzz-1225973207486.