Mutual benefits: what's a non-bank?

While Australia’s big four banks – ANZ, Commonwealth Bank, National Australia Bank and Westpac –often dominate headlines with their high profit returns, non-banks have been quietly raising their profile by banding together.

Unlike the publicly listed big banks, which have  a responsibility to maximise profits for shareholders, credit unions, mutual building societies and mutual banks focus on their members – or customers. Each member owns the organisation they belong to and can vote in its governance. Profits are reinvested into products, competitive mortgage rates and savings rates, or paid back to members.

Historically, credit unions and mutual banks were linked to specific professions, such as teachers, nurses or the police force. Now many are open to anyone.

Close to 4.5 million Australians are members of credit unions, mutual building societies and mutual banks, and the mutual sector has combined assets of approximately $85 billion, according to industry body Customer Owned Banking Association. The sector is made up of 83 credit unions, 10 mutual banks and seven mutual building societies.

Non-banks offer the same kind of products as banks, often at more competitive rates, including credit cards, debit cards, mortgages, term deposits, car loans and personal loans.

Stronger banking competition

Research released last month by Essential Research, commissioned by the Customer Owned Banking Association, revealed that three-quarters of Australians believe consumers would benefit if there were stronger competitors to the big four banks. Additionally, more than half (57%) believe there is no genuine competition between the big four banks.

“Unfair advantages in the system have strengthened the market power of the big four banks, meaning less competition and less choice for consumers,” Customer Owned Banking Association CEO Louise Petschler said.

“Australians understand this – 69 percent of Australians believe there needs to be more competition in the banking sector. We believe that the system must change to create a level playing field for smaller players in the market, including customer owned banking institutions.”

The fifth pillar of banking

Collectively, credit unions, mutual banks and building societies are the fifth largest holder of household deposits in Australia – with a 10.5 percent share of household deposits as at September 2013 – which has prompted observers to dub them the “fifth pillar of banking”.

Former Labor Tresurer Wayne Swan referred to credit unions and other non-banks as the  “fifth pillar” of banking four years ago, at the height of the debate about the competitive dominance of the big four. Back in 2010, the then Treasurer said: “I’m determined to see another pillar in our banking system built from the combined competitive power of our mutuals, credit unions and building societies, because I’ve always been a big believer in their capacity to be a strong force for competition in the banking sector.”

Like any financial decision, if you are considering banking with a credit union, mutual bank or building society, it’s important to do your homework and choose the best option available for your needs.

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