The big 4 bank’s dominance is already prominent in the mortgage industry, but will this idea of buying smaller lenders and brokers snowball until they are the only players in this market?
Borrowers may think they are working with an independent lender; however, you may be surprised at the big banks ownership of smaller lenders. Rams, St George and Bank SA are all owned by Westpac. As well as Aussie Home Loans, CBA also now own BankWest. Even NAB is spreading its market share via U-Bank and loans distributed though Advantedge.
Interestingly Aussie Home Loans was originally at the forefront of introducing competition into the mortgage industry. Established in 1992 by John Symonds, securitisation was introduced which allowed Aussie to offer home loans at around 3% lower than what the big banks were offering at the time. As the big banks market share diminished, they were forced to slash their own interest rates in order to remain competitive. The presence of a strong non-bank was clearly beneficial to the consumer.
According to research conducted by D&M Research (January 2013), 50% of Australians thought that the current big bank ownership was a bad thing for the country with participants quoting that the banks have “too much power and control over the market.”
According to the Roy Morgan Research Business Banking Satisfaction (September 2012), the big 4 banks average rating for customer satisfaction was only 64%. That is another concern if a monopoly situation in our banking system is allowed to exist. It is only by having choice and competition, that banks are forced to remain competitive. The less competition that exists, the less pressure there is to maintain not just low interest rates but high levels of customer service.
Although the big 4 banks have the capability to buy smaller lenders, if this continues it will ultimately have a negative effect on the industry overall. Just like in a game of Monopoly, the number of players will continue to diminish and it will be the consumers who will lose out.