Customer-owned banks have a significant role boosting competition in the banking sector

Brendan Wright says greater transparency, a commitment to communities and stable financial performance set customer-owned banks apart.

Less than a decade after their much-heralded arrival on the Australian banking scene, all indications are our neobanks are dead.

Apart from one or two exceptions, the retail neobanks that sprung up in recent years have either gone bust; handed back their banking licence; or have been snapped up and stripped for their technology by the big banks.

As the neobank project sinks in this country, so, too, does the government’s well intended attempt to introduce competition into the retail banking sector.

It comes at a time when the Australian banking sector is in desperate need of greater competition and transparency.

The irony of this situation is that while everyone was looking outside the industry for new market entrants to take on the big banks, there are a group of existing banks with tried and tested business models that were in a much better position to do the job than neobanks.

The banks I’m talking about are, of course, customer-owned banks.

What sets us apart is greater transparency, a commitment to our communities, sustainability, stable financial performance – and customer loyalty.

But to get there – to offer Australians some real banking competition – we need to embark on a period of rapid consolidation and increasing scale, which will create banks with economies of scale to take on the major players.

Furthermore, customer-owned banks have constitutional and structural advantages that cannot be replicated and therefore provide a key advantage against the big banks.

These include a requirement to operate on a democratic basis, where members have a vote regardless of their financial stake – promoting a sense of ownership and accountability among all members. It means that boards and executive teams operate solely in the best long-term interests of members.

There’s also a strong local focus, with customer-owned banks typically reinvesting in their local communities, keeping local branches open and boots on the ground, particularly in regional and rural communities.

Many customer-owned banks emphasise ethical practices, sustainability, and social responsibility, aligning their business practices with the values of their members, making tangible investments in these areas via their products and services, not greenwashing.

By taking a long-term view and focusing on running an enduring operation, customer-owned banks operating at scale often have a more stable financial foundation due to their member-driven nature, which can lead to lower risk and greater resilience during economically challenging times.

And as member-owned entities, customer-owned banks can leverage the collective savings and investments of their members, often providing more accessible capital for personal and community projects. In fact, this stems from their origins as building societies and credit unions that acquired banking licences in 1999 and ultimately adopted the name bank from the early 2010s.

Qudos Bank chief executive Brendan Wright.

Customer satisfaction levels and NPS scores continue to outperform big banks, with customer-owned banks achieving an 89.5 per cent satisfaction rate, outshining the big banks’ 75.4 per cent rating, according to the Customer Owned Banking Association.

And customer-owned banks are regulated by The Australian Prudential Regulatory Authority and the Australian Securities & Investments Commission, which means they meet the same regulatory standards and offer the same rights and protections – such as the government-backed guarantee on all deposits up to $250,000 – as the major banks.

This begs the question: why haven’t the customer-owned banks become a far greater competitive force in Australian banking?

The reason is simple: scale.

To get there, we need to proactively consolidate to fuel the next stage of investment and growth to bring the benefits of customer-owned banking to more Australians.

This means mutually beneficial mergers of like-minded customer-owned banks, such as the proposed merger of Qudos Bank and Bank of Australia.

This merger, for example, will create one of Australia’s largest customer-owned banks – capable of the level of investment required in products, services and technology to increasingly compete with the big banks, and to do this with customers at its core.

Competition within the banking system remains weak, with the market over-concentrated at the top end, barriers are high to enter the market, and the survival rate is low – as we’ve seen with the neobanks.

But with greater scale, customer-owned banks have the potential to become the next major competitive force in banking.

Brendan Wright is CEO of Qudos Bank.