Morrison puts blowtorch to big banks

Scott Morrison has savaged the big banks after unveiling a major review of competition in Australia’s finance sector.

Scott Morrison says steps to encourage the entry of new challenger banks would give customers greater choice. Picture: AAP

Scott Morrison has savaged the big banks for punishing loyalty and keeping customers “in the dark” in a speech unveiling a ­review of competition in Australia’s finance sector by the government’s main economic advisory body.

The Treasurer used an ­address in Sydney to the Australian British Chamber of Commerce to put the banks on notice, arguing for more power to be “put back in the hands of the customer”, while releasing the Productivity Commission’s final report into competition in the Australian ­financial system.

Parts of the commission’s ­report contain heavy criticisms of the major banks for using their market power to offer inflated ­prices and inferior products while not providing enough information to customers.

The commission also targeted ­lucrative trailing commissions for mortgage brokers after the draft report found some brokers were earning $6000 for an average home loan of about $350,000, which created “perverse incentives” for brokers to stop borrowers switching banks.

Mr Morrison argued the review would complement government initiatives aimed at encouraging new challengers to enter the market, better empowering consumers and giving them better protections from predatory behaviour.

In his speech, Mr Morrison said customers who stay with the same bank are being punished with higher fees, and he noted there is “no genuine transparency around product and pricing”.

“The customer has become disengaged from the process and the detail, evidenced by the fact that half of Australia’s banking customers still bank with their first-ever bank,” he said. “The problem, as identified by the Productivity Commission, is that customers are simply not being armed with the right information.

“They aren’t being given the detail that accurately shows what kind of deal or discount they are receiving, and are therefore unable to compare precisely with other products in the market.’’

Mr Morrison noted that 15 per cent of existing home loan customers are paying the average variable rate on their home loan, but a new customer could undercut that rate by about 0.4 percentage points.

“The price of loyalty? Between $66 to $87 per month on the average home loan balance,” he said.

Mr Morrison also argued that the phased introduction of “open banking” — where customers have control over their banking data and can share it with third parties — would revolutionise the sector by empowering consumers.

He said steps to encourage the entry of new banks would give customers greater choice and better deals, noting the Productivity Commission has found that the major players have ­exploited their power to constrain competition and deliver poor ­results for consumers.

Mr Morrison said customers are being dazzled by a “blizzard of barely differentiated products”.

“Already customers can choose from almost 4000 different residential property loans and more than 250 different credit cards,” he says.

“Why switch when everything else seems the same? This ency­clopedia of similar products, combined with the lack of trans­parency around pricing, opens up the door for financial ­institutions to exploit customer loyalty”.