RACQ launches new bank, plans to go nationwide

As trust in the financial sector is tested, Queensland’s RACQ has launched a new bank with lofty ambitions.

RACQ chief executive Ian Gillespie

As trust in the financial sector is tested, a new player has entered the market with lofty aspirations.

Queensland’s RACQ has just launched a new bank in the state, and already has ambitions to go nationwide.

It’s a world first for an auto club and part of a five-year strategy to dull the impact of disruption facing its traditional business lines. After merging with QT Mutual last year, RACQ has converted 13 of the mutual bank’s branches and will begin offering banking services across its own 34 stores in the coming years.

“We’re a long way from being anywhere near competitive with a big four bank, but what we can offer members is a reasonable alternative where people can get products that are just as good, just as accessible, from an organisation they’re more likely to trust and one which is based on a very different business model,” RACQ CEO Ian Gillespie told The Australian.

“Obviously it’s challenging to compete with the big banks because they have scale advantages. But most of the tier-two and tier-three banks suffer from lack of scale. We feel that one of the things we bring to the table, that’s not there now, is a bit of scale of our own.”

RACQ has more than 1.6 million members but is counting on a nationwide expansion to deliver the scale it needs. Mutual banks across the country, as well as its auto club equivalents in other states, are a key part of its ambitious growth plans.

It has $1.3 billion in net assets to fund RACQ Bank but wants to get to $10bn as quickly as possible, through both organic and inorganic growth.

“The mutual ADI sector is made up of about 100 mutual banks, credit unions and building societies. If you combine them all together they still wouldn’t add up to one regional bank, so they need to consolidate. We believe we’re offering a pathway to that consolidation under a brand which is, at least in Queensland, very recognisable and highly valued by the public,” Mr Gillespie said.

“In our vision we would like RAC clubs in the other states to become part of what we’re doing.

“It’s very early days yet and I think they’ve all got their own strategic priorities at the moment, but they’re no doubt watching us and if we can prove the model I can’t see any reason why they wouldn’t want to become part of it as well … It’s eminently scalable to a national level.”

RACQ has also been working with the federal government to get approval for a mutual equity instrument that it hopes will level the playing field to make capital available to mutual banks.

One such model, in use in Britain, sees mutuals go to the market and raise capital without it being share capital. The car club’s entry into the banking sector comes at a time when the big four banks, which control about 80 per cent of the market, are being slammed over their conduct and culture.

“I think the banks clearly are under a lot of pressure because of the conduct associated with the way in which they’ve promoted so many different product lines through their business and it’s gotten a little bit out of control. But that’s their problem, not ours.”

Despite its lack of scale, RACQ Bank has one of the lowest mortgage rates on offer at 3.74 per cent. It received six months’ worth of inquiries in the first two days following its launch, many of which were for home loans.

“It’s not just about maximising the profit return out of every transaction; it’s actually about getting the balance right between delivering value to the member and running a prudentially sound bank. We have the advantage of not having to feed hungry shareholders,” Mr Gillespie said.

While the big banks are in the process of streamlining their operations after years of expansion, Mr Gillespie isn’t worried about RACQ becoming overstretched.

He said the move into banking made sense considering the disruption facing its traditional business lines of car assistance and insurance.

“Over the last five years a number of new competitors have entered into the market in our traditional businesses. As well as that, there’s a lot of change coming in how motor vehicles will be owned, used, and operated. We just didn’t think it was wise to move into the future without some other options.”