The Big Four should be forced to disclose parent relationships with smaller banks to consumers, who are being duped by illusions of competition, said Credit Union Australia (CUA).
The largest customer-owned financial institution in Australia, which provides a variety of financial services including planning, attacked the role the Big 4 play in the industry.
In its submission to the Financial System Inquiry (FSI), CUA has urged for far greater market transparency when it comes to multi-branding.
The Big 4 hold 80% of banking assets, and although these percentages can vary month to month, the growing trend since the GFC has been an increase in the level of concentration spurred by the acquisitions of smaller banks and some of the non-bank sector, the submission said.
Despite this, recent research conducted for the customer-owned sector revealed that a huge majority of Australians were unaware that the Big 4 own other mainstream lenders.
The submission gives the example of Westpac, which it says is just one of many.
When Westpac advertises for Bank of Melbourne and BankSA it conveys a misleading impression to consumers by making Westpac’s ultimate ownership of both brands obscure, it stated.
“Consumers should not have to bring forensic skills to the task of finding true alternatives to the Big 4 banks. Ultimate ownership should be reasonably apparent in advertising for example, not hidden in the finest of fine print.”
But although CUA has complained to regulators over what it sees is a misleading practice, ACCC said the issue is not relevant to its responsibilities and ASIC said there is no legislative basis for it to force divulgence on the banks and it is difficult to interpret the advertising as misleading or deceptive.
“The only option available to mutuals is to press the government to institute a positive disclosure requirement. This would be a case where more regulation would be a good thing,” CUA said.
It added that the quality of competition which has resulted in a lack of drive for innovation and pricing pressure is another major problem.
“CUA does view the dominance of the Big 4 as unhealthy for the financial services sector and believes the Government should seek to ensure that competitive neutrality principles apply in the sector,” it stated.
It is in national interest for the financial services sector to be a level playing field, and many commentators have pointed out that since the GFC there has been a competition price paid for greater financial system stability, it said.
In the submission CUA puts forward a number of suggestions that it believes will help redress the balance, including a change to the current levy system.
The imposition of a levy system on authorised deposit-taking institutions (ADI) by APRA has resulted in the customer-owned sector paying a levy effectively five times the rate of big banks on a per asset basis due to a “one size fits all” approach.
This ignores the reality of a vibrant mutual sector that comprises of some 100 ADIs that vary in size from small regional credit unions to large nationally structured mutual banks, credit unions, and building society, the CUA submission said.
“Levy payments to APRA should reflect the resources impact of each institution on APRA. This should result in the elimination of the payments cap presently placed by APRA on contributions from the Big 4.”