Opinion article

Banking Royal Commission – what it means for customer-owned banks

The aftermath of the Hayne Royal Commission suggests customer-owned banks have a unique position in a competitive landscape, RACQ Bank Chief Executive Officer, Michelle Bagnall explains.

Competition in the banking sector has never been more important than it is right now. The Hayne Royal Commission was emphatic when it said banks put profits before people; that this is an industry broken by the system in which it operates. Customers have also been equally emphatic they have lost trust in banks. This was borne out in the 2019 Edelman Trust Barometer: Financial Services report which shows it remains the least-trusted sector, at 57 per cent trust, among the general population.

RACQ Bank opened its doors in September 2016, but we started the conversation with our members about moving into the banking sector as early as 2010. We asked them, ‘what more do you want from us, your member-based organisation?’. The answer was clear. ‘We need you to be in places where we don’t know whether we’re being told the truth; where we don’t know if we’re being ripped off’ they told us. Several sectors came back on their wish list of industries for us to enter but banking was at the top of the list. We went in search of the right merge partner. It had to be another mutual, with members at the core of its purpose and with a track record of making decisions for people – rather than profit maximisation. Bringing together the two entities enabled a competitive advantage via the scale and size of the parent company, RACQ. 

The aftermath of the Hayne Royal Commission suggests member-owned banks have a unique position in a competitive landscape. But competition isn’t just about having more players in the market; it’s about ensuring each and every player has an equal opportunity to compete. As a member of the Customer Owned Banking Association (COBA) we fully endorse their recent comments noting that a competitive customer owned banking sector will make others in the sector consider how aggressively they put shareholders ahead of customers. 

We are, however, alert to the potential for unintended consequences from The Royal Commission and from the Government’s last round of budget allocations to our regulators. While the Royal Commission made minimal direct recommendations regarding regulation, it did draw a line in the sand. What Commissioner Hayne did was identify behaviour and beliefs which saw some institutions prioritise profit and shareholder returns over the interests of the customer.

Increasing scrutiny by the Australian Prudential Regulation Authority (APRA) will come at a cost and the Federal Treasury has announced its intent to raise the regulation levy on smaller banks. The customer-owned sector already operates with the same level of scrutiny applied to larger entities, it’s simply a matter of scale. 

A 2018 Grant Thornton report found small banks could disproportionately feel the consequences of the behaviours of the big banks and that proportionate reform should consider an authorised deposit-taking institution’s (ADI) size, risk profile and importantly the ADI’s customer-owned business model. The report underlined the dangers of a broad brush approach to banking regulation and highlighted other unintended consequences for smaller banks including stifled innovation, regional branch closures and reduced investment in the community.

Digitisation is another challenge for customer-owned banks. While sector operators seek the means to make cost efficiency savings, they must also evolve products and services to ensure they can defend their position. With bricks and mortar infrastructure becoming cost prohibitive and of diminishing relevance, customers increasingly demand the ability to interact with their bank at a time and place convenient to them.  Remaining agile, responding to and embracing the expectations of our members by staying ahead of the technology wave is costly however it’s also vital.

At a time when the banking sector has tarnished its image badly and when the prominent operators have suffered extensive reputation damage, the time is ripe for trusted, customer-owned banks to grow. 
About the authors

Michelle Bagnall

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Michelle believes in a customer focussed approach and that RACQ Bank offers an “unprecedented opportunity to carve out a new understanding of what good banking is in Australia.” She has held senior roles in banking in Australia and Europe over the last 20 years.

In May 1905, 12 of Brisbane’s pioneer drivers met to discuss forming a group to champion the rights of motorists and the Royal Automobile Club of Queensland (RACQ) was born. 114 years later RACQ remains clear in its purpose for its 1.76 million members and in 2017 it became the first motoring club in the world to operate a bank.

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