Government to allow smaller players to call themselves a “bank”
Credit unions and building societies can now refer to themselves as banks in a bid to increase competition in the sector.
What's in a name? If you're a credit union, mutual or building society in Australia, a lot. This is why the federal government has announced its plans to remove the regulations currently preventing smaller players from calling themselves banks. The government has this week released draft legislation on this change for public consultation.
Current regulations mean that only authorised deposit-taking institutions (ADIs) with capital exceeding $50 million are able to refer to themselves as a bank. This is problematic for smaller players as consumers perceive them to be less safe and secure than the bigger banks.
However, this is simply not the case. All ADIs, including the smaller credit unions and building societies, are regulated by the Australian Prudential Regulation Authority (APRA). In addition, all money deposited with ADIs is protected by the government's Financial Claims Scheme guarantee.
Over the past few years we have seen many credit unions register to change their trading names to a bank with APRA once the credit union exceeds $50 million in capital. In May last year Greater Building Society rebranded to Greater Bank, citing the reason for the change was to build a better sense of trust among consumers.
“Using ‘bank’ takes the work out of explaining what we do as it is well understood and makes sense to customers of all generations,” Greater Bank chairman Wayne Russell said.
Restrictions on the term "bank" also discourages new entrants in the sector, which is killing innovation and in turn creating a lack of choice for consumers. This is one reason why Australia only has a handful of major banks, namely the Big Four, as it's just too difficult for new players that lack the initial capital.
The Business Council of Co-Operatives and Mutuals (BCCM), Australia's peak body for member-owned businesses, welcomed the government's decision to allow smaller players to use the term bank.
“The banks have been fighting against this change of terminology because they know that it will make a difference to how credit unions and mutuals are perceived,” said BCCM CEO Melina Morrison.
"While for all practical purposes they are banks, this change will help consumers view member-owned banks as a more mainstream alternative. Given the chance to rebrand themselves, and with the big lenders continuing to raise rates even though the cash rate has been on hold since last year, we hope that customers will heed our call to ‘switch don’t bitch’."
If you're keen to compare your banking options, check out our guide on Australian credit unions.