Coles and Woolworths are making a play for a slice of Australia’s banking pie, with reports emerging that both are considering a move into the lucrative home loan market.
Coles currently has 350,000 insurance policies and 400,000 credit cards on its books, and is keen to expand. It announced a joint venture with GE Capital last month to provide more services, and also launched a new Mobile Wallet. Rumours abound that it will branch out and apply for its own banking licence.
“Coles may add other financial services outside the JV [joint venture] in future,” it said in a statement provided to The New Daily.
Woolworths is more coy. “If we have any plans in this area we will announce them in the usual way,” a spokesperson told The New Daily, declining to comment on its recent registration of the ‘Woolworths Money’ trademark.
ABC News reports that both supermarkets are currently in negotiations to offer home loans.
Tesco and Sainsbury’s supermarkets in the UK already offer similar banking services, and there are many non-traditional players in the US and Europe.
Last week, ABC reported that the big supermarkets were using loyalty programs to gather data on customers which could be used in a battle for market share with the major banks.
ABC’s 7.30 program showed how the personal data was being used to sell financial products to their existing customers. The report even showed how shopping decisions were being used in marketing efforts.
” … [C]ustomers who drink lots of milk and eat lots of red meat are very, very, very good car insurance risks versus those who eat lots of pasta and rice, fills up their petrol at night, and drink spirits,” Woolworths director of group retail services Penny Winn reportedly said.
“What that means is we’re able to tailor an insurance offer that targets those really good insurance risk customers and give them a good deal … and it helps to avoid the bad insurance risks.”
What will it mean for you?
If either supermarket were granted a banking licence, consumers would benefit from various product tie-ins, and longer banking hours.
That means food, petrol, insurance, superannuation, home loans and high interest savings accounts all in one place.
Bad news for big banks?
Industry Super Australia director of policy Dr Zachary May said “no” was the short answer to that question.
“There are always efforts to compete against the big four banks, and there have been some cracks in their, I guess, invincibility over the past few decades, but if you just look at the numbers it’s not obvious that there has been any sustained ability to take away market share,” said Dr May, who held senior positions at the Securities and Exchange Commission (the US equivalent of ASIC) during the global financial crisis.
Far from shrinking, the big banks are only getting bigger, according to Dr May.
In 1990, the big four held 65 per cent of deposits and 65 per cent of home loans. In 2012, this had increased to 75 per cent of deposits and 85 per cent of home loans.
It is hard to beat the banks at their own game for several reasons, including that they can borrow money at cheaper rates, and because of their “large, pre-established brands,” he said.
“It’s not to say that Coles and Woolies can’t succeed, but it is going to be an uphill battle. In terms of thinking who is best placed, it’s hard to think of someone better placed, but that doesn’t mean that they’re more likely than not to succeed,” Dr May said.
“The sad thing is, even if they did succeed, it’s not obvious that it would change some of the underlying issues that you have in Australia’s banking sector,” Dr May said.
This underlying issue, according to Dr May, is that the banks no longer invest as much money as they once did in Australian corporations, preferring home loans instead, largely because of regulatory issues in the wake of the global financial crisis.
If they did put more money into business, this would promote productivity growth, which translates to higher wages and more goods and services at cheaper prices.
“When you think of someone coming in to compete with the big banks, are they going to be doing corporate lending and financing investment in the economy? It doesn’t look like it,” Dr May said.
“They’re going to compete on credit cards, home loans and on transaction banking, I would expect.”
“I’d like to see disruption in the finance industry and a continuation of the capacity of someone to be able to transform savings into long term investment because we really need that, but I don’t know if the banks are the ones to do it, and I don’t know if the competitors of the banks will be any better placed to do it,” he said.
The Australian Bankers’ Association did not respond to questions in time for publication.