Finance Finance News Bank to the future: Why banks are looking to the past to help customers
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Bank to the future: Why banks are looking to the past to help customers

Joseph Healy, co-founder of Judo Bank and former NAB executive.
Australia's big banks have lost sight of their purpose and must begin to focus on customers' needs again. Photo: Judo Bank
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Australia’s major banks need to redesign themselves to more closely resemble the community-focused banks of the 1970s to win back wary customers, industry leaders have said.

Bank customers have been left reeling by revelations Westpac breached anti-money laundering regulations a possible 23 million times.

The scandal has seen CEO Brian Hartzer step down from his role and prompted calls from Parliament to have the bank investigated.

Speaking to The New Daily amid the fallout, former NAB executive Joseph Healy said Australia’s banks have “lost sight” of their purpose.

Mr Healy said Australia’s major banks have been granted numerous privileges not afforded to other businesses, notably that their deposits are guaranteed by government and they are protected from takeovers.

And while in the past banks have formed a core part of the communities they served, in recent years they have prioritised profits over people and now face a crisis of trust.

“Trust arrives on the back of a tortoise and leaves on a galloping horse,” Mr Healy said.

“We missed the GFC some 10 years ago but what we’re now facing is an Australian financial crisis, an AFC if you like, which is very different in nature and doesn’t impact the balance sheet in terms of the viability of the banks but does materially impact the standing of the banks in the eyes of the community.”

That loss of trust has cost the banks dearly, with the big four banks’ cumulative annual profits for the 2018-19 financial year falling $2.3 billion (7.8 per cent) on the previous financial year.

Many customers have also headed for the exits, taking their money to smaller customer-owned institutions (such as mutual banks, building societies and credit unions) or online ‘neo-banks’ after the damning royal commission exposed the sector’s deep-rooted faults.

Now, the big banks appear to be responding to this crisis of trust, selling off non-core businesses like their insurance and financial advice arms, and beginning to refocus on customers in the way customer-owned banks have done.

“[Customer-owned banking represents a good model because of the close ties to communities, and ultimately what many banks have done progressively over the years is pull back from certain communities, such as rural communities, and that’s part of the reason that public trust in the banks has eroded over time,” he said.

“These banks are so important in every aspect of our lives, and in some cases the focal point of the community, but have made decisions that are all about the profit maximisation rather than about social obligation or responsibility.”

Strong year for customer-owned banks

Customer-owned banks saw their operating profits after tax fall by 6.1 per cent in 2019, according to KPMG research.

Though somewhat disappointing, KPMG noted this was a smaller dip than that experienced by the bigger players.

At the same time, customer-owned banks saw a lift in the number of customers both borrowing (up 7.3 per cent) and depositing (up 8.5 per cent) money – again outperforming their major peers.

KPMG national sector leader for banking Ian Pollari said not all of this could be attributed to the royal commission, but agreed that the bigger players are realigning their businesses to focus more on customers’ needs.

“We’re going to see more larger players having similar business models in the context of what the mutuals currently provide,” he told The New Daily.

Customer-owned banks will also need to step up their game, Mr Pollari said, and invest in new technology that will make them more efficient.

The recommendations made by the royal commission will also be harder for these banks to adopt, as the added compliance costs will be more difficult to absorb due to their smaller relative size.

Michael Lawrence, chief executive of the Customer Owned Banking Association, said the “pace and scope” of regulatory change following the royal commission is constraining growth.

“The strong performance of Australia’s credit unions, mutual banks and building societies is a clear sign that consumers want to bank with an organisation that puts them first,” he said.

“We urge regulators, MPs and other policymakers to think twice about adding new laws and regulation and instead focus on enforcing the existing laws.”

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