Australia’s major banks have been sharply criticised in a new report for strangling smaller players in the market and pushing up costs for customers.
As the royal commission continues to expose dodgy conduct in the banking sector, the Productivity Commission on Friday released its long-awaited report into competition.
The report found the Australian banking sector is dominated by a handful of players.
Four banks own more than 75 per cent of the market for loans, personal deposits and credit cards and four insurance giants have in excess of 80 per cent share of the market for lenders mortgage insurance and travel insurance.
The PC noted the banks’ dominant position had enabled them to withstand shocks such as the global financial crisis, but there were also negative consequences.
“There is evidence that they have sustained prices above competitive levels, offered inferior quality products to some groups of customers, subsumed much of the broker industry and taken action that would inhibit the expansion of smaller competitors in some markets,” the report found.
“All are indicators of the use of market power to the detriment of customers.”
In a speech to be delivered in Sydney on Friday, Treasurer Scott Morrison will pledge a greater effort by the government to ensure more competition in the sector and greater power for consumers.
“We need our banks strong, stable and profitable … but we also need to ensure that competition isn’t being constrained and the customers aren’t getting the raw end of the stick,” he will tell the Australia-British Chamber of Commerce.
Mr Morrison says while new regulations, conduct codes and penalties were important to ensure banks met community expectations, customers needed greater power and information to make decisions.
“Power to change their circumstances, power to get a better deal on their mortgage, on their credit card, on their business loan. Power to change the system.”
He said the PC report would provide a plan for improving outcomes for customers, as well as ensuring the financial system is competitive and innovative.
The report found customers were not being given the detail that accurately shows what kind of deal or discount they are receiving, and are unable to compare precisely with other products in the market or what other customers in their circumstances are getting.
While there were almost 4000 different residential property loans in the Australian market and more than 250 credit cards, products and pricing were confusing.
The PC described it as a “blizzard of barely differentiated products”.
Mr Morrison says by giving customers access to their own data and better information – under a strategy known as “open banking” – they will be able to save money and get a better suited product.
New rules to bring in more players to the banking market, including the ability for smaller players to be able to call themselves “banks”, will also help boost competition.