Return of the mutuals

Australia-wide, the sector now services more than 4.5 million customers and, collectively, is the fifth largest holder of household deposits after the four majors.

Customer-owned institutions currently hold around $84.5 billion dollars in assets, a base that is growing by 5.4 per cent annually, according to data released by APRA and the Reserve Bank.

Total household deposits held by the mutuals sector are increasing at a slightly faster 5.5 per cent per annum, while total housing loans are rising at an even more impressive 6.3 per cent.

The customer-owned banking model eliminates conflict between customers and shareholders, allowing customer-owned banks to focus solely on better outcomes for members.

As a result, customer satisfaction is consistently higher among customers of the mutual institutions.

Recent Roy Morgan research shows that 89.2 per cent of mutual sector customers were satisfied with their institution, while just 79.2 per cent of the major banks’ customers were satisfied with theirs.

In July, the sector’s representative body relaunched as the Customer Owned Banking Association (COBA), replacing the Association of Building Societies and Credit Unions (ABACUS).

The industry body spent the year advocating for a financial system review, ensuring smaller institutions remain in a position to compete with the larger banks.

In November, COBA chief executive officer Louise Petschler says a fair banking system that allows smaller institutions to compete is vital for the overall health of the industry.

“This is a fundamental issue,” Ms Petschler says. “The unfair funding cost advantage enjoyed by the big four banks if left unchecked will lead to greater concentration and more harm to competition, consumer choice and innovation.

“We need a regulatory framework that genuinely promotes competition and consumer choice.”

Developing relationships

The year 2013 was good for the relationship between mutuals and brokers.

Many lenders, including CUA, Australia’s largest customer-owned financial institution, made a concerted effort to improve its standing in the third party channel.

CUA general manager of products and marketing, Jason Murray, says the credit union has been focused on providing solutions for brokers.

“Technology is a key demand of brokers, so we have made some really significant improvements in that area,” Mr Murray says. “We have also introduced ‘approval in principle’, a four-hour commitment to make a decision in principle, which is something that is clearly very important to brokers when they have a client hanging on the back of it.”

CUA has built a new support team which is specifically designed to assist brokers and boost CUA’s presence in the third party channel, Mr Murray told The Adviser.

“We have built a dedicated, in-house broker support team to work specifically with brokers to help push loans through for them as quickly and efficiently as possible,” he says.

CUA’s efforts appear to be paying off. Results for the 2012/2013 financial year showed a 21.8 per cent increase in loans settled, which CUA chief executive officer Chris Whitehead says could be largely attributed to the third party channel.

Another customer-owned institution that has worked hard in 2013 to improve its position in the broker channel is The Widebay Australia Building Society.

Charlton Nevis, general manager of third party and strategic alliances, says the building society’s greatest achievement in the past 12 months has been the establishment of a dedicated third party division, headquartered in Brisbane.

The new division is designed to support Widebay’s national BDM network and provide strong connections with aggregators and brokers.

“The benefits are that the division provides clarity to the market and all stakeholders in everything that we do in the third party space,” Mr Nevis says. “The data warehouse, marketing intent and all relationships are controlled from this point.”

A new player

In 2013, Teachers Mutual Bank opened its home loan products to the third party distribution channel. Speaking to The Adviser at the time of the launch, Mark Middleton, chief executive officer, says the decision to move into the broker channel was a logical one.

“We became aware of the size of the broker market and the amount of our own customers who were already choosing to use the channel,” Mr Middleton says.

“According to the MFAA and the Australian Bureau of Statistics, 43 per cent of the total home loan market is served through the broker channel, and that’s a marketplace in which we want to participate.”

Mr Middleton says the mutual bank hopes to use the broker channel to expand its reach in Australia.

“While we do operate nationally, we want to ensure we are able to provide a full and better service to all of our members,” he says. “There are some members that we aren’t really touching at the moment because of their locations, but we believe brokers can help us connect with these customers.”

Teachers Mutual Bank also provides a great opportunity for brokers to write new business, he added.

“At the MFAA conference in 2012, brokers were looking for new business opportunities and one of the recommendations from a number of specialists on how to grow their business was to target niche markets – and this is something we can offer,” Mr Middleton says.

“Over 600,000 people are actually employed in the education sector – and that means a massive opportunity for brokers.”

However, opening brokers’ businesses to these niche markets is a major strength of the mutuals sector in general.

Mark Haron, director at Connective, says this new channel to the education sector is great news for brokers.

“I think they’ve got a great proposition and there is a real affiliation to the education sector there, which is a key part of what they are going to tap into,” Mr Haron says.

“They will help brokers get involved in that space and get clients [from the] education sector.”

A mutual trend

Glen Lees, principal at Connective, says he expects a growing trend for strongly affiliated groups such as teachers to borrow from affiliated associations.

“Teachers Mutual Bank is a good example because there is a strong affiliation between the education sector and the bank,” Mr Lees says. “Teachers are such a strongly affiliated group and so to have a brand on our panel that teachers, as consumers, are going to affiliate with is a great thing for our brokers to have to offer.

“Other groups such as police and nurses are the same.”

Mr Lees predicts these groups will play a greater role in the finance industry as people move from the major banks toward brands with which they have a greater emotional connection.

“I think that’s a trend you will see more in the market in general – products aligned to brands that may not ordinarily be financial services, brands where there is a sense of affiliation amongst the customer population that will perhaps motivate them to buy through the brand,” he says.

According to Mr Lees, buying decisions regarding home loans – as is the case with many other purchasing decisions – are heavily influenced by emotional attachments.

“Despite the best efforts of everyone whacking a brand on things, products are largely commoditised and a lot of the buying decisions are emotional in the end,” he says.

“For example, ME Bank: there’s an affiliation with that brand too, because it has to do with super funds, and so there is that stronger sense of belonging to the brand which drives buying behaviour and I think there is more of that coming,” Mr Lees explains.

For brokers, the mutuals sector represents an opportunity to take advantage of these emotional attachments and can offer a great way for brokers to satisfy their clients.

“It’s about being alive to the fact that consumers may want to consume products along those emotional lines.

“Rather than ‘I must get a loan from that lender’, they may say ‘I’m a teacher and I’d rather get a loan from a teachers affiliated group’,” he says.

Mr Lees concludes that the Teachers Mutual Bank proposition is a strong one: “I think they’re serious about it and have approached it all in the right way – they have done it in a very considered manner,” he says.

“I think they have a very good value proposition for brokers.”