Banking Clients Veer Away from Major Providers to Smaller Lenders

By | January 7, 2013

The banking sector is one of the biggest driving forces behind any economy. In the current era of post-global financial crisis woes and worries, banks are being forced to rethink their strategies for drawing in new business, as well as for improving their relationships with existing customers. At the moment, the Australian banking system, dominated by its notorious ‘big four’ seems to be undergoing a major reshuffle, according both to anecdotal evidence, as well as to recent research reports. This shift on the scene can be accounted to several factors: on the one hand, the country’s central bank has repeatedly cutting the official cash rate, while, on the other, consumer sentiment continues to wane and slide further away from a focus on debt and spending, and toward more cautiousness and savings.

Currently, Australia’s official cash rate stands at 3.25 basis points, a level it hasn’t seen since the peak times of the recession, i.e. the year 2009. This, in turn, has led to the banks’ repeated lowering of interest rates on loans, but also on savings and term deposit products. At the same time, the credit card reform of July 2012, combined with more regulatory restrictions applied, which are forcing banks to hold more liquidity, has placed the banks down under at a crossroads in deciding where to get their cash infusions from. Some are placing all their bets on online and mobile online transactions, others forecast a revival of business loans for small and medium enterprises – but the cold, hard facts of the matter are that the country’s four major banks are not doing so well, at least not in the eyes of the average consumer.

A recent poll issued in mid-November by a reputed product comparison website indicates that none of Australia’s foremost four banks (Commonwealth Bank, Westpac, National Australia Bank and ANZ) are well-regarded by clients. On average, the four banks scored 2.6 points out of a maximum of 5 in the poll. Indeed, the collected funds of these four banks far outweigh those of their best ranking, smaller rivals. Commonwealth holds deposits worth well over $344 billion, leading the major bank pack. Westpac is also a leader, but in terms of loans, with $405 billion lent, says official information released by Australia’s Prudential Regulation Authority.

Meanwhile, the preferences of the general population lie altogether elsewhere. ING Direct is the best bank in Australia, say the over 3,500 reviewers on the client feedback website. Coming in closely at number two is Heritage Bank, which is owned by its customers, and ME Bank, which started out on superannuation funds and unions’ funds. Other names on the chart are Bendigo Bank, Bank of Cyprus and Macquarie Bank. Our own research has discovered other contenders, if one is to judge by the online savings and term deposits interest rates at Bankwest, which we found out about at http://www.bankwest.com.au/personal/savings-term-deposits/savings-term-deposits-overview.

The trend, say the experts, is to move away from major providers, which are being perceived as impersonal, and even arrogant at times, and toward smaller ones, which do a better (or, at least, a more believable) job of offering the client a tailored experience. Also, the general perception is that smaller banks will be more concerned with treating each client as an individual, since their stake in holding on to each client in part is bigger. With the advent of mobile banking, smaller banks are also attempting to keep up with major ones when it comes to apps for services (ranging from transactions to balance account checks). At the moment, however ING only holds $29 billion in deposits and $41 billion worth of loans – time alone can tell whether or not the smaller banks can hold out, in the face of the majors’ competition.