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Mergers are regularly making front-page news. Just recently the green light given to the ANZ-Suncorp merger was dominating the broking space as the decision will be the biggest the industry has seen in over a decade.
Nicole Cannon, founder and director of Pink Finance, believes that we haven’t seen the end of this trend and future mergers should be expected.
“I certainly see that these trends will certainly continue. We have seen consolidation for market share with small, medium and major banks for many years now,” said Cannon.
“The key is to make sure that they are clear from the beginning what the intentions will be, i.e. will the acquisition mean the brands stay the same and they will continue to run their lane, or will they combine, with a new name and merge together.”
Michael Arbon, lending adviser, commercial and residential at Your Mortgage Co, agreed that mergers will continue and believes it is a negative for brokers.
“A banking licence in Australia is essentially a licence to print money and Australia’s banking market is best described as an oligopoly. This structure is bad for consumers because the major banks have a competitive advantage over their rivals. Lower capital costs, the backing of government guarantees, as well as policies and pricing that often appear to be in lockstep, all lead to poorer outcomes for consumers,” said Arbon.
“You don’t need to be Einstein to observe the lack of differentiation and the lack of true competition in lending and banking services. I expect the trend of mergers and acquisitions will continue in Australia but don’t believe it will be a net-positive for consumers or brokers.”
Reduced competition is a consequence of a merger and, according to Arbon, more regulation is needed to avoid leaving brokers and borrowers restricted.
“In theory, mergers and acquisitions should deliver efficiencies and cost reductions which should lead to more competitive pricing for borrowers and depositors, this can only be the case where there is a free market with adequate competition and a constant flow of new entrants who interrupt and innovate. This is not generally the case in Australia and all efforts must be made by government and regulators to aid competition in banking,” he said.
“A Broker’s primary value offering to a client is service and trusted advice. As I often say in our office, ‘the banks have tellers, but we have listeners.’ Secondary to our service proposition, a Broker provides choice. Having access to dozens of different products is a real advantage and enables us to focus on service, knowing that the product we are offering the client is truly the best for them.
“Bank mergers are inevitable and may reduce the range of lenders and policies that we can offer. What government should focus on is ensuring that regulations are not too restrictive. They must empower new, non-bank entrants to enter the market. New and innovative competition in the market will keep the big players accountable on price, policy, and service.”
Cannon is more optimistic and believes there are positives to take away from mergers: “In the case of larger institution acquisitions, as long as the brands stay then, it is business as usual from my end. Eg CBA-Bankwest. In the case of ANZ-Suncorp, as long as they keep their own brands and have their point of difference then I do not have an issue with it.
“I have seen cases where it allows for more competition of policies – eg Property Share. CBA was the only lender for a long time, and now Bankwest allows this policy which allows brokers to give clients more choice. For a smaller credit union/member only financial institution, they often have very manual processes. A merger may allow them to use the parent company to enhance their systems and processes and become a more competitive option.”
Mergers and acquisitions can become convoluted, creating confusion for both brokers and borrowers. Helping clients through any uncertainty can help in providing a stronger service.
“I think borrowers are only confused if they experience a change in branding once they are set up and have their loan. In a day where SPAM from bank institutions is high, you may not realise you are getting a genuine message from your new financial institution and will delete/block/ignore the requests. Unbeknown to you, it is your new institution,” said Cannon.
“I saw this recently with Citibank and NAB. A client was getting communications from NAB and ignored it, not realising this was their new bank. I am sure there was lots of communication, but the reality is, people do not read everything that comes to their inbox. Apart from that, if it is a client going to the newly branded institution, then they may enjoy a better experience.”
[Related: Are mergers keeping mutual banks alive?]
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