Multi-branding by big banks causes competition confusion

 Today’s decision to give the Commonwealth Bank the go-ahead to pursue full ownership of mortgage broker Aussie Home Loans will only increase confusion about the level of competition in the banking sector, Heritage Bank CEO Mr John Minz said today.

The Australian Competition and Consumer Commission today announced it would not oppose the Commonwealth Bank’s bid to acquire full ownership of Aussie Home Loans, which has a franchise network of around 750 mortgage brokers around Australia.

Mr Minz said the decision would perpetuate the confusion caused by the big banks’ “multi-branding” strategy – setting up or acquiring smaller brands that then give the impression that they are independent.

“This strategy is creating a false impression among customers that there is a high level of competition in the marketplace, but in reality a number of these so-called competitors are actually part of the big banks themselves,” Mr Minz said.

“Brands like St George Bank, BankSA, Ubank, Bank of Melbourne, Bankwest, as well as RAMS and now Aussie Home Loans are all owned by the big banks. People may be surprised to know that by supporting brands like this they are not striking a blow for competition but are actually entrenching the dominance of the big banks.”

A survey commissioned in January by Abacus, the peak body that represents the customer-owned banking sector, showed that almost 50% of respondents did not have a clear understanding of bank ownership of smaller and regional banks and lenders. The survey also found that

  • 50% of Australians believe that the dominant share of home loans by the big four banks is a bad thing for the country
  • 65% agree that there is not enough competition in the Australian banking system
  • 71% agree that due to current industry regulations, the big four banks have an unfair advantage in the Australian mortgage market
  • 52% believe that the big banks’ ownership of smaller and regional banks is not good for Australia. They cited that this gave “too much power and control over the market…and was too much of a monopoly.”

“Clearly people are confused about the ownership of the smaller lenders, with the multi-branding approach of the big banks reinforcing this mask of competition. The decision on Aussie Home Loans will only perpetuate this confusion,” Mr Minz said.

“Customers need to be very wary and the big banks should be required to make very clear their ownership of smaller brands that give the impression of being competitors.”

* Based on a $150,000 loan over 25 years. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.