The big banks’ distribution stranglehold and subsequent ability to analyse competitors’ mortgage products through vertical integration has sparked concern with one of the nation’s biggest community banks.
CUA chief executive Chris Whitehead has flagged a potential conflict of interest in bank-owned aggregators as they can gain an “awful lot of market intelligence” on their competitors’ products and pricing.
“I am concerned that there is a real potential for the majors to clone the innovative products of their competitors based on the market intelligence they are gathering,” Mr Whitehead told Mortgage Business.
“It is simply the fact they know how well those products are going,” he said.
“They get a lot more detailed data than would ordinarily be available through the visibility they are getting through those aggregation channels.
“So they see a competitor comes up with a product, they see that product is starting to do well, it’s very quick and easy for them to come up with their own version and undercut it, and direct the business that way.”
Mr Whitehead went on to slam the hazy governance of financial services competition that has empowered the majors to dominate distribution.
“We have actually raised this concern with the ACCC,” Mr Whitehead said.
“Its response was that really financial services competition is governed by ASIC,” he said.
“You go to ASIC and they say they don’t have any specific brief with regards to disclosure standards, so there is no specific requirement to disclose ownership under any legislation.”
Mr Whitehead pointed to Westpac’s ownership of St George and Bank of Melbourne, and CBA’s ownership of Bankwest and Aussie as examples of multi-brand strategies that potentially mislead customers.
“Customers don’t really understand whether they are dealing with a major bank or an alternative challenger such as CUA with this kind of confusion – that’s a concern for us,” he said.
“At the moment there appears to be a bit of a vacuum with the ACCC not getting involved in financial services and ASIC having something of a different brief."
A new report has called on the government to curb the “deep vertical integration that has evolved over the last decade in the financial services market”.
Economics consulting firm Macroeconomics prepared the Review of the Major Banks: Control of the Wider Financial Sector report for the Customer Owned Banking Association.
The report reviewed the four major banks’ annual reports between 2004/2005 and 2012/2013 – as well as relevant IBISWorld industry reports.
It singled out CBA and NAB for their oligopolistic behaviour, detailing recent acquisitions by both banks as they continue to grow their share of the third-party channel.
“The mortgage broking industry, while containing some large corporations, also contains a high number of sole proprietors,” the report said.
“More recently, Australia’s largest banks have attempted to gain a foothold in the industry,” it said, noting similar occurrences in the financial planning space.
“NAB has made acquisitions of existing mortgage broker groups, while CBA has successfully gained control of Australia’s second largest mortgage broker, Aussie Home Loans,” the report said.
“Given the ACCC’s acceptance of the reduction in competition as a result of originators purchasing brokers, this transaction may encourage similar transactions moving forward.”
The majors already have incredible market power in the retail banking space, which is now being extended into financial planning, funds management and mortgage broking, CUA’s Mr Whitehead observed.
“So that market power is being broadened into new products and services,” he said.
On Tuesday, CUA sold its financial planning arm to IOOF-owned Bridges Financial Services as it continues to focus on its core business in retail banking and home loans.