Mutual banking: Why it's a better choice for consumers
I have a question about your bank. Would you rather use a business that is absolutely focused on its customers, or one that isn't?
I'm confident 99% of Australians would pick the former. Even if the two companies have exactly the same products or services and price, you'd go with the company that puts customers first and foremost. That's what every customer would want.
The choice I've just outlined is exactly what Australians have when it comes to banking. The problem is, many people aren't aware of it.
Two types of banking models
Deep in their foundations, Australian banks are divided into two models - one that is steadfastly focused on its customers, and one that is not.
The latter model describes those banks that exist to maximise profit. They are the ones listed on the stock exchange, so they need to focus on profits to keep their shareholders happy. The big four banks alone, for instance, are expected to make around $33 billion in profits this year. It's a staggering amount of money.
But there is a genuine alternative to shareholder-owned banks.
Customer-owned banks like Heritage and People's Choice are 100% owned by their customers. So, naturally, customers are their focus, not profit.
This customer-centric approach isn't just marketing spin. Heritage was awarded Bank of the Year - Customer Service in Money's 2023 Consumer Finance Awards as the banking provider that achieved the highest overall ratings scores for customer service, beating the big banks to the top spot.
And this customer focus resonates with Australians. More than five million people - about one in five of us - choose to bank with a customer-owned bank.
Explainer: Credit unions vs building societies vs mutual banks
Customer-owned banks, which are also known as mutuals, have been with us for a long time, with many having a history spanning over a century.
Initially called credit unions and building societies, they were established to provide financial services to people shunned by the major banks, such as regional communities and single mothers, or those linked by a common bond such as their industry or community.
They still operate in Australia, and around the world. When you open an account with them you automatically become a member/owner.
The only real change is that over time the vast majority have grown beyond their initial base and have opened their doors to people from all walks of life.
More recently, many have rebranded as mutual banks to provide clarity about what they do.
The crucial point is that whatever the name - credit union, building society, mutual bank - these organisations are 100% owned by their customers.
This is what sets them apart from the listed banks and what makes them better.
Mutuals are independent - owned by our customers, not shareholders. We are not motivated by how much profit can be made. Rather, we are driven by purpose.
And that purpose is to deliver positive change through banking: competitively-priced products and great service, investment in technology to make banking safer and more convenient for our members, and support for communities and the environment.
Security is the same
Listed banks and customer-owned banks do have one thing in common.
They are all authorised deposit-taking institutions (ADIs) and are licensed and regulated by the Australian Prudential Regulation Authority.
All ADIs need to follow strict legally-enforceable standards which make mutuals just as safe and secure as the listed banks.
The bottom line
In Australia, banking is highly competitive and many of the options can appear very similar.
Scratch the surface though, and you'll find two very different business models. One focuses on customers and service, while the other focuses on shareholders and profit.
Now that you know there is a difference, it's worth thinking about which type of bank you would prefer to bank with.
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