Consolidation in the cards for Australia’s mutual lenders
Mutuals should scale back branch operations and invest in tech.
Expect to see more mergers amongst Australia’s mutual lenders as price trumps brand strength and customer loyalty become less of a factor moving forward, S&P Global Ratings reports in its latest.
“To remain competitive Australia's mutual lending sector will continue to consolidate over the next two years,” the ratings agency warned, which noted that mutual lenders’ competitive edge are “all but gone.”
Mutual lenders in the country are facing a plethora of challenges– chiefly, an environment where brand loyalty is almost non-existent.
“Brand loyalty is all but gone,” S&P Global Ratings credit analyst Lisa Barrett. "Brand strength and customer loyalty continue to evaporate such that price becomes a key determinant of customer acquisition. Merging provides smaller lenders greater economies of scale."
Australian mutuals need to ensure they continue to invest in their digital products and remain fast followers in technology adoption and product development, Barrett added.
Mergers will make mutuals more efficient and able to price competitively, she said. "Mutuals will over time become acquirers or consolidation targets," Barrett ssaid. "We believe the banking landscape will settle with a small number of larger mutual players."
Investing in tech
To remain relevant to the changing needs of existing and new members, mutuals will need to continually invest in digital products.
“Younger, tech-savvy members are likely to value price and turnaround speed over branches and personalized service. Brand loyalty is all but gone. As such, Australian mutuals need to ensure they continue to invest in their digital products and remain fast followers in technology adoption and product development,” Barrett said.
Mutuals should also consider scaling back on branches as they build up their devices.
Only about one in 1,000 transactions occur in a branch today, Barrett noted, but as of 30 June 2022, about 18% of bank branches in Australia belonged to mutuals compared with their market share of less than 3%.
“Branches are expensive. Rationalization would enhance the ability of mutuals to compete,” she said, adding that rent, personnel, and the underlying running costs of a branch remain high relative to the cost of serving customers online.
Mutuals could reinvest the savings made through branch rationalization into digital