Are credit unions and building societies a viable alternative?

So why hasn't the mutual banking sector stepped forward before now to take on this mantle? The answer to this questions isn't simple, but it can largely be attributed to an inability to access funding at a price similar to the major four banks affecting their ability to compete on price, and the public's perception that 'bigger is better'.

The measures outlined in the Federal Government's reform package will essentially allow CUBS to create a more competitive market through fairer access to funding and by empowering consumers.

The perception that CUBS aren't 'as safe' as the major banks and that they are not regulated in the same way is simply not the case. Improved awareness of the prudential system and the introduction of the "government protected" seal have ensured that all Australian ADI's are monitored with consistent measures. These reforms are essential as consumer confidence in ADI's has been battered by the GFC and the Australian public want to know that their ADI is well regulated and that their money is safe.

The much publicised Government ban on mortgage exit fees is beneficial for increased competition and along with one of the largest ATM networks in the nation (Redi ATM), low fees and an ethos-self-help mentality rooted in their grounding; CUBS can clearly show consumers they are the fifth pillar in Australian banking.

The bottom line is that the Government's bid to promote greater competition in the banking sector is good news. And pushing forward CUBS as the face of that competition makes sense. They have a long history of safe management of our members' money, and of offering products and services in banking that puts customers first. The creation of level playing field will help them compete aggressively on price, which can only be good for consumers.

The 'bigger is better' mentality will also be addressed in time, with more CUBS taking the opportunity to consolidate. The 2009 merger of two of the nation's largest credit unions, Australian Central and Savings & Loans, to create a member-owned competitor to the major banks is an example of a growing trend that will result in greater choice for customers.

The merger, and others that are likely to follow in the industry, provides the resources and strength to grow into new markets. Most importantly, it provides the opportunity for more people to access member-owned banking, which can only be good for competition. On the back of the Governments reform package, Australian Central Savings & Loans and other CUBS will be able to provide a viable alternative to the major banks.

Already there appears to be a flow-on impact of the Government reforms, perhaps simply through greater awareness and understanding of credit unions. APRA statistics released earlier this month showed the mutual banking sector grew by 10.7 per cent in 2010, with total assets above $77 billion. This compares with growth of 4.4 per cent in residential assets for banks over the same period. These results follow ABS results from December last year which showed CUBS writing almost 11% of new owner occupied home loans in Australia – a jump from 6.5% two years ago.