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CommentJanuary 1 2019

Crunch time for Australia's banks

After a damning report from the Royal Commission, Australian banks must overhaul how they operate or face losing share to challenger banks and Asian rivals. 
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Over the past decade, as Western banks struggled to recover from the shockwaves of the global financial crisis, Australia’s banks have been basking in the warm glow of the country's stable economy and low unemployment. However, this environment enabled the banks to proceed with relatively little scrutiny. And, as revealed by the recent findings of the Royal Commission, it sometimes resulted in banks not always behaving in consumers’ best interests.

While bankers might protest they have not caused a financial crisis, consumers may disagree as they hear stories of poor advice on loans and mortgages, and headline-grabbing cases where charges were made to the accounts of deceased customers. The regulators are also finding themselves under scrutiny for not coming down hard enough on the banks when unethical behaviour came to light in the past. If customers cannot trust the banks with their finances, who can they trust?

In a country dominated by just four banks, the answer could lie in the international markets. Asian banks have been slowly increasing their Australian presence in recent years. While this has been mainly in the property and corporate space, they might see opportunities in retail banking. The growing Chinese diaspora, for one, might welcome having the option of using the same bank as they had at home.

Challenger banks also pose another threat as they appeal to consumers who are used to managing their lives on a mobile device. With no ageing infrastructure or cost of running branches, digital banks could create a profitable business quickly – although they have to lure away customers from the incumbents first. 

But unless the 'big four' take drastic action to prove they have changed their ways, a number of consumers might well be happy to move their bank accounts elsewhere.

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