What is mutual banking and customer-owned banking?

Co-author: TJ Ryan

Mutual banking has long been fighting to make the financial market in Australia more competitive for consumers. Here’s how customer-owned banks operate.

While much market commentary centres around our “Big 4” financial institutions, Australia’s customer-owned sector is vibrant and healthy. Here are a few facts you may not know about Australia’s customer-owned banking sector…

What is customer-owned banking?

Customer-owned banking and mutual banking mean the same thing – a financial institution that is owned by its members.

One member share equals one vote on constitutional matters affecting the customer-owned bank. Profits are reinvested back into the products and services offered by the customer-owned bank, rather than being distributed to shareholders as a dividend.

Many types of financial institution fall under the “customer-owned banking” banner:

• Mutual banks
• Credit unions
• Building societies

Customer-owned institutions provide generally the same consumer banking services as listed banks, including credit cards, personal loans, home loans, savings accounts, internet and mobile banking, and term deposits.

How popular are customer-owned banks?

According to figures released by the Customer Owned Banking Association (COBA), customer-owned banking institutions held 10.1% of household deposits in March 2016.

Australian mutual institutions collectively make up a $98.7 billion sector that represents the “fifth pillar” of banking in Australia – the fifth largest holder of household savings deposits in Australia. And with more than 4 million members already, this sector sees growth of 6.6% per year.

Apparently, more Aussie families are taking out home loans with customer-owned institutions than ever before, with customer-owned loans growing at more than double the rate of the Big 4 as of March 2016 (COBA).

We like our customer-owned institutions

Australians like to complain about their financial institutions but the statistics don’t back up the rhetoric, and this is especially true when it comes to customer-owned institutions. A recent Canstar Blue survey of 1,898 customers of challenger and customer-owned banking institutions found that an impressive 83 percent of customers are highly satisfied with their institution of choice and only 2 percent of respondents were dissatisfied.

Large number of mutual banks to choose from

According to the Customer Owned Banking Association (COBA) the customer-owned sector comprises, at time of writing, of:

• 66 credit unions
• 16 mutual banks
• 4 building societies
• 1 other mutual Authorised Deposit-taking Institution (ADI)

In 2016, Canstar has researched and rated customer-owned banking institutions for the Customer Owned Banking Award, and within this sector has rated 15 mutual banks and customer-owned banks, 34 credit unions, and 6 building societies. You can view our 2016 list of these customer-owned institutions here.

Customer-owned sector is well-regulated

All credit unions, mutual banks and building societies are Authorised Deposit-Taking Institutions (ADIs), regulated under the Banking Act. That means that, while they are smaller in size, they still meet the same high standards of prudential regulation as banks with full regulatory oversight.

COBA’s Head of Public Affairs, Mark Degotardi, says, “Australia’s customer-owned banking sector is one of the strongest in the world – the sector here in Australia is also one of very few in the world that complies with the Basel global banking standards.

“Customer-owned banking institutions – credit unions, building societies and mutual banks – provide critical competition and choice in Australia’s retail banking market.”

Compare Mutual Banks with Canstar's Customer Owned Banking Award

Source: Customer Owned Banking Association