Rivalry between banks expected to ramp up after launch of new reforms
Federal Treasurer Scott Morrison has today announced new banking reforms that will allow credit unions and building societies to legally call themselves banks, in a move aimed at increasing competition between home loan providers.
Morrison and MP Kelly O’Dwyer said in a joint statement that the government will axe the restrictions deposit-taking institutions currently face, which mean they can only attain “bank” status with $50 million or more worth in capital.
Instead - provided the reforms are successfully passed through parliament - up and coming or non-traditional lenders will be able to claim the name “bank.” This may help them garner more trust among borrowers, who will benefit from low rate deals as competition among lenders heats up.
According to Morrison, the restrictive use of the title among financial institutions can lead customers to mistakenly believe that small banking providers are different from larger players when it comes to how they are regulated.
“The fact is that all ADIs [Authorised Deposit-taking Institutions] are subject to the prudential regulator, APRA's, prudential framework. Likewise, deposits at all ADIs are protected by the Government’s Financial Claims Scheme guarantee,” he explained.
To avoid diluting the meaning of the title, the new legislation will still give the Australian Prudential Regulation Authority discretion over which financial institutions will get the tick of approval.
For example, online lender Tic:Toc, which approves successful home loan applications in 22 minutes and offers competitive low rates, has recently entered the mortgage market. Once the new banking reforms come into effect, the fintech could potentially change its name to “Tic:Toc Bank”.
If Morrison’s assumption about what Aussies think of banks compared to non-banks is correct, borrowers who snub small providers could be missing out on some serious savings. In fact, in the recent Mozo Experts Choice Home Loan Awards, online lenders dominated by claiming nearly two thirds of all “Low Cost Award” titles, showing that borrowers should never judge a lender by their name.
Mozo’s home loan hub compares hundreds of mortgages, and the majority of providers offering them are not currently considered banks. Those offering some of the lowest rates in the market include credit unions, online only lenders and mutuals, so make sure you head over to our home loan comparison tool to check out all the top deals on offer.