Banks & Card Issuers

Breaking Down Australia’s Banks

Bank or mutual bank? Building society or credit union? What’s the difference between them all anyway? If you’re thinking of opening up a new account, applying for a loan or signing up for a credit card, your head is probably spinning from all the options out there. Don’t panic, we’ve got you.

If you happen to be looking for an easy-to-understand breakdown and all the need-to-know info on Australian financial institutions, it’s all right here.

What is a bank?

Let’s start with the easy stuff. A bank is a commercial, licensed financial institution that offers a range of financial products to customers, including deposit accounts, savings accounts, term deposits, credit cards and loans, such as mortgages. A bank may pay interest on deposits held, while charging interest on loans and credit provided. Above all, a bank is a business – and is in business to provide profits for its shareholders.

What is a building society?

Like the United Kingdom, Australia is home to a variety of building societies. Similar to mutual banks and credit unions, building societies are owned by their members. That means, unlike banks, building societies’ profits are put back into the society itself, working to benefit members instead of external shareholders. Like banks, building societies offer a wide range of banking and financial services.

What is a credit union?

Just like building societies and mutual banks, credit unions are owned by their members. This means profits are reinvested to benefit those members, instead of forming dividends for external shareholders. A credit union member is anyone who banks or borrows with the credit union. Each member is a shareholder, with an equal vote in how the credit union is run. Both building societies and credit unions can be focused on a particular community, whether that’s a workplace or industry, or a town or suburb.

What is a mutual bank?

Also known as a customer-owned bank, a mutual bank is mutually owned by its members – in much the same way as a building society or credit union. A mutual bank usually starts off as a building society or credit union, but has since gone through the process required to be allowed to use the word ‘bank’ in its trading name. To do this, the institution needs to get approval from the Australian Prudential Regulation Authority (APRA), by showing that it meets the capital requirements of a bank.

So, now we know more about the types of financial institutions out there, it’s time to go into a little more detail on what’s on offer.

The Big Four

When it comes to Australian banking, the Big Four are everywhere. Made up of NAB, Westpac, Commonwealth Bank and ANZ, the Big Four are Australia’s largest four banks – and are all highly profitable and hugely powerful. Racking up an enormous $14.8 billion in combined earnings in the first half of this year, the Big Four are among the highest-returning banks in the developed world.

With more than 80% of Australia’s home loans held by the Big Four, these behemoths of the banking world play a major role in the Australian economy. Surviving the Global Financial Crisis, the Big Four managed to protect the home loans of their borrowers, helping to provide economic stability that was left wanting elsewhere in the world.

Competition between the Big Four is fierce. If one bank lowers its interest rates on a particular product, the other three will often follow suit. It’s worth noting that although competition between these four banks is fierce, more competitive deals can be found from smaller players.

The Big Four also own a variety of subsidiaries within Australia and overseas. For instance, Bankwest is owned by Commonwealth Bank, while St George, BankSA and Bank of Melbourne are owned by Westpac. NAB acquired Citi in June 2022 and all its ‘white label’ brands such as Virgin Money, Qantas Money, Coles, BOQ, IMB, Kogan, Suncorp and PayPal.

Banking with these relatively smaller banks can give customers a wider choice of products and a sense of banking with a ‘smaller’ bank, while still falling under the protection of the Big Four umbrella.

The Big Players

Alongside Australia’s banks, mutual banks, building societies and credit unions, is a selection of big players within the international financial scene. Offering a vast array of financial products and services, these companies include HSBC, American Express and Virgin Money.

As with the Big Four, these financial providers are publicly listed commercial institutions run to make profits for shareholders. Let’s look at HSBC, for example. This truly immense financial provider is one of the world’s largest banking and financial services organisations, with more than 47 million customers in 71 countries and territories.

Offering an abundance of financial products and services, HSBC is a popular choice for both customers and shareholders. HSBC Holdings plc. is listed on the London, Hong Kong, New York, Paris and Bermuda stock exchanges, where shares are held by about 213,000 shareholders in 132 countries and territories.

The Small Banks

When it comes to small banks, not all have the same values. As we have seen, there are small banks that are mutuals, but there are also small banks that are commercial institutions, run as businesses to make profits for shareholders. Within Australia, examples of this type of smaller commercial bank include ME Bank and Bendigo Bank.

As for customer-owned or mutual banks, there are quite a few to choose from, such as Bank Australia, Beyond Bank, Heritage Bank, IMB Bank and Victoria Mutual Teachers Bank. Want to know more? Here’s a quick rundown on some of the mutual banks and where they came from.

Formally known as bankmecu, Bank Australia was Australia’s first mutual bank, and represents the amalgamation of 56 credit unions. Today, nearly 130,000 people and community sector organisations call the bank their own.

Trading under the name of Beyond Bank Australia, Community CPS Australia used to be one of Australia’s largest credit unions. Now, the organisation has more than 195,000 customers, 49 branches, and over $4 billion in assets.

Back in 1981, the Darling Downs Building Society and the Toowoomba Permanent Building Society merged to become Heritage Building Society. In 2011, the organisation gained ‘bank’ status and was renamed Heritage Bank. It’s now currently the largest customer-owned bank in Australia.

IMB Bank became a mutual bank in 2015, after starting life as the Illawarra Mutual Building Society around 135 years ago. With branches in 44 locations across every state and territory in Australia, IMB Bank has around 180,000 members and $5 billion in assets.

Bank First formerly known as Victoria Teachers Mutual Bank, a credit union was set up to provide specifically for the financial needs of teachers and those working in education. Starting up in 1972, the credit union had 48 customers and $480 in start-up capital. Today, that’s grown to include more than 100,000 customers and $2 billion in assets.

So, while we call them small, these mutual banks are dealing in some pretty big numbers. If you happen to be community-minded, you may also be interested to know that many mutuals work closely with the community, by supporting charitable causes, volunteering and providing donations.

The Non-Banks

Want to bank with a customer-owned institution that’s not a bank? Aside from mutual banks, there is a huge range of customer-owned organisations in Australia, with around 75 credit unions and 3 building societies currently open for business. Credit unions include BCU, Community First Credit Union, Credit Union SA, CUA and SCU, while building societies include B&E Personal Banking.

But it’s not all about straight-up banks, building societies and credit unions. When it comes to financial providers, these guys come in all shapes and sizes.

While we usually think of them in terms of our supermarket shopping, Woolworths and Coles both offer financial products as well.

Currently offering a range of credit cards, Woolworths has applied for a banking licence with APRA to write loans and take deposits. This could open up a whole new world of ‘down, down’ financial products for Woolies, allowing them to provide everything from personal loans and home loans, to savings and transaction accounts, to insurance and financial planning.

Meanwhile, Coles already has insurance covered. Alongside its selection of credit cards, Coles offers a range of insurance products, including car insurance, home insurance, landlord insurance and life insurance.

In doing this, Coles and Woolworths are following in the footsteps of UK supermarket giant Tesco. Tesco provides an assortment of financial products, offering customers savings by tailoring their premiums based on information collected at the checkout.

A Question of Safety

Are the big banks really safer than smaller institutions? Should you trust your money to small banks, business societies and credit unions?

Money is important. We work hard for it, and we don’t want to lose it. That is one of the reasons why some people are unsure of banking with smaller financial institutions. They don’t know if their money is as safe with smaller institutions as it would be with the bigger banks.

However, as Authorised Deposit-taking Institutions (ADIs), mutual banks, building societies and credit unions are regulated in the same way as all other Australian banks, and have to abide by the same strict regulations. They are regulated by the Australian Securities and Investment Commission (ASIC) under the Corporations Act 2001, and by APRA under the Banking Act 1959.

Still unsure? It’s also worth noting that deposits of up to $250,000 in all ADIs are guaranteed by the Federal Government.

Which option is better?

Time to make a decision. Let’s look at the big banks first.

Many people opt for the bigger banks because they have a big presence. They advertise big and everyone knows their products. The big banks are a known commodity. They are brand names that people grew up with. They offer a huge range of products, they provide a massive network of services, and they can be genuinely competitive.

When you bank with one of the Big Four, you know you will find an ATM pretty easily, no matter where you go in the country. With ATM fees reaching $3 a pop, having a wide-ranging selection of free-to-use ATMs is definitely an attraction. Even when travelling overseas, some of our big banks’ affiliates provide free or cheap ATM transactions when using your Australian card.

Big Four branch availability is another big selling point. As Australia’s largest banks, they have branches across the country, so if you need to visit a branch for any reason, there is likely to be one close by. This goes hand-in-hand with extended levels of customer service. Want customer support on hand 24/7? You’re more likely to find this with the big banks.

And now to the small banks, credit unions and building societies.

While big bank products will be better for some folks, they’re not right for everyone. We’ve already established that all ADIs are regulated and protected in the same manner, so that means we need to look at other factors before making a decision.

In terms of competitive rates, mutual banks, credit unions and building societies are all owned by members. Instead of lining shareholders’ pockets, profits are reinvested back into the institution. That means these institutions can offer more competitive rates, fairer pricing and products that work better for their members.

We spoke about the Big Four’s big network. Yes, this is convenient, but it does have a downside. A large network of ATMs, branches and open-all-hours customer support means higher overheads – which are then passed on to the customer. With a smaller network, smaller institutions can have lower overheads, making banking cheaper for its customers.

While we’re on the subject of support, it’s definitely worth pointing out the high levels of customer satisfaction generally found within smaller institutions. Roy Morgan Research conducted a customer satisfaction survey, which showed that ANZ customer satisfaction was at 78%, Commonwealth Bank hit 81.3%, followed by National Australia Bank’s 79.9% and Westpac’s 79.4%.

Compare that to Bank First, which had an industry-leading 94.8% satisfaction rating, followed by Beyond Bank Australia’s 92.4%, Heritage Bank’s 90.5% and ING Direct’s 90.1%. Customers who bank with smaller institutions often say they enjoy more personalised levels of customer service; something that big banks with their big networks just can’t offer.

Is bigger better? That’s really up to you. Check out the options on offer, compare rates and read the reviews. Now you know how it all works, you know where to start!