Sometime in the 1840s, the first mutual financial institutions – building societies – are thought to have emerged in Australia. Since then, the nation’s relationship with customer-owned banking has remained strong. In the 2022-23 financial year, the “mutuals” (which include mutual banks, building societies and credit unions) increased their total assets by 2.5%, to an all-time high of $163.1bn.
Dr Luisa Unda is an assistant professor at Mannheim University and an expert in Australia’s tradition of customer-owned banking. She explains why the mutuals are increasingly strong alternatives to mainstream banks.
How are customer-owned banks different to for-profit banks?
More than 5 million Australians are members of mutual banks. Mutuals are structured differently to mainstream options – instead of having investors or shareholders, they’re made up of people and businesses, who become members when they open an eligible product or service, and take an equal stake.
“The system of governance is that everyone is democratically entitled to the same participation and voice,” Unda says. “In a traditional firm, the more shares you have, the more votes you gain. In mutuals, it’s one member, one vote. It doesn’t matter how much money you have saved or how much you pay to join; everyone is treated equally.”
That makes every customer a part-owner of the bank, which is controlled by a board of directors, most of whom are members and elected by members. These banks still provide all the usual services, but being customer-owned gives them a vested interest in ensuring the best outcome for customers.
What does it mean to ‘serve your members’?
Customer-owned banks have a community focus. A 2023 industry review found that 63% of respondents believed community involvement was a key differentiator between mutuals and major banks.
“They have a distinctive way of doing financial services and businesses,” Unda says. “It is bringing these concepts of cooperation and not being too focused on profits. Being a member is more like being part of a community. Everyone is treated equally.”
People’s Choice, for example, runs the newly rebranded People First Community Lottery (previously known as the People’s Choice Community Lottery). It’s a program that supports sporting clubs, schools, charities, volunteer groups and other nonprofits. Since its inception in 1984, it has raised $22m for community groups.
“To me, you’re a member of an organisation,” Unda says. “It’s not that you’re bringing money to the bank for the shareholders. You’re part of it.”
What drives customer-owned banks?
“They all are within this umbrella of ‘cooperative principles’, whether they are financial or not,” Unda says. “The concept of being mutual, of being cooperative, if you want to call it … is at the centre of operations.”
Customer-owned banks operate with what Unda calls “cooperativism among cooperatives” – acting to improve economic and social conditions for members, and the community in general. “One of the things I found [in my research] was they maintain the concept of caring for members at the top. They do the best they can to satisfy the members’ interests.”
When customer-owned banks boomed in Australia in the 1990s, it was in part because of high interest rates being charged by the major banks, Unda says. “People were leaving because banks were charging enormous amounts of interest,” she says. “So [mutual banks] demonstrated in this period what they can do, even if they are small, because they have this principle of caring for members and that is at the heart of the operation.”
Will my money be safe in a customer-owned bank?
In Australia, mutuals are overseen by the Australian Prudential Regulation Authority (APRA), just like the major banks. That means they are required to ensure funds are safe and available when members need access to their money. Mutual members are protected by the federal government’s Financial Claims Scheme, which covers up to $250,000 per account holder for deposit holders in all Australian banks, building societies and credit unions.
Unda says: “Many will say, I feel more secure in a big bank. This is not the case. Mutuals are equally regulated by APRA. They have to adapt to new requirements and comply with the minimum standards for financial prudence.”
Why are consumers choosing to go customer-owned?
Customer-owned banks have traditionally each had a “common bond of association”. For example, members may have been connected by their occupation or location. In more recent times, however, they have largely opened membership to anyone who wants to join.
“It is really evolving,” Unda says. Nowadays, rather than a question of geography or workplace, the decision to bank with a mutual is often a question of values. As customer-owned banks have grown, Unda says, the community support at their heart has been reinforced, and many are now working to expand that engagement through sustainability and positive social change.
“You are part of this movement,” she says. “It is looking after your interest as well, and that could make a huge difference for you and future generations.”
Consider if this product is appropriate for you, or not. People’s Choice Credit Union (People’s Choice) is a trading name of Heritage and People’s Choice Ltd ABN 11 087 651 125.
The information provided in this article is of a general nature only and does not constitute financial or business advice.
