COBA chief executive Michael Lawrence discusses consolidation, regulation and winning customers' trust
Although customer-owned banks (COBs) play an important role in Australia’s financial landscape, they continue to command only a small fraction of the mortgage market.
The Mortgage and Finance Association of Australia (MFAA)’s latest Industry Intelligence Service report showed that credit unions, building societies and mutuals had a combined 3.7% share of broker-originated lending in the September 2024 quarter (see graph below).
Credit: MFAA
This marked the fourth sequential quarter of decline as international banks, non-majors and white-label loan offerings ticked higher.
Yet, in a discussion with MPA, the Customer Owned Banking Association (COBA) chief executive Michael Lawrence stressed the importance of brokers to the 56 members that COBA represents.
The third party space is, in particular, an important channel for COBs’ brand awareness.
“I think there's a lot of Australians out there that just still aren't aware of what a customer-owned bank is, be it a credit union building society or a mutual,” said Lawrence.
Although “we are very well known in the communities in which we operate”, he suggested that brokers can help to breach the knowledge gap that exists.
This is especially useful when selling mortgage products across state lines, as COBs lack the retail footprint of major lenders.
More than just rates
When it comes to providing a viable alternative to the Big Four, “it’s not just about rates”, said Lawrence. “We are very competitive on rates, but we absolutely lead on customer service.”
Roy Morgan’s Risk Monitor survey of over 25,000 customers agrees. COBs – including mutuals, credit unions, and building societies – earned the highest Net Trust Score in the banking sector for the second year running. West Australia-based mutual P&N Bank even took home Roy Morgan’s Bank of the Year gong this April.
“If the brokers are having that conversation around not just rate but also level of service, that's where we come into our own,” Lawrence said.
Despite commanding the trust of customers, COBs are facing intense competition from the wider banking sector, leading to a groundswell of merger activity.
Bank Australia and Qudos Bank, for instance, formally tied the knot mere weeks ago to form a customer-owned powerhouse comprising 300,000 members.
Merger discussions are currently underway between Teachers Mutual Bank and Australian Mutual Bank, while Regional Australia Bank and Summerland Bank secured board approval to merge in April.
Greater Bank and Newcastle Permanent merged into Newcastle Greater Mutual Group in 2023 to create a mutual giant with over $20 billion in assets under management, while Heritage and People's Choice combined into People First Bank that same year.
While it sounds like a hive of activity, “there is nothing new about consolidation in our sector”, said Lawrence.
He added that consolidation is also not unique to COBs – regional banks are seeing a lot of merger activity too, not least ANZ’s acquisition of Suncorp Bank in 2024.
Furthermore, as a board member of the World Council of Credit Unions (WOCCU), Lawrence has witnessed the banking consolidation trend take hold across the globe – particularly in Canada and the US.
The long-tail trend of consolidation is at least partially due to the fact that, as Lawrence said, compliance and regulation “can fall disproportionately on the smaller players”.
Advocating for change
One of the biggest ongoing headlines on the regulation involves the capital changes recently announced by the Australia Prudential Regulation Authority (APRA).
Under the so-called “three-tiered approach to proportionality”, mid-tier lenders may be subject to less-restrictive capital requirements, which should theoretically make it easier for them to do business.
Mid-tier banks have been overtly impacted by these post-Global Financial Crisis (GFC) capital regulations.
While these rules aim to ensure banks maintain sufficient liquidity to prevent another 2008-style crisis, majors like Commonwealth Bank and ANZ use a quasi-self-regulated ‘internal ratings-based’ approach, whereas mid-tier banks, without access to large-scale risk-management teams, follow a standardised, invariably costlier, approach.
Announcing the three-tiered approach among other reforms earlier this month, APRA chair John Lonsdale said: “Cumulatively, we believe these measures strike a sensible balance between lowering the regulatory burden for banks while ensuring banks of all sizes have the financial and operational resilience to protect their depositors.”
APRA’s announcement about introducing additional tiering was welcomed by Lawrence, who said COBA has been advocating for this change “for a long time” (including in its submission to the Council of Financial Regulator’s Review into Small and Medium-sized banks).
It is unlikely to impact the continued trend of consolidation though, and ensuring COBA’s members are sustainable through these challenges “goes to the heart of a lot of the advocacy work we do”, Lawrence said.
When two mutuals merge
When it comes to credit policies, COB mergers work in the same way as any other bank merger. Generally speaking, when a smaller entity merges with a larger one, the policies of the latter will remain.
But there is an interesting trend emerging in the COB space. “What we're starting to see is mergers of equals between two of our members of equal size,” said Lawrence.
When this happens, it could mean new policies being written for what is effectively an entirely new organisation.
“If there are changes to their credit policies as a result of the merger, then all appropriate stakeholders need to be advised of that,” Lawrence said. “The new merged entity would have systems in place to make sure all stakeholders are aware of that and make it as seamless as possible.”
There’s a lot of reasons why mergers happen, said Lawrence. “But at the end of the day, being customer-owned institutions, they’re looking at what’s best for their members, what’s best for the communities and the teams within the organisations themselves.”
He continued: “Our Members exist to do what's right and best for the customer and the communities in which they operate, and that is part of their DNA.
“It is what their whole purpose is about. If you've got this people-first approach, if you've got a commitment to delivering better outcomes for customers and your team members and the wider community, a lot of this friction will go away.”
COBA and WOCCU are gearing up for the 2026 World Credit Union Conference in Sydney, where they will co-host some 2,000 delegates from across the world between 19 and 22 July.
