In a speech to the Australian British Chamber of Commerce on Friday, Treasurer Scott Morrison outlined the government’s response to the Productivity Commission’s final report into competition in the financial system.
Australia’s banking and insurance markets are dominated by “handful of players”, said Mr Morrison, giving them an “entrenched, dominant market position”.
However, he rejected the notion that competition in Australia was weak as a result of that dominance. Instead, he said the “exploitation” of that power could constrain competition.
Mr Morrison pointed to the benefits of having a strong banking sector during an event like the global financial crisis.
However, he conceded that the Productivity Commission report found: “There is evidence that they have sustained prices above competitive levels, offered inferior quality products to some groups of customers, subsumed much of the broker industry and taken action that would inhibit the expansion of smaller competitors in some markets.”
“All are indicators of the use of market power to the detriment of customers,” said the report.
The solution to the problem, as far as the government is concerned, starts with “more players in the market” and “a level playing field so competition can thrive”.
“[That] is why our government passed legislation this year to lift the prohibition on the use of the word ‘bank’. Previously, only ADIs with more than $50 million in capital could call themselves a bank,” said Mr Morrison.
“When similar changes were introduced in the UK in 2013, more than 60 new ‘challenger’ banks piled into the market, offering rates that undercut the major lenders, and a seamless customer experience that was clearly a cut above,” he said.
The Australian Banking Association (ABA) touted a similar line in its official response to the report.
“The ABA believes strongly that competition will improve further with the introduction of Open Banking, Comprehensive Credit Reporting and regulatory reforms to further reduce barriers to new entrants.”
You can read the full Productivity Commission report here, as well as a shorter overview here.
