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Big banks to remain dominant despite low switching costs: analyst

by Staff Reporter10 minute read
The Adviser

Australia’s big four have such a dominant market position that they have little to fear from regional banks, according to an industry analyst.

A new report from Morningstar said rivals have repeatedly tried and failed to “break the stranglehold” enjoyed by the majors.

“For new entrants attempting to compete with the majors in the retail and business segments, entry barriers are formidable,” according to the report.

“This is due to a potent mix of industry regulation, and the established banks’ well-known brands, national distribution networks, and large sticky customer bases.”


Morningstar said any bank that wanted to break the big four oligopoly would have to spend a lot of money to create a mass-market service – and then win many customers to justify the investment.

It also said customers are reluctant to switch to regionals such as Bendigo & Adelaide Bank, Bank of Queensland and Suncorp Bank despite their higher customer satisfaction ratings.

Switching costs may be low, but “intense price competition” has minimised the incentive to switch, according to the report.

Morningstar said the regional banks have “come from rags to riches” in the past 24 months, with their share prices climbing to between 65 per cent and 85 per cent.

“Still, we believe their smaller-scale operations leave them lagging when it comes to building a competitive position through cost advantage, switching costs or intangible assets,” it added.

[Related: Smaller banks call for levy on big four]

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