Business model diversity key to consumer-focused competition

By on February 8, 2018 in Editor's Pick, Media Releases with 0 Comments

The Business Council of Co-operatives and Mutuals welcomes a return to common sense after the excesses of the past decades.

Commending the release of the Productivity Commission Draft Report into Competition in the Australian Financial System, BCCM CEO Melina Morrison noted the Productivity Commission’s call for “more customer-oriented providers that consider their existing customers (not just potential new customers)”

“Co-operative and mutual enterprises (CMEs) are owned by their customers and users,” said Ms Morrison. “Customer satisfaction is intrinsic to the CME business model. In the enthusiasm for innovative new business models, we seem to have forgotten the original peer-to-peer and sharing models developed in the 18th century, on which much of our current prosperity was built.”

The Productivity Commission report examines the effect the shareholder model had on consumers:

“Consumers have lost their market power to shareholders. Publicly listed institutions are required to act in the interests of their shareholders when devising their competitive strategies. This means that they are motivated to keep prices high in order to deliver profits that are in line with market expectations.”

The research shows the high costs of financial products are not limited to big institutions, but have become a corporate habit during an era characterised by demutualisation:

“History suggests that even where Australia’s smaller ADIs are given a regulatory advantage over the major banks, they do not noticeably take advantage of major bank price rises by maintaining their own loan prices in an attempt to gain market share. Rather, they seek to raise prices and improve margins earned from their existing customer base.”

But the Productivity Commission notes that these issues do not extend to mutual businesses:

An exception may be the mutual ADIs, which do not face the same shareholder pressures as other ADIs.”

“It’s wonderful to see the Productivity Commission has arrived at the same conclusion as the 85% of Australians who are members and owners of some of Australia’s most trusted businesses,” said Ms Morrison.

“Following the Federal Government’s endorsement of all eleven recommendations of the independent Hammond Review last year, we look forward to a bipartisan approach to smoothing the way for co-operative and mutual enterprises to compete with listed enterprises and offer consumers genuine choice.”

“The Productivity Commission has shown that competition between businesses isn’t sufficient by itself: we need true business model diversity to keep all operators accountable to the consumer.”

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