Credit unions, mutual banks, building societies – there are several different terms used to describe Australia’s customer-owned banking sector, which caters to more than 5 million Australians today.
Here, we break down some of these key terms, explain how these institutions differ, and explore why so many Australians are choosing to bank with institutions that are putting people first.
What are credit unions?
Dating back to 19th-century Germany, the concept began as cooperative financial institutions created to offer affordable credit to working-class people. The groundbreaking idea rapidly spread throughout Europe, North America, and Australia, thus forming the foundation of a global financial movement.
Credit unions have since evolved significantly, offering a comprehensive suite of financial services, including online banking, mortgages, superannuation, and investment products. Throughout this evolution, they’ve remained steadfast in their core cooperative principles to ensure members are at the heart of their operations.
Here in Australia, credit unions historically carved out a vital niche by focusing on short-term personal loans. At the time, many traditional banks required substantial savings to open an account, leaving some individuals vulnerable to unfair and excessive interest rates from predatory finance companies and even illegal loan sharks. In establishing credit unions, hardworking Australians were offered a crucial layer of protection and a legitimate alternative to these practices.
What are building societies?
Meanwhile, building societies are a concept that originated in the late 18th century in the UK. Much like credit unions, they were cooperative financial institutions, this time aimed at helping working-class individuals buy a home.
While they would initially dissolve once all members had built or purchased homes, “permanent societies” came up by the mid-19th century, offering continuous membership and a broader range of financial services.
They played an important role in helping individuals secure home loans here in Australia, particularly after World War II, and provided an alternative to traditional banks. By the 1970s, they were key players in the Australian mortgage market.
Today, most building societies are now reclassified as mutual banks.
Australia’s customer-owned banking sector
Australia’s more than 50 customer-owned banks hold a long tradition of delivering financial services that put people and communities first.
The sector accounts for around two thirds of the total number of domestic Authorised Deposit-taking Institutions (ADIs) here in Australia. They deliver competition, choice and market-leading levels of customer satisfaction in the retail banking market, catering to more than 5 million Australians.
The defining characteristic is their customer ownership, so decisions are made to benefit members, rather than external investors. This allows customer-owned banks to offer members competitive rates, excellent service, and contribute significantly to the communities they serve.
According to research conducted on behalf of the Customer Owned Banking Association (COBA), customer-owned banks invest at a rate nearly nine times higher than the major banks into local communities and initiatives and are recognised as the most trusted banks in Australia.
Government regulators, including APRA and ASIC, hold customer-owned banks to the same high standards as every major bank in Australia, meaning Australians can feel secure about their money. The Australian Government’s Financial Claims Scheme (FCS) also provides protection to deposit-holders with Australian incorporated banks, building societies and credit unions in the unlikely event that one of these financial institutions fails.
To find more information about customer-owned banks, head to customerownedbanking.asn.au.