Why investors are flocking to non-bank alternatives
Have you tried calling your bank recently? Did you end up eventually finding the right department only to find you are either speaking to someone overseas or someone you have never dealt with before?
Personal experience with banks suggests that their business models are gradually being superseded by smart non-bank alternatives that fill the gaps left by top-heavy banks. Their sheer size makes it difficult for them to adapt in a timely manner to technological and customer-driven change, leaving ample opportunity for nimble, non-bank alternatives to thrive.
Challenges faced by the banking sector
Below is a sample of the many challenges the banking sector is facing in the current environment:
Lack of Trust – the Hayne Royal Commission into Banking & Financial Services unearthed many systemic and cultural issues ingrained in Australia’s banks. Consumer confidence in banks has taken a hit as a result due to the questionable activities that have gone on driven by greed and opportunistic individuals.
Credit Crunch - lending policies have tightened considerably as a result of the Global Financial Crisis, meaning borrowers have less options and are now looking (and borrowing) elsewhere. This means less lending business for the banks.
Considerable Overheads – if you walk into any CBD bank branch you can only imagine the fortune that is being spent on rent to service the small percentage of customers that need to actually visit a branch. Most banking is done online or by phone these days yet these leases and staff overheads still continue. A bank relocating to a cheaper location could of course signal fear in the eyes of their customers making it a difficult decision for management to trim certain overheads.
Offshore Call Centres – The decision by some banks to offshore their call centres benefits one group of people (shareholders) to the detriment of another (bank customers). Are offshore call centres really necessary given the profits banks continue to make? What ever happened to good old fashioned service?
Change Implementation – the rate of technological change makes it difficult for big corporations including banks to keep up, whereas smaller operators such as neobanks and non-bank alternatives can adapt quickly to capitalise on opportunities.
The publicly listed Australian banks have immense pressure from their shareholders to perform and continue generating profits. One could suggest that their models are so heavily profit-focused that it comes at the expense of their customers who seem to be getting less and less tolerant of the service they are being provided with.
The shift to non-bank alternatives has already begun
Whether it is borrowers seeking finance or investors seeking better returns and better service, there is large number of people who have made the switch to non-bank alternatives that fill their needs. This change presents and exciting opportunity for a global re-think of banking style services.
Peer-to-peer lending is an excellent example of a service that brings borrowers and lenders together in a far more efficient way, creating a win-win outcome for both parties.
Non-bank investment products typically have a different risk profile to banks however those companies offering such products generally manage those risks very tightly because of the opportunity they have to take away market share from the banks. By comparison it could be said that the banks have become lazy because of their position of power – this was certainly highlighted in the Hayne Royal Commission. They don’t have the same incentive to provide superior customer service nor does their structure support paying their deposit holders higher returns as it simply erodes profits.
The shift began years ago and will only continue as more non-bank options come online. It provides an exciting opportunity for smart companies to innovate and address the shortcomings of the banks who are facing challenging times ahead.
IPO Wealth was established to address the lack of service and returns High Net Worth investors were receiving from bank deposit products. Many investors that have previously utilised bank services were fed up with being in long hold queues only to be put through to a new person every time in an overseas call centre, just to quote one common example.
As a result of this and other feedback we created a term-based investment offering using a Fund structure which provides competitive target returns and monthly income distributions. Investors also receive a dedicated Australia-based Client Relationship Manager (we even provide personal mobile numbers – good old fashioned service is back). You can invest as an individual, Australian Company, Self-Manager Superannuation Fund or Trust, just like the many investors we have throughout Australia who made the switch.
This website contains general information only and is not intended to provide any person with financial advice. It does not take into account any person's (or class of persons) investment objectives, financial situation or particular needs, and should not be used as the basis for making investments.