Subliminal Banking – why Australian’s love to hate their banks

May 2, 2012


In the wake of the RBA’s decision on monetary policy yesterday and as we await the consequent decisions of the Majors whether or not they hold back some of the cuts I thought it might be useful to think about a couple of my favourite topics which have converged over the past couple of days and which are really important in understanding why Australians remain so loyal to the Major banks even when there is a better deal to be had at another financial institution – such as a mutually owned Credit Union, Building Society or Mutual Bank.

Lets kick off by looking at the subliminal mind and then I will refer you to Clancy Yeates excellent article in the Fairfax press earlier this week on emotion in banking and why we are all so sticky with the big 4.

As a behavioural Economics and Finance guy I am fascinated by how our individual and collective behaviours shape our world and our economy. This study lead me to research into what makes our minds tick and how that impacts on our behaviours. It lead me to the work of Edward Bernays (Sigmund Freud’s nephew) and his titles such as Propaganda, Public Relations and Crystallising Public Opinion. I stumbled onto his works via Dave Lakhani and his work on Persuasion and Subliminal Persuasion.

What has this study taught me and why is it important in the battle for the hearts and minds in the Australian Banking system? It has taught me that our unconscious mind is king not only of its own domain but also of our conscious thoughts and actions.

So it was interesting to see a book review of “Subliminal: How Your Unconscious Mind Rules your Behaviour” by Leonard Mlodinow in the Economist over the past few days and then read Clancy Yeates article yesterday and tie the two ideas together.

On Subliminal the Economist says,

experimental evidence suggests that, as Freud suspected, conscious reasoning makes up a comparatively small part of the activity in our brains, with most of the work taking place where we can’t tap into it. However, unlike Freud’s unconscious (a hot, claustrophobic place full of repressed memories and inappropriate sexual fantasies about one’s parents) the modern unconscious is a place of super-fast data processing, useful survival mechanisms and rules of thumb about the world that have been honed by millions of years of evolution.

Dead right – too bad conventional macro and micro economics haven’t cottoned onto this fact. Even now after the GFC happened!

Which brings me to Australian Banking and why, even in the face of better deals elsewhere, Australians remain so loyal to the Major Banks relative to their smaller competition.

Yeates poses the question nicely in Fairfax,

THERE’S a paradox in our relationship with the big banks. Whenever they refuse to pass on official rate cuts in full – a trick they may well try again this week – anti-bank rage boils over. Much of the outcry is justified, especially when the banks’ motivation is to sustain profit margins despite anaemic credit growth. And yet, very few consumers take the next step and ditch their bank. Why?

Excellent question. When I was doing my Master in Applied Finance I remember the moment a lecturer said that we love to hate our banks but that they are our banks and we trust them. There is something to this I thinking because as Yeates says,

It’s not for lack of information. According to figures from Canstar, the big four’s average standard variable mortgage rate is 7.4 per cent, compared with 6.85 per cent at a credit union or building society. Treasurer Wayne Swan constantly urges customers to vote with their feet if they think they’re being gouged. He’s probably dusting off talking points on this very topic ahead of tomorrow’s Reserve Bank meeting, at which most economists expect a cut that may not be passed on in full.

So if we really cared so much about interest rates, surely more people would switch lenders, right?

Of course we would but that would necessitate that we are truly the rational actors of modern finance but as Yeates says,

For all the hype over bank gouging, only 3 per cent of customers change banks each year, a 2008 study found. The idea of switching hadn’t even occurred to 43 per cent of people surveyed by the Australia Institute in late 2010.

So here is the questions we need to ask ourselves both individually and as a nation.

  • If all the deposits are guaranteed in the same manner at $1 million when the survey, quoted above,was done and $250,000 now regardless of which ADI you are at;
  • If all ADI’s are regulated by APRA and if arguably the standardised approach that APRA uses for the Credit Unions and Building Societies is harder on them and makes them less risky relative to their largely self assessing Major competitors
  • If it is usual for the Mutuals to have much higher capital adequacy, much simpler business models, generally lower credit problems and much more stable funding then the Majors

Then why oh why won’t people switch?

Now I’ll try to answer that in a moment but it is important to note that the Mutuals are owned by their members not shareholders so they aren’t desperate for growth in the way the Majors are. They just need to be relevant to their constituency and meet their own targets. In this way most Mutual have a dedicated geographical or industry based constituency to which they market and have strong relationships. This is starting to change as organisations like CUA covet a broader national footprint but for the most part the above is true of all mutuals.

And in aggregate they have been very successful holding 11.4% of total household deposits, just behind the NAB with 12.8% but well behind the CBA group with 25.7% of the market – according to the abacus website.

So it’s not like no-one is listening as Mutuals genuinely are the 5th force in the Australian banking landscape. Rather it is that for too long in this economy competition in banking is code for loan originations.

But getting back to the question of why people won’t shift and why the better rates on Term Deposits generally available at Credit Unions and Building Societies and the lower rates on home loans from these institutions than the Majors isn’t translating into a swiftly growing market share Clancy Yeates takes us back to the subliminal and behavioural side of things.

despite the government underwriting nearly all deposits, there is a lingering  misconception that the big four are safer. This works in the big banks’ favour,  because it makes people more reluctant to shop around.

Understandably, it’s a misconception the big banks subtly reinforce through  advertising, on which they spent more than $1 billion last year. And what  messages do the  ads often convey? The idea they are safe and secure, of course.  For example, have you noticed that the big four banks prefer to compare their  interest rates to other big four banks?

The subtext is that a responsible adult wouldn’t even contemplate going to a  smaller player – not with a big important decision like who to do your banking  with – so it’s not worth even comparing their (often cheaper) rates.


This is where the behavioural finance and subliminal thinking combine to explain why. Australia’s major banks have for a large swathe of the Australian population captured their minds over generations and through various advertising message means and fora.

If anything it seems to me that the GFC arrested what had become an emergent trend toward bank disintermediation at a household level with the growth of the Mutual sector and the non-ADI lenders in the 1990’s and up to the GFC. And not just because of funding and its availability, indeed were it not for the AAA rated Australian Government Guarantee in 2008 and 2009 Australia’s Majors might not have fared much better than some of their foreign counterparts in offshore funding markets. But for all the governmental suggestions about competition when push came to shove they backed the majors as simply Too Big to Fail and charged them less than their smaller rivals for the privilege.

So the impact has been that at both a conscious and subconscious level the GFC reinforced the Major’s message of strength even as it was large financial institutions offshore that teetered and almost fell – our majors were seen as the cleanskins, the safe pair of hands in global banking and too bloody big to fail.

We all know that Government is trying to encourage more competition, the Credit Unions, Building Societies and Mutual Banks to offer a real and competitive alternative to the Majors. Consumers likewise want more competition for their business.

But you can’t have it both ways – Australians can’t complain about bank competition and not passing on RBA cuts but show little or no implication to punish them by switching financial institutions.

I voted with my feet – my family’s savings and home loan are with a Mutual – Are yours?

Have a great day

Gregory McKenna

Please remember these are not recommendations for you to trade these are my views and I have my risk management tools and risk parameters that you do not have access to. Thus, this blog is for information only and does not constitute advice. Neither Greg McKenna nor Lighthouse Securities has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

If however you do need advice on Investments, Economics, Funding and Liquidity, Interest Rates and Forex and Derivative markets we are happy to help.

Please Email the team at Lighthouse at or Greg directly on

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One Comment on “Subliminal Banking – why Australian’s love to hate their banks”

  1. Gregory McKenna Says:

    A mate of mine just emailed me with his thoughts

    “I think the one thing you have missed in your analysis about change is that people are pretty lazy when it comes to change – it’s easier to whinge and be part of a pack then to take the time out necessary to get a new loan or savings account.

    Getting a new loan is a pain in the proverbial, and you have to provide a lot of data and time to get the loan.

    And bottom line – anyone who provides a financial service is seen as a bank by most people – they do no differentiate between them.”

    greg here again – Perhaps its just the age old problem of tangibilising a fincials service – its not like coke, or holidays or cars its much harder to get the tangible benefits across unless you have a bonded geographic or industry constituency – interesting


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