The news that Coles are close to being granted a " banking license " will be greeted with mixed feelings by many people. An application is before the Australian Prudential Regulation Authority ( APRA ) for a " Deposit Taking Institution license " - which is legalise for " starting a new bank " !
Most people agree that our present " Big Four " banks have too much power and we would be better served if they had more competition, but adding Coles to the mix is a step into the unknown.
It seems inevitable that if Coles get approval to enter banking, Woolworths will be close behind. We may be on the verge of seeing the " Big Four " become the " Big Six ", but don't expect this new innovation to look anything like the banks we have now.
Half a century ago the banks traded on a very restricted time basis. They now open longer hours, but little else has changed. Both Coles and Woolworths are open long hours on a seven days basis - and only really close their doors for Christmas day and Good Friday. They are ideally positioned to offer the full range of banking services - on an open slather time basis !
Coles and Woolworths are also aggressive traders. They are quite ruthless in using their power to gain market dominance and their interests have ranged well outside the grocery spectrum. They are close to gaining a petrol sale monopoly and they have diverged into the insurance field - and Coles now issue their Coles brand credit card. Both are battling to gain the hardware dollar - and fast whittling away the number of suburban hardware stores.
It would be most unlikely that a Coles bank - trading under the Wesfarmers name - would be content to remain a simple savings bank. It would quickly devolve into the full range of banking services - and probably be innovative in entering the home mortgage and general financing field.
The power potential is enormous. We have already seen how the duopoly has cornered the grocery market and now sells about eighty percent of that market segment. The move into banking is a further giant step forward - and we need to consider if the public good needs to place a limit on " unlimited expansion ". Is it possible for a market force to become " Too Big " ?
This news will certainly send tremors through the banking competition, but it will also cause navel gazing in the insurance, conveyancing, legal advice, chemical products, and car dealership fields. What other interests are the duopoly likely to take interest in providing - and just what sort of behemoth will be see in the future ?
Those are issues that APRA needs to carefully consider before they make a final decision on this application.
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