Why are second-tier banks more trusted?

In Australia, first-tier banks or first-tier lenders are also known as the Big Four, comprising Commonwealth Bank, NAB, ANZ and Westpac. Because of their size, scale and longevity, they are often consumers’ first choice for banking and financing.

They have dominated the Australian banking scene for decades and are likely the first institutions you think of when you start to think about a loan or a mortgage, especially if you already have your other financial products with them. They are often seen as “too big to fail”, which gives customers a sense of security when taking out loans or mortgages.

However, they have strict lending conditions with little flexibility, and they often feel impersonal to customers. Their rigorous screening process can also mean that loans and mortgages take a long time to process.

The Royal Commission into banking has led to tougher lending criteria imposed by Big Four banks, as well as decreased consumer trust in them. This has caused increased numbers of consumers who don’t meet bank lending criteria turning to second-tier lenders for finance.

These second-tier lenders, which are smaller banks or non-bank lenders, are still tightly regulated by government bodies and consumer credit laws, and must be transparent with fees and terms. However, they have more flexibility in their rates and fees, which makes them more appealing to borrowers with smaller deposits, worse credit scores or less stable employment.

This means that if your situation is a little outside the box, and your home loan needs a manual credit assessment rather than an automated one, a second-tier lender will be better for you, though they do also offer standard loan process too.

These second-tier lenders usually also offer faster turnaround times, due to their smaller size and less restrictive lending conditions.

The downside to second-tier lenders is that, as they are usually smaller, they can be more vulnerable to changes in the economy.

In the past, consumers have felt less secure with a brand that is less familiar to them. But many second-tier banks are now household names, and are making up a greater part of the lending pie. Suncorp, ING Bank, Bankwest, Bendigo and Adelaide Bank, Macquarie Bank and Bank of Queensland are all examples of second-tier lenders with great reputations and a great range of products.

In fact, Australians now trust second-tier banks more than they trust the Big Four, according to a study from research tech platform Glow.

The study measured brand awareness, customer satisfaction and trust, and the likelihood of recommending to analyse consumers’ sentiments about the banks and found that Australians are more likely to recommend second-tier banks than the Big Four.

Bendigo Bank was ranked the most likely to be recommended by other people and the highest for public trust. Digital-only bank ING also ranked highly across all metrics, while UBank, the digital brand of NAB, scored higher than its parent bank.

The study attributed the results of the Royal Commission in 2018 to the change in public perception of the Big Four, who fell towards the bottom of the list for satisfaction.