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ECON7110-论文代写
时间：2023-05-12
Up in the personal banking market
Student Name
Student Number
ECON7110
28th May 2021
ECON7110 Company Analysis
1
Table of Contents
1.0 Abstract .......................................................................................................................................... 2
2.0 Introduction ................................................................................................................................... 3
3.0 Analysis .......................................................................................................................................... 4
3.1 Market Analysis...................................................................................................................................... 4
3.1.1 Market Structure ................................................................................................................................................. 4
3.1.2 Market Regulation .............................................................................................................................................. 5
3.1.3 Consumer Preferences in the Market ................................................................................................................. 6
3.1.4 Price Elasticity in the Market ............................................................................................................................. 6
3.1.5 Industry Integration and Equilibrium ................................................................................................................. 7
3.2 Firm Analysis .......................................................................................................................................... 8
3.2.1 Cost Structure ..................................................................................................................................................... 8
3.2.2 Price Structure .................................................................................................................................................... 9
3.2.3 Advertising ......................................................................................................................................................... 9
4.0 Conclusion ................................................................................................................................... 10
5.0 References ................................................................................................................................... 11
ECON7110 Company Analysis
2
1.0 Abstract
The market structure of the personal banking sector is oligopolistic, with four firms having
over 70% of the market share. This structure restricts competition and decreases the benefits for
consumers in comparison to a perfect competition structure. Furthermore, this market is highly
regulated as oligopolistic markets can encourage firms to engage in criminal cartel behaviour. With
respect to consumer preferences, there are various factors which influence a consumer’s optimal
choice and so the optimal consumption model is deemed an inaccurate reflection. Additionally, price
elasticity is relatively inelastic when evaluated under multiple assumptions. The personal banking
market is integrated with the Australian home loan market and movements in the demand for personal
bank accounts have severe spill over effects into the home loan market.
The final analysis is conducted with respect to Up. The neobank does not have any economies
of scale or scope as it currently offers only one product although there is potential for the firm to gain
these. Moreover, the firm uses uniform pricing to increase consumer surplus and, in combination with
their advertising methods, the firm is continuously increasing its consumer base.
ECON7110 Company Analysis
3
2.0 Introduction
Caddy, Delaney, Fisher & Noone (2020) state that electronic methods of payment are the most
popular form of payment in Australia and so this report analyses the personal banking industry and
one of the newer entrants, Up. Up was Australia’s first neobank, a fully online bank which offers
consumers easy banking at low prices (Derwin 2020). The company is supported by Bendigo and
Adelaide Bank (BEN) however, it is still a separate company and competes against BEN in the
personal banking market. Limiting the report to personal banking market allows for the evaluation of
neobanks as well as established banks such as Westpac. The market analysis will focus on the market
structure and regulation, especially the effect of new entrants and the impact of these on the market.
The preferences of consumers in this market will also be explored through an example optimal
bundle. For transparency and ease, the consumer preferences are simplified through multiple
assumptions, along with the price elasticity analysis. The final aspect of the market analysis is an
example of the how the personal banking industry in integrated with other markets, and the Australian
home loan market has been highlighted for this evaluation. The market analysis is followed by an
extensive analysis of Up. This examines the short and long term cost structure of the firm in addition
to the pricing methods and use of advertising adopted by the firm.
ECON7110 Company Analysis
4
3.0 Analysis
3.1 Market Analysis
3.1.1 Market Structure
An oligopolistic market is the best description for the personal banking industry in Australia
as four banks have over 80% of the market share and consequently these banks are termed the ‘Big
Four’ (Wu 2021). These banks are Westpac Banking Corporation (WBC), Commonwealth Bank of
Australia (CBA), National Australia Bank (NAB), and Australia and New Zealand Banking Group
(ANZ). The market power of the Big Four arises from having an established market presence and
from customer inertia (Productivity Commission 2018). Additionally, the legislation and
requirements make it difficult for new banks to enter or compete against these established institutions
(Productivity Commission 2018). Despite having a combined market share of 80% in 2018, this
dropped to 70% in 2021 (Wu 2021; Productivity Commission 2018). Wu (2021) highlighted there
are very high barriers to entry in the wider banking industry. These barriers are beginning to decrease
as a result of the 2017 Australian Budget reform that simplified the requirements needed to become
a deposit-taking institution (Derwin 2020). This reform led to the introduction of neobanks in the
Australian personal banking market which resulted in the market for personal banking beginning to
change in Australia. Neobanks have a cost advantage as an incumbent in this industry as they operate
digitally, and therefore do not incur as many costs as traditional banks with branches. Additionally,
they have a technological advantage and entered the market offering easier and cheaper options for
consumers as seen in Table 1 (Up 2021; Kline 2015). Up is backed by Bendigo and Adelaide Bank
(BEN) in contrast to competitors Volt and 86 400, which are licensed deposit-taking institutions with
no current ties to any traditional bank (Up 2021; Volt Bank 2021; 86 400 2021). Moreover, Australian
Prudential Regulation Authority (2021) outlines the extensive guidelines for a deposit-taking
institution. These create high barriers to entry for the oligopolistic market, thus restricting
competition.
Firm
Monthly
Fee
Foreign
Currency
Transaction Fee
Overdrawn
WES $5
2.2% of
transaction value.
$15 daily while
overdrawn.
CBA $4
3% of transaction
value.
$15 + daily interest of
14.90% p.a.
NAB $0
3% of transaction
value.
15.41% p.a. while
overdrawn.
ANZ $5
3% of transaction
value.
$6 daily while
overdrawn.
UP $0 $0
11.23% p.a. while
overdrawn.
VOLT $0
1.5% of
transaction value.
10% p.a. while
overdrawn.
84 600 $0 $0
No information
available
Table 1: Comparison of fees and charges between Big Four and neobanks
(Up 2021; Westpac 2021; CommBank 2021; NAB 2021; Volt Bank 2021; 86
400 2021; ANZ 2021).
ECON7110 Company Analysis
5
3.1.2 Market Regulation
Restrictions and regulations are incredibly important in the personal banking sector as strong
and trustworthy banks are the foundation to maintaining a stable financial system and consequently,
the wider banking industry is heavily regulated. With the addition of neobanks in the personal banking
sector, the Australian Consumer and the Australian Competition and Consumer Commission (ACCC)
is closely watching merger and acquisition moves by established banks (Yeates 2021). The ACCC
has determined that it is better for consumers if the Big Four do not takeover the competing neobanks,
although the ACCC is more inclined to allow a takeover by a second-tier bank as it will level the
competition in the industry (Yeates 2021). Overall, it is better for the consumer and the economy
under perfect competition as they face lower prices and there is no market failure, which is why the
ACCC wants to prevent the Big Four from removing competitors (Perloff 2018).
As of May 2021, there have been no reports of anti-competitive behaviour directly related to
the personal-banking market. Although ANZ is currently facing criminal cartel charges along with
two investment banks, Deutsche Bank and Citigroup Global Markets (Chau 2020). The charges relate
to ANZ selling additional shares to the two investment banks, along with JP Morgan, in 2015 worth
over $2.5 billion (Chau 2020). This is deemed a cartel act as the banks have colluded in order to
increase profits for each firm (Perloff 2018). This anti-competitive behaviour has an indirect effect
on the personal-banking industry as ANZ increased profits. The Australian Competition and
Consumer Commission (ACCC) (2021) states that there are severe penalties for individuals and firms
found guilty of engaging in cartel conduct as seen in Table 2 and these are in place as a punishment
and a deterrent for potential offenders. Cartel conduct limits competition in the amore and as a
consequence it decreases the benefits consumers can receive.
ECON7110 Company Analysis
6
3.1.3 Consumer Preferences in the Market
Australians have many options on how they use their income. They could purchase goods,
invest in assets, or put their money into savings. However, consumers must have their money in a
highly liquid form to be able to make these choices. The two most liquid forms of money are cash
and a personal banking account1. Cash can be convenient, yet it is not considered as safe as depositing
money in the bank. Additionally, in a technologically-advanced economy, cash has more limited use
especially for more expensive items as it is not as efficient or simple as the alternative. With respect
to a personal bank account, an individual’s money is secure and accessible by card or electronic
payment almost anytime, although an ATM is required to transfer electronic money to cash and there
are many fees or charges that can be incurred including; service fees, transfer fees, and insufficient
fund fees. Caddy, Delaney, Fisher & Noone (2020) demonstrates that Australians are increasingly
preferring to use electronic methods of payment, including physical and digital cards. Many of the
population still prefer to hold some amount of cash on them, with a majority of their money in a bank
(Caddy, Delaney, Fisher & Noone 2020). Each consumer has a different preference and for simplicity,
Figure 1 provides an example of one consumer preference in this market. This model describes a
consumer’s choice between using their income (M) to pay for two goods, good X and good Y,
assuming that they hold their money as cash. This is
depicted as Bundle 1. If this consumer now decides to
deposit their money into a personal bank account, they
face being charged fees by the bank. These fees lower the
income that they have available to spend on each good.
As a consequence, the budget constraint line contracts
and the optimal bundle, Bundle 2, is lower meaning less
of both goods can be consumed. This is an extremely
simplified example which only considers the effect of
account fees. However, there are many other factors
which have a significant effect on a consumer’s decision
to hold cash or open a bank account including; safety of
the money, digital access and availability, and even
income-level (Shy 2020; Caddy, Delaney, Fisher &
Noone 2020).
3.1.4 Price Elasticity in the Market
The demand for personal bank accounts can be considered relatively inelastic until a point.
To make this generalised statement the following three assumptions are considered: (1) most
Australians have a substantial amount of money in their bank account; (2) the population prefers the
ease of electronic payments; and (3) individuals believe that security is an important factor in where
they hold their money. Given these assumptions, it can be said that the demand for personal bank
accounts is relatively inelastic as it would take a significant amount of fees for consumers to substitute
out of this market.
1 For this analysis a personal bank account is defined as an everyday account with low fees and low interest. This is
separate from a saving account as savings are not instantly accessible and involve higher fees and interest. Therefore, a
savings account is not as liquid as an everyday bank account.
Figure 1: Optimal consumption bundle with cash and
bank account.
ECON7110 Company Analysis
7
3.1.5 Industry Integration and Equilibrium
While Up has limited interaction with other industries, the personal banking market can have
spill over effects into to other banking industries. One sector that the personal banking industry is
closely integrated with is the home loan market. The home loan sector has a similar market structure
as personal banking, where the Big Four banks have nearly 67% of the market share (Wu 2020). An
example of the relationship between the two sectors is provided in Figure 2. The demand for personal
bank accounts falls and this decrease in demand would shift the demand curve to the right, lowering
the price and quantity in the market and leaving an excess of suppliers. This has a direct effect in the
home loan market. Many banks, including the Big Four, operate by using personal deposits as the
basis for the money that they loan out (Lake 2020). Therefore, if the number of personal deposits
decreases then the available funds to loan out also decreases. This shift in the supply of home loans
is seen by the contraction in Figure 2. The decrease in the supply drives up the price of home loans
and lowers the quality available in the market, leaving an excess demand. This is only one example
of how the personal banking industry can have spill over effects into other industries.
Figure 2: Spill over effect between personal banking market and the home loan market.
ECON7110 Company Analysis
8
3.2 Firm Analysis
3.2.1 Cost Structure
Up is a small business in comparison with other firms in the industry, and it only offers one
product to consumers. Every firm requires factors of production to operate and, like most firms, Up
has two factors of production; capital and labour. The neobank requires capital to conduct its
operations and as their selling point is technology, the neobank would need capital to continuously
progress their technology to stay in the market. Furthermore, the bank also requires labour in the form
of employees for daily operation and engineering of technology (Up 2021).
In the short run, the firm faces a variety of costs including sunk costs such as business
headquarters and technological developments. The firm faces fixed and variable costs due to daily
operations, employee wages and overheads. An example of a short run cost structure can be seen in
Figure 3. In the long run the firm has no economies of scale and so the average cost curve is flat, as
seen in Figure X (Perloff 2018). This is because an increase in the inputs will not necessarily change
the outputs. There may be indirect effects, such as hiring additional engineers to focus on
technological progress, but increasing labour may not directly increase the number of accounts.
Furthermore, the firm only offers one product currently and thus no economies of scope exist. Up is
about to introduce ‘2Up’ which is their take on joint accounts (Up 2021). This could be the beginning
of their economies of scope as it would be more cost effective for the company to produce both
together, rather than separately (Perloff 2018). While the firm itself has no current economies of
scope, Up is a source of economies of scope for BEN as it is a subsidiary under the same parent
company but reaches a new market, thus requiring less cost to
operate than if it were on its own.
The characteristics of an oligopolistic market suggest that
each firm operates at it’s profit maximising output. Figure 4
provides an example of the profit-maximising output of Up. This
is according to the neobank operating in an oligopolistic market
and under this model, Up’s output and price depends on the
number of firms in the market. As the number of firms increase,
the price in the market lowers towards Up’s marginal cost and firm
output falls towards zero.
Figure 3: Example of short and long run cost curves.
Figure 4: Example of profit-maximising
output decision for Up.
ECON7110 Company Analysis
9
3.2.2 Price Structure
Up’s advantage over established traditional banks is based on the low fees and high interest
rate offered to consumers. Furthermore, the neobank offers the same product to all customers which
suggests that the company does not follow any price discrimination methods and instead offers
uniform pricing. Competitors, especially the Big Four, have significant market power and are able to
establish the maximum fee and minimum interest that a consumer is willing to have attached to their
account which allows for the firms to capture all the consumer surplus (Perloff 2018). This is in
agreement with the theoretical concept that larger firms have more capital which can be used to
discover their consumers maximum willingness to pay, thus allowing them to charge that value
(Perloff 2018). Neobanks sell themselves as a customer-first bank which does not follow this pricing
method and instead allows for consumers to gain some surplus. Additionally, Up does not offer any
group pricing or nonlinear pricing, such as student accounts or bulk pricing respectively. Therefore,
it can be concluded that Up has adopted uniform pricing.
3.2.3 Advertising
Within the industry, an increase in fees can lead to consumers moving between firms. This is
where Up targets its customers, as the neobank promotes easy banking with no fees2. Up’s main form
of advertising is through their ‘Hook Up a Mate’ scheme where both the initial customer and the
referral receive $5. This monetary incentive is an established advertising method and is the most
effective for firms (Efti 2019). Additionally, Up also uses social media platforms such as Instagram
and Facebook and even TikTok to target customers (Up 2021). This has been very effective for the
company in capturing some of the personal banking market, especially as they are targeting the
younger generations.
2 The only fee consumers face is an overdrawn account fee (Up 2021).
ECON7110 Company Analysis
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4.0 Conclusion
The personal banking market in Australia is an oligopolistic market with the Big Four
holding 70% of the market share. In order to increase competition in the market and, consumer
benefits, the Australian Government lowered the requirements for entry into the market. This
allowed neobanks, such as Up, to enter the market and compete against the established banks. Up
has a technological advantage which has allowed the firm to the market with lower costs however
the firm should gain economies of scale and scope to be able to compete in the long run.
Furthermore, while it is difficult to establish consumer’s preferences in the market, there is a
considerable demand for personal bank accounts and in order to undercut its competition, Up offers
a lower price for consumers. Additionally, the advertising method adopted by the company has
demonstrated results and is a contributing factor to the firm’s current success. Currently, Up is
performing strongly in a restrictive, oligopolistic market although the firm needs to grow further in
order to establish long-term operation.
ECON7110 Company Analysis
11
5.0 References
ANZ 2021, ANZ Access Advantage, Australia and New Zealand Banking Group Ltd, viewed 20
May 2021, https://www.anz.com.au/personal/bank-accounts/everyday-accounts/access-
advantage/
Australian Competition & Consumer Commission (ACCC) 2021, Misuse of market power, ACCC,
viewed 16 May 2021, https://www.accc.gov.au/business/anti-competitive-behaviour/misuse-
of-market-power
Australian Prudential Regulation Authority (APRA) 2021, Licensing guidelines for authorised
deposit-taking institutions, APRA, viewed 10 May 2021, https://www.apra.gov.au/licensing-
guidelines-for-authorised-deposit-taking-institutions
Caddy, J, Delaney, L, Fisher, C & Noone, C 2020, Consumer Payment Behaviour in Australia,
Reserve Bank of Australia, viewed 16 May 2021,
https://www.rba.gov.au/publications/bulletin/2020/mar/pdf/consumer-payment-behaviour-
in-australia.pdf
Chau, D 2020, ‘Criminal cartel case against ANZ, investment banks heading to trial’, ABC News, 8
December, viewed 14 May 2021, https://www.abc.net.au/news/2020-12-08/anz-citi-
deutsche-to-stand-trial-on-criminal-cartel-charges/12961406
CommBank 2021, Everyday Account Smart Access, Commonwealth bank of Australia, viewed 20
May 2021, https://www.commbank.com.au/banking/everyday-account-smart-
access.html?ei=tl_smart-access
Derwin, J 2020, ‘What is a neobank – and what are they offering in Australia?’, Business Insider
Australia, 29 September, viewed 16 May 2021, https://www.businessinsider.com.au/what-
is-a-neobank-australia-2020-2
Efti, S 2019, ‘ Why referrals are the most valuable form of marketing (and how to get more),
Forbes, 2 June, viewed 16 May 2021,
https://www.forbes.com/sites/steliefti/2019/06/07/why-referrals-are-the-most-valuable-
form-of-marketing-and-how-to-get-more/?sh=10a156881161
Kline, A. 2015, ‘Five reasons you can't ignore the neobanks’, American Banker, 12 May, viewed 14
May 2021, https://www-proquest-
com.ezproxy.library.uq.edu.au/docview/1680159190/fulltext/E35808A6B0A74C96PQ/1?ac
countid=14723
Lake, R 2020, ‘How do banks work?’, Forbes Advisor, 16 October, viewed 20 May 2021,
https://www.forbes.com/advisor/banking/how-do-banks-work/
NAB 2021, NAB Classic Banking Account, National Australia Bank Ltd, viewed 20 May 2021,
https://www.nab.com.au/personal/accounts/transaction-accounts/nab-classic-banking
Perloff, JM 2018, Microeconomics, 8 edn, Pearson Education Ltd.
Productivity Commission 2018, Competition in the Australian Financial System, no. 89, Australian
Government Productivity Commission, Canberra, viewed 14 May 2021,
https://www.pc.gov.au/inquiries/completed/financial-system/report/financial-system.pdf
Shy, O 2020, ‘Low-income consumers and payment choice’, Research in Economics, vol. 74, no. 4,
pp. 292-300, https://doi.org/10.1016/j.rie.2020.09.001
Up 2021, Pricing, Up Money Pty Ltd, Melbourne Australia, viewed 10 May 2021,
https://up.com.au/pricing/
ECON7110 Company Analysis
12
Up 2021, Up makes money easy on TikTok with Australia first Gamified Effect, Up Money Pty
Ltd, Melbourne Australia, viewed 16 May 2021, https://up.com.au/press-releases/up-makes-
money-easy-on-tiktok-with-australia-first-gamified-effect/
Volt Bank 2021, About Volt, Volt Bank Ltd, viewed 20 May 2021, https://www.voltbank.com.au
Westpac 2021, Westpac Choice, Westpac Banking Corporation, viewed 20 May 2021,
https://www.westpac.com.au/personal-banking/bank-
accounts/transaction/choice/?cid=wc:EDB:TRANS-
H2_2007:sem:goog:_westpac%20everyday%20account_e:choi:bra&gclid=EAIaIQobChMIj
YOszM_p8AIVGNGWCh3HLQdEEAAYASABEgJQ1PD_BwE&gclsrc=aw.ds
Wu, T 2020, Mortgages in Australia, IBISWorld, viewed 16 May 2021, https://my-ibisworld-
com.ezproxy.library.uq.edu.au/au/en/industry/x0010/major-companies#major-players
Wu, T 2021, National and regional commercial banks in Australia, IBISWorld, viewed 10 May
2021, https://my-ibisworld-com.ezproxy.library.uq.edu.au/au/en/industry/k6221a/industry-
at-a-glance#key-statistics-snapshot
Yeates, C 2021, ‘ACCC’s Sims warns on big bank fintech takeovers’, The Sydney Morning Herald,
26 January, viewed 14 May 2021, https://www.smh.com.au/business/banking-and-
finance/accc-s-sims-warns-on-big-bank-fintech-takeovers-20210125-p56wn9.html
86 400 2021, Pay, 86 400 Ltd, viewed 20 May 2021, https://www.86400.com.au
Student Name
Student Number
ECON7110
28th May 2021
ECON7110 Company Analysis
1
Table of Contents
1.0 Abstract .......................................................................................................................................... 2
2.0 Introduction ................................................................................................................................... 3
3.0 Analysis .......................................................................................................................................... 4
3.1 Market Analysis...................................................................................................................................... 4
3.1.1 Market Structure ................................................................................................................................................. 4
3.1.2 Market Regulation .............................................................................................................................................. 5
3.1.3 Consumer Preferences in the Market ................................................................................................................. 6
3.1.4 Price Elasticity in the Market ............................................................................................................................. 6
3.1.5 Industry Integration and Equilibrium ................................................................................................................. 7
3.2 Firm Analysis .......................................................................................................................................... 8
3.2.1 Cost Structure ..................................................................................................................................................... 8
3.2.2 Price Structure .................................................................................................................................................... 9
3.2.3 Advertising ......................................................................................................................................................... 9
4.0 Conclusion ................................................................................................................................... 10
5.0 References ................................................................................................................................... 11
ECON7110 Company Analysis
2
1.0 Abstract
The market structure of the personal banking sector is oligopolistic, with four firms having
over 70% of the market share. This structure restricts competition and decreases the benefits for
consumers in comparison to a perfect competition structure. Furthermore, this market is highly
regulated as oligopolistic markets can encourage firms to engage in criminal cartel behaviour. With
respect to consumer preferences, there are various factors which influence a consumer’s optimal
choice and so the optimal consumption model is deemed an inaccurate reflection. Additionally, price
elasticity is relatively inelastic when evaluated under multiple assumptions. The personal banking
market is integrated with the Australian home loan market and movements in the demand for personal
bank accounts have severe spill over effects into the home loan market.
The final analysis is conducted with respect to Up. The neobank does not have any economies
of scale or scope as it currently offers only one product although there is potential for the firm to gain
these. Moreover, the firm uses uniform pricing to increase consumer surplus and, in combination with
their advertising methods, the firm is continuously increasing its consumer base.
ECON7110 Company Analysis
3
2.0 Introduction
Caddy, Delaney, Fisher & Noone (2020) state that electronic methods of payment are the most
popular form of payment in Australia and so this report analyses the personal banking industry and
one of the newer entrants, Up. Up was Australia’s first neobank, a fully online bank which offers
consumers easy banking at low prices (Derwin 2020). The company is supported by Bendigo and
Adelaide Bank (BEN) however, it is still a separate company and competes against BEN in the
personal banking market. Limiting the report to personal banking market allows for the evaluation of
neobanks as well as established banks such as Westpac. The market analysis will focus on the market
structure and regulation, especially the effect of new entrants and the impact of these on the market.
The preferences of consumers in this market will also be explored through an example optimal
bundle. For transparency and ease, the consumer preferences are simplified through multiple
assumptions, along with the price elasticity analysis. The final aspect of the market analysis is an
example of the how the personal banking industry in integrated with other markets, and the Australian
home loan market has been highlighted for this evaluation. The market analysis is followed by an
extensive analysis of Up. This examines the short and long term cost structure of the firm in addition
to the pricing methods and use of advertising adopted by the firm.
ECON7110 Company Analysis
4
3.0 Analysis
3.1 Market Analysis
3.1.1 Market Structure
An oligopolistic market is the best description for the personal banking industry in Australia
as four banks have over 80% of the market share and consequently these banks are termed the ‘Big
Four’ (Wu 2021). These banks are Westpac Banking Corporation (WBC), Commonwealth Bank of
Australia (CBA), National Australia Bank (NAB), and Australia and New Zealand Banking Group
(ANZ). The market power of the Big Four arises from having an established market presence and
from customer inertia (Productivity Commission 2018). Additionally, the legislation and
requirements make it difficult for new banks to enter or compete against these established institutions
(Productivity Commission 2018). Despite having a combined market share of 80% in 2018, this
dropped to 70% in 2021 (Wu 2021; Productivity Commission 2018). Wu (2021) highlighted there
are very high barriers to entry in the wider banking industry. These barriers are beginning to decrease
as a result of the 2017 Australian Budget reform that simplified the requirements needed to become
a deposit-taking institution (Derwin 2020). This reform led to the introduction of neobanks in the
Australian personal banking market which resulted in the market for personal banking beginning to
change in Australia. Neobanks have a cost advantage as an incumbent in this industry as they operate
digitally, and therefore do not incur as many costs as traditional banks with branches. Additionally,
they have a technological advantage and entered the market offering easier and cheaper options for
consumers as seen in Table 1 (Up 2021; Kline 2015). Up is backed by Bendigo and Adelaide Bank
(BEN) in contrast to competitors Volt and 86 400, which are licensed deposit-taking institutions with
no current ties to any traditional bank (Up 2021; Volt Bank 2021; 86 400 2021). Moreover, Australian
Prudential Regulation Authority (2021) outlines the extensive guidelines for a deposit-taking
institution. These create high barriers to entry for the oligopolistic market, thus restricting
competition.
Firm
Monthly
Fee
Foreign
Currency
Transaction Fee
Overdrawn
WES $5
2.2% of
transaction value.
$15 daily while
overdrawn.
CBA $4
3% of transaction
value.
$15 + daily interest of
14.90% p.a.
NAB $0
3% of transaction
value.
15.41% p.a. while
overdrawn.
ANZ $5
3% of transaction
value.
$6 daily while
overdrawn.
UP $0 $0
11.23% p.a. while
overdrawn.
VOLT $0
1.5% of
transaction value.
10% p.a. while
overdrawn.
84 600 $0 $0
No information
available
Table 1: Comparison of fees and charges between Big Four and neobanks
(Up 2021; Westpac 2021; CommBank 2021; NAB 2021; Volt Bank 2021; 86
400 2021; ANZ 2021).
ECON7110 Company Analysis
5
3.1.2 Market Regulation
Restrictions and regulations are incredibly important in the personal banking sector as strong
and trustworthy banks are the foundation to maintaining a stable financial system and consequently,
the wider banking industry is heavily regulated. With the addition of neobanks in the personal banking
sector, the Australian Consumer and the Australian Competition and Consumer Commission (ACCC)
is closely watching merger and acquisition moves by established banks (Yeates 2021). The ACCC
has determined that it is better for consumers if the Big Four do not takeover the competing neobanks,
although the ACCC is more inclined to allow a takeover by a second-tier bank as it will level the
competition in the industry (Yeates 2021). Overall, it is better for the consumer and the economy
under perfect competition as they face lower prices and there is no market failure, which is why the
ACCC wants to prevent the Big Four from removing competitors (Perloff 2018).
As of May 2021, there have been no reports of anti-competitive behaviour directly related to
the personal-banking market. Although ANZ is currently facing criminal cartel charges along with
two investment banks, Deutsche Bank and Citigroup Global Markets (Chau 2020). The charges relate
to ANZ selling additional shares to the two investment banks, along with JP Morgan, in 2015 worth
over $2.5 billion (Chau 2020). This is deemed a cartel act as the banks have colluded in order to
increase profits for each firm (Perloff 2018). This anti-competitive behaviour has an indirect effect
on the personal-banking industry as ANZ increased profits. The Australian Competition and
Consumer Commission (ACCC) (2021) states that there are severe penalties for individuals and firms
found guilty of engaging in cartel conduct as seen in Table 2 and these are in place as a punishment
and a deterrent for potential offenders. Cartel conduct limits competition in the amore and as a
consequence it decreases the benefits consumers can receive.
ECON7110 Company Analysis
6
3.1.3 Consumer Preferences in the Market
Australians have many options on how they use their income. They could purchase goods,
invest in assets, or put their money into savings. However, consumers must have their money in a
highly liquid form to be able to make these choices. The two most liquid forms of money are cash
and a personal banking account1. Cash can be convenient, yet it is not considered as safe as depositing
money in the bank. Additionally, in a technologically-advanced economy, cash has more limited use
especially for more expensive items as it is not as efficient or simple as the alternative. With respect
to a personal bank account, an individual’s money is secure and accessible by card or electronic
payment almost anytime, although an ATM is required to transfer electronic money to cash and there
are many fees or charges that can be incurred including; service fees, transfer fees, and insufficient
fund fees. Caddy, Delaney, Fisher & Noone (2020) demonstrates that Australians are increasingly
preferring to use electronic methods of payment, including physical and digital cards. Many of the
population still prefer to hold some amount of cash on them, with a majority of their money in a bank
(Caddy, Delaney, Fisher & Noone 2020). Each consumer has a different preference and for simplicity,
Figure 1 provides an example of one consumer preference in this market. This model describes a
consumer’s choice between using their income (M) to pay for two goods, good X and good Y,
assuming that they hold their money as cash. This is
depicted as Bundle 1. If this consumer now decides to
deposit their money into a personal bank account, they
face being charged fees by the bank. These fees lower the
income that they have available to spend on each good.
As a consequence, the budget constraint line contracts
and the optimal bundle, Bundle 2, is lower meaning less
of both goods can be consumed. This is an extremely
simplified example which only considers the effect of
account fees. However, there are many other factors
which have a significant effect on a consumer’s decision
to hold cash or open a bank account including; safety of
the money, digital access and availability, and even
income-level (Shy 2020; Caddy, Delaney, Fisher &
Noone 2020).
3.1.4 Price Elasticity in the Market
The demand for personal bank accounts can be considered relatively inelastic until a point.
To make this generalised statement the following three assumptions are considered: (1) most
Australians have a substantial amount of money in their bank account; (2) the population prefers the
ease of electronic payments; and (3) individuals believe that security is an important factor in where
they hold their money. Given these assumptions, it can be said that the demand for personal bank
accounts is relatively inelastic as it would take a significant amount of fees for consumers to substitute
out of this market.
1 For this analysis a personal bank account is defined as an everyday account with low fees and low interest. This is
separate from a saving account as savings are not instantly accessible and involve higher fees and interest. Therefore, a
savings account is not as liquid as an everyday bank account.
Figure 1: Optimal consumption bundle with cash and
bank account.
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3.1.5 Industry Integration and Equilibrium
While Up has limited interaction with other industries, the personal banking market can have
spill over effects into to other banking industries. One sector that the personal banking industry is
closely integrated with is the home loan market. The home loan sector has a similar market structure
as personal banking, where the Big Four banks have nearly 67% of the market share (Wu 2020). An
example of the relationship between the two sectors is provided in Figure 2. The demand for personal
bank accounts falls and this decrease in demand would shift the demand curve to the right, lowering
the price and quantity in the market and leaving an excess of suppliers. This has a direct effect in the
home loan market. Many banks, including the Big Four, operate by using personal deposits as the
basis for the money that they loan out (Lake 2020). Therefore, if the number of personal deposits
decreases then the available funds to loan out also decreases. This shift in the supply of home loans
is seen by the contraction in Figure 2. The decrease in the supply drives up the price of home loans
and lowers the quality available in the market, leaving an excess demand. This is only one example
of how the personal banking industry can have spill over effects into other industries.
Figure 2: Spill over effect between personal banking market and the home loan market.
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3.2 Firm Analysis
3.2.1 Cost Structure
Up is a small business in comparison with other firms in the industry, and it only offers one
product to consumers. Every firm requires factors of production to operate and, like most firms, Up
has two factors of production; capital and labour. The neobank requires capital to conduct its
operations and as their selling point is technology, the neobank would need capital to continuously
progress their technology to stay in the market. Furthermore, the bank also requires labour in the form
of employees for daily operation and engineering of technology (Up 2021).
In the short run, the firm faces a variety of costs including sunk costs such as business
headquarters and technological developments. The firm faces fixed and variable costs due to daily
operations, employee wages and overheads. An example of a short run cost structure can be seen in
Figure 3. In the long run the firm has no economies of scale and so the average cost curve is flat, as
seen in Figure X (Perloff 2018). This is because an increase in the inputs will not necessarily change
the outputs. There may be indirect effects, such as hiring additional engineers to focus on
technological progress, but increasing labour may not directly increase the number of accounts.
Furthermore, the firm only offers one product currently and thus no economies of scope exist. Up is
about to introduce ‘2Up’ which is their take on joint accounts (Up 2021). This could be the beginning
of their economies of scope as it would be more cost effective for the company to produce both
together, rather than separately (Perloff 2018). While the firm itself has no current economies of
scope, Up is a source of economies of scope for BEN as it is a subsidiary under the same parent
company but reaches a new market, thus requiring less cost to
operate than if it were on its own.
The characteristics of an oligopolistic market suggest that
each firm operates at it’s profit maximising output. Figure 4
provides an example of the profit-maximising output of Up. This
is according to the neobank operating in an oligopolistic market
and under this model, Up’s output and price depends on the
number of firms in the market. As the number of firms increase,
the price in the market lowers towards Up’s marginal cost and firm
output falls towards zero.
Figure 3: Example of short and long run cost curves.
Figure 4: Example of profit-maximising
output decision for Up.
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3.2.2 Price Structure
Up’s advantage over established traditional banks is based on the low fees and high interest
rate offered to consumers. Furthermore, the neobank offers the same product to all customers which
suggests that the company does not follow any price discrimination methods and instead offers
uniform pricing. Competitors, especially the Big Four, have significant market power and are able to
establish the maximum fee and minimum interest that a consumer is willing to have attached to their
account which allows for the firms to capture all the consumer surplus (Perloff 2018). This is in
agreement with the theoretical concept that larger firms have more capital which can be used to
discover their consumers maximum willingness to pay, thus allowing them to charge that value
(Perloff 2018). Neobanks sell themselves as a customer-first bank which does not follow this pricing
method and instead allows for consumers to gain some surplus. Additionally, Up does not offer any
group pricing or nonlinear pricing, such as student accounts or bulk pricing respectively. Therefore,
it can be concluded that Up has adopted uniform pricing.
3.2.3 Advertising
Within the industry, an increase in fees can lead to consumers moving between firms. This is
where Up targets its customers, as the neobank promotes easy banking with no fees2. Up’s main form
of advertising is through their ‘Hook Up a Mate’ scheme where both the initial customer and the
referral receive $5. This monetary incentive is an established advertising method and is the most
effective for firms (Efti 2019). Additionally, Up also uses social media platforms such as Instagram
and Facebook and even TikTok to target customers (Up 2021). This has been very effective for the
company in capturing some of the personal banking market, especially as they are targeting the
younger generations.
2 The only fee consumers face is an overdrawn account fee (Up 2021).
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4.0 Conclusion
The personal banking market in Australia is an oligopolistic market with the Big Four
holding 70% of the market share. In order to increase competition in the market and, consumer
benefits, the Australian Government lowered the requirements for entry into the market. This
allowed neobanks, such as Up, to enter the market and compete against the established banks. Up
has a technological advantage which has allowed the firm to the market with lower costs however
the firm should gain economies of scale and scope to be able to compete in the long run.
Furthermore, while it is difficult to establish consumer’s preferences in the market, there is a
considerable demand for personal bank accounts and in order to undercut its competition, Up offers
a lower price for consumers. Additionally, the advertising method adopted by the company has
demonstrated results and is a contributing factor to the firm’s current success. Currently, Up is
performing strongly in a restrictive, oligopolistic market although the firm needs to grow further in
order to establish long-term operation.
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5.0 References
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May 2021, https://www.anz.com.au/personal/bank-accounts/everyday-accounts/access-
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of-market-power
Australian Prudential Regulation Authority (APRA) 2021, Licensing guidelines for authorised
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Caddy, J, Delaney, L, Fisher, C & Noone, C 2020, Consumer Payment Behaviour in Australia,
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Derwin, J 2020, ‘What is a neobank – and what are they offering in Australia?’, Business Insider
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Efti, S 2019, ‘ Why referrals are the most valuable form of marketing (and how to get more),
Forbes, 2 June, viewed 16 May 2021,
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