There's a lot of debate in the market whether the big four banks are cheap, expensive or fairly valued.
Much of the talk is that based on fundamentals, Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corporation (ASX: WBC) are expensive.
But the big four banks could also face an unprecedented threat from start up companies, which if successful, could see bank shares plummet.
Here are four ways the banks could lose their market dominance…
- The rise of small, technology-based disruptive companies, like US based Square, which allows merchants to accept payments on their smartphones or tablets, and OzForex Group Ltd (ASX: OFX) which facilitates transfers of foreign currency at better rates than the banks.
- Peer-to-peer lending companies which matches lenders and borrowers through internet technology such as Australia's SocietyOne, which bypasses the banks, and offers both sides more attractive rates than the banks.
- The rise of self-managed super funds, which now account for more than a third of Australia's $1.5 billion in superannuation savings, and growing fast. The big four banks control much of Australia's funds management industry, but may be losing their dominance. Situations like the CBA financial planning scandal aren't helping their cause.
- The rise of mortgage brokers and a push by Macquarie Group Ltd (ASX: MQG) to grow its mortgage book from the current $17 billion to pre-GFC levels of around $25 billion. That's peanuts compared to CBA's $344 billion in home loans, but it is growing.
But the biggest worry for the banks is that thanks to very low interest rates, their market dominance and Australia's unprecedented run of 22 years without a recession, they may have become complacent, and shareholders forget that they are highly-leveraged businesses, most at risk from a downturn in our economy.
