How small is big enough for Australia's mutual banks?

These thresholds don't operate in isolation - strength in one area can temporarily offset weakness in another. And every bank is different, so these are our observations of historical thresholds that may alter in the future or with a bank’s context. However, when multiple metrics approach these boundaries, the evidence suggest that sustainability becomes increasingly challenging.

Four Distinct Scale Segments

Our analysis identified four distinct, size-related segments in the mutual banking sector, each with different sustainability profiles and strategic considerations.

Large Scale Mutuals (>$10b Assets)

These banks have achieved strong financial foundations through their scale, often with good operational efficiency metrics. Their scale permits substantial technology investment while maintaining healthy returns, creating a virtuous cycle of capability enhancement and financial strength.

However, in our experience, a significant strategic tension that emerges for mutuals in this tier: as these banks grow to compete with mid-tier and major banks, they often run the risk of diluting the member intimacy that defines the mutual ethos. Organisational complexity can open up a gap between the bank and its members by introducing layers, standardising processes, and potentially decoupling the personal connection that smaller institutions maintain naturally.

Also, as mergers grow the ranks of this tier, the well-intended integration commitments to “retain the best of both”, including local presence and community programs, face mounting pressure as efficiency imperatives intensify. Leaders of the merging banks need to be cautious that retaining “the best of both” doesn’t also lead to retaining problems of both. In our observation, the most successful large mutuals would focus on becoming “big locals” rather than small “big banks”, a model that is unlikely to be winning.

The Medium Sized Mutuals ($2-10b Assets)

Our research suggests institutions in this range may be best placed to achieve an optimal balance between scale efficiency and member connection. They typically generate sufficient financial performance to fund necessary investments while maintaining organisational structures that preserve authentic community relationships.

These institutions operate at a scale that supports specialised capabilities without the coordination complexity of larger organisations. They can achieve technological competitiveness through targeted investments or strategic partnerships, while their decision-making processes remain sufficiently streamlined to respond to the nuances of their chosen community.

While our research doesn't specifically isolate leadership factors by size segment, governance and strategic acumen appear particularly valuable in this middle range. These institutions operate with enough resources to pursue opportunities yet without the safety margins of larger entities - suggesting that decision quality and execution excellence might be especially consequential here. The examples of successful mid-sized mutuals in our research often feature strategic partnerships and targeted innovation approaches that enable them to selectively compete beyond their weight class in capability areas that support their ‘point of difference’.

Smaller Mutuals ($500m-$2b Assets)

These institutions face mounting financial pressure as fixed costs consume a significant portion of their operating income. Their financial performance typically lags larger peers, creating an ongoing tension between necessary investments and sustainable returns.

Our research indicates these institutions can remain viable through one of two approaches: exceptional focus on distinctive member segments with high loyalty, or efficient operations through community solutions (e.g., payments, core banking, etc.), or some combination of these. The financial reality at this scale requires strategic discipline - concentrating resources where they maximise member impact while ruthlessly prioritising spending elsewhere.

The evidence, and our experience, point to a need for smaller mutuals to make more explicit trade-offs than their larger counterparts. While a $10B institution might reasonably pursue multiple strategic initiatives simultaneously, sub-$2B mutuals typically succeed by excelling in fewer, carefully selected areas. The most successful in this segment demonstrate remarkable clarity about what they will - and critically, will not - attempt to deliver.

Micro Mutuals (<$500m Assets)

The banks in this category clearly face fundamental sustainability challenges. Their operating scale struggles to absorb the fixed costs of modern banking, creating a persistent financial headwind that can constrain both current member value and future investment capacity.

To sustain this balance, these mutuals need to serve highly specialised niches with extraordinary member loyalty that supports premium pricing, ideally combined with partnership arrangements that effectively outsource operational functions to achieve virtual scale.

These banks often find themselves in a challenging strategic position: their financial limitations make independent investment in digital capabilities increasingly difficult, yet these same capabilities are increasingly expected by members. The most successful navigate this tension by emphasising relationship-based propositions that surpass the value of more transactional banking, or by entirely reimagining their operating model through collaborative approaches.

It is in this segment that the distinction between strategy and daily operational decision-making is razor thin. Agility is key to maintaining sustainability at this scale.

Beyond Size: Strategic Pathways to Sustainability

While the consolidation trend in Australia's mutual banking sector points toward a future of fewer, larger institutions, our research reveals a more nuanced strategic landscape than simple “bigger is better” thinking suggests. Leadership quality and strategic choices appear to significantly influence sustainability outcomes across all scale segments.

Several cases in our research demonstrate how smaller institutions have found viability through innovative approaches. Central Murray Credit Union's (now Central Murray Bank) partnership with fintech providers to implement Open Banking lending capabilities illustrates strategic decision-making that enables technological competitiveness beyond what typical scale economics might predict. Similarly, the “Alliance Bank” model shows how creative structural approaches can maintain community connection while addressing operational scale challenges (despite AWA’s departure from the scheme to join Beyond Bank last year).

And it's worth noting that APRA observed that boards “open to new ideas” often find ways to maintain viability, while those with “stagnant governance” may drift toward inevitable merger. This regulatory perspective suggests governance quality influences an institution's ability to navigate scale challenges effectively.

The evidence indicates three viable strategic positions for mutual banks:

• Scale leaders (>$10B): Large mutuals that deliberately engineer organisational models to maintain local responsiveness despite their size. These institutions leverage scale efficiencies while implementing governance structures and decision-making processes that preserve community connection.
• Balanced performers ($2-10B): Mid-sized institutions in the “Goldilocks zone” that achieve a balance between operational efficiency and authentic member relationships. Their scale supports necessary investments without introducing the organisational complexity that can dilute member intimacy.
• Niche players (<$2B): Smaller institutions that create sustainability through highly distinctive member propositions, strategic partnerships, and focused operations. These institutions succeed not by competing broadly, but by creating exceptional value in carefully selected domains.

These observations point to an important strategic principle: while scale is a real economic factor for strategy, thoughtful leadership can identify paths optimised to a bank's particular situation. The interplay between size, strategic choices, and leadership capability is especially consequential in mutual banking, where success requires balancing financial sustainability with authentic member connection.

What's clear from the evidence is that mutual banks must be deliberate about their scale strategy - understanding that decisions about size have profound implications not just for financial metrics, but for their fundamental purpose of creating meaningful member impact.

Perhaps the question isn't simply “How small is big enough?” but “What combination of scale, leadership capability, and member connection will enable us to fulfil our mutual purpose?” The answer will vary from bank to bank, reflecting unique circumstances and member needs. What remains consistent is that financial sustainability serves not as the end goal, but as the enabler of mutual banking's true purpose - creating meaningful impact for members in ways investor-owned banks cannot match.