A Tale of Two Markets: How Market-Role Segmentation Creates Competitive Advantage for Mutual Banks

Mutual banks position themselves on a distinctive competitive advantage: member-ownership, intimate member relationships and deep knowledge of their member communities. Visit their websites and you’ll encounter familiar language emphasising member focus, local understanding, customer ownership. The differentiation claim is consistent – we know our members better than the major banks can.

Yet examine how mutual banks communicate with members and a contradiction emerges. Marketing messages often address a unified “member” audience with value propositions pitched with broad appeal. Product communications treat the customer base as a single cohort, differentiated perhaps by life stage, community identity, or demographics, but rarely by the fundamental economic relationship each member holds with the bank.

The irony is striking. Banks positioning member intimacy as a differentiator communicate as if all members are essentially the same.

Being member-centric means understanding market-role segments

Beneath the unified marketing narrative lies a structural reality that internal systems already recognise. Banks don’t serve one member base. They serve two fundamentally different markets, distinguished not by demographics or values, but by net economic position.

At any given time, each member is either a net depositor or a net borrower. The distinction is simple: total deposits held minus total borrowing outstanding and the result determines the member's market role.

To be clear, this isn’t about transaction types. A person might hold both a savings account and a mortgage. But their net position, whether they primarily supply funds to the bank or primarily access credit from it, defines the economic relationship and shapes everything about how they engage with the bank. For banks, this creates two distinct market-role segments, each requiring different strategic responses.

• Net depositors, those whose deposits exceed any borrowing, face a particular set of circumstances. The ACCC’s 2023 Retail Deposits Inquiry identified their characteristic behaviour: low engagement, high inertia, sensitivity to pricing complexity that obscures actual rates.[1] Competition in deposit markets, the inquiry found, remains “often selective and opaque”, with strategic pricing approaches creating complexity that disadvantages existing customers who have been loyal over time.

• Net borrowers confront different dynamics entirely. The ACCC's examination of home loan markets documented their challenges: opaque pricing, discretionary discounting, difficulty conducting meaningful comparisons.[2] As brokers have come to dominate mortgage origination (capturing 77.6% of new residential lending by mid-2025[3]), these intermediaries impose their own performance expectations on banks: decisioning speed, transparent workflows, efficient broker portals.[4] The friction has now extended from information asymmetry to operational capability. Banks unable to deliver rapid credit decisions through broker channels face systematic exclusion from the market segment brokers control, unless they can drive proprietary origination (advocacy, digital channel discovery, market engagement).

These represent fundamentally different competitive environments. Depositors face an inertia challenge. Borrowers face an information and process challenge. A value proposition attempting to address both simultaneously addresses neither effectively.

The same person may occupy both roles across their lifetime, or even hold both positions simultaneously with different products. But their decision framework, behavioural triggers and value expectations shift materially depending on which net position dominates the economic relationship at any given point.

This distinction is implicit in the banking system. Every bank knows each member’s net position, regulators track it, funding models reflect the two-market structure, and banks’ profit-and-loss statements account for it.

But most mutual bank marketing doesn’t.

Starting with distinct market roles can lead to greater marketing efficiency

By adopting market-role segmentation (i.e., organising strategy around net depositors and net borrowers as distinct markets) of current and target member communities, mutual banks could develop and exploit specific marketing advantages through this tighter focus than larger competitors whose business model is focused on mass market messages.

In this approach, ‘go-to-market’ (GTM) cascades through a two-market lens to personas rather than starting with personas. Primary segmentation begins with net position, a binary, observable, strategically meaningful distinction the bank can measure from existing data. This provides clearer context for secondary segmentation to emerge for personas within each market role: retiree depositors, intergenerational savers, cash-managed SMEs within the net depositor segment; first-home buyers, refinancers, growth-stage SMEs within the net borrower segment. Message development then addresses specific jobs-to-be-done within each persona, grounded in actual decision contexts rather than aspirational positioning.

This approach could lead to some practical advantages, from more effective campaign targeting to establishing clearer metrics for marketing ROI. It also clarifies channel strategy and product & pricing decisions.

Implementing market-role segmentation reveals surprising patterns in how mutual banks have historically allocated resources. The diagnostic process typically uncovers material mismatches between where marketing investment flows and where actual member value concentrates. These insights create immediate opportunities for resource reallocation decisions that don't require organisational restructuring or technology replacement, just clearer strategic choices about which market roles to serve and how.

Taking this approach can amplify mutual banks’ differentiation claims

Mutual banks differentiate on member intimacy and community connection. With market-role segmentation, mutual banks can extend that differentiation to deliver crystal clear, targeted messages that resonate with the real needs in the market. The bank is no longer a commodity – it's a partner solving the member's specific financial challenge.

When a mutual bank articulates distinct value propositions, one addressing what net depositors need and another addressing what net borrowers need, it signals understanding that generic positioning cannot match. The difference isn’t rhetorical, it's tangible in the bank's operations and market approach. It has organised its thinking around actual member economic relationships rather than demographic approximations.

This organisational clarity creates competitive advantage in two dimensions.

• First, proximity to member needs. Understanding what drives member behaviour requires recognising that depositing and borrowing create fundamentally different decision contexts. Smaller institutions can achieve genuine insight into these distinct needs because scale permits the detailed member understanding that larger banks’ standardised processes cannot replicate. A mutual bank with 50,000 members can know the distribution of net depositors versus net borrowers, understand what drives satisfaction in each role, and track how members transition between positions. This knowledge becomes strategically actionable.

• Second, responsiveness in execution. Once member needs are understood through market-role lenses, mutual banks can align resources accordingly without navigating organisational complexity that constrains larger competitors. Marketing messages, technology investments, product features and service delivery can be tailored to specific market-role requirements. This focused execution becomes cost-effective because resources target defined needs rather than attempting comprehensive solutions for undifferentiated members.

The broader competitive environment remains challenging. Deposit market competition intensifies, and borrower expectations evolve.[1,5] Major banks compete on scale, brand recognition, technology budgets and diversified capabilities.

Technology investment illustrates the advantage of focus. Major banks invested $8.9 billion in technology during 2024, reflecting accelerated digital transformation initiatives.[6] Matching this scale of technology spend across universal banking capabilities remains implausible for smaller institutions but matching it for targeted market-role requirements becomes feasible. A mutual bank investing in broker-channel infrastructure (rapid decisioning systems, transparent application tracking) serves net borrower requirements specifically. The same bank investing in depositor-facing capabilities (rate comparison tools, straightforward account management) addresses net depositor needs. Market-role segmentation transforms technology spending from a scale disadvantage into a precision advantage.

Mutual banks possess structural advantages if they choose to exploit them. Customer ownership enables value distribution aligned with member needs rather than investor return maximisation and being embedded in their members’ communities provides genuine local market knowledge. This focus enables greater agility that larger, more complex competitors would struggle to achieve.

Market-role segmentation translates these structural advantages into executable strategy. It provides the framework for demonstrating member understanding through differentiated value propositions, achieving marketing efficiency through targeted communications, and allocating resources toward capabilities that serve distinct market-role requirements.

The opportunity lies in strategic precision. Mutual banks competing on major bank terms, broad product ranges, generic messaging, universal service models, undermine their inherent advantages. Competing instead on deeper member understanding, tighter value propositions, and responsive execution aligned with actual market dynamics positions the mutual model as strategically advantageous rather than simply as an alternative.

Market-role segmentation provides mutual banks with a strategic framework that major banks' scale-driven models cannot replicate. At Polaris, we work with mutual banks to apply this framework to their competitive context. Our diagnostic approach quantifies where member value concentrates versus where resources flow, identifies strategic mismatches between current positioning and market-role requirements, and develops decision frameworks for resource allocation that align with actual member needs.

Strategic precision creates competitive advantage when scale cannot. If you're evaluating your bank's competitive positioning or resource allocation decisions, we'd welcome a conversation about how market-role segmentation might sharpen your strategic clarity.

Sources:

1. ACCC, Retail Deposits Inquiry (Final Report, December 2023).
2. ACCC, Home Loan Price Inquiry (Final Report, December 2020).
3. Mortgage & Finance Association of Australia, 'Mortgage broker market share reaches new peak' (Media Release, 25 June 2025).
4. Council of Financial Regulators, Review into Small and Medium-sized Banks: Issues Paper (December 2024).
5. RFI Global (2024), 'The future of financial services in Australia and New Zealand', December.
6. KPMG (2024), 'Australian Big Four Banks: Full year 2024 results analysis', October.