It would be no surprise to hear the big four banks and two big supermarkets have too much market power in Australia. But it is rare to hear that same line coming from a former chairman of Woolworths and director, for two decades, of ANZ.

Melbourne businessman John Dahlsen has rounded on the establishment in a confidential paper. Written in March, the submission has been given to David Murray’s Financial Services Inquiry and to Ian Harper’s Competition Policy Review.

Dahlsen’s submission is positively scathing about the lack of competition in banking and he doubts Murray will do anything about it, telling The Australian Financial Review recently the inquiry was being conducted “by bankers, on behalf of bankers, for bankers”. The FSI declined Crikey‘s request for a response.

Murray’s forerunner Stan Wallis, who conducted the last inquiry into the financial services system in 1996, assumed the entry of foreign banks would increase competition. Dahlsen writes:

“Not only has this not happened, but the international banks have retreated, in many cases with their assets acquired by one of the Big Four, thus increasing concentration.”

The GFC made matters worse by wiping out competition from second-tier banks, regional banks and non-bank financial institutions and resulting in a wave of new regulation linked to the concept of “too big to fail”.

Dahlsen directly accuses the big banks of collusion. The industry is becoming more and more incestuous, with executives moving from bank to bank. “Co-opetition” through payment systems and loan syndicates exacerbates the problem. A false impression of competition is nurtured deliberately, says Dahlsen:

“Home loan marketing conveys to the public the idea that the competition is real. In reality, bank margins in home lending are similar and some of the highest in the world. Home loan divisions are hugely profitable.”

Tougher regulations have resulted in an overwhelming focus on risk, to the detriment of opportunity. For all-powerful credit teams within banks, there is no cost of continually saying no. All focus is on minimising downside risk; there is no measurement of unsatisfied demand. Business lending, for example, suffers chronically.

He says current architecture can’t solve the competition problem. The Australian Prudential Regulation Authority is too narrow and needs an RBA-like independent board. ASIC is overloaded and needs to be relieved of consumer protection responsibilities. The Financial Ombudsman Service is excellent but powerless. The tools of the ACCC need updating to cover complex areas like finance. Dahlsen told Crikey part of the answer might be a dedicated national “consumer super-agency” covering all industries and able to do research and disseminate reports, hold inquiries, consider law reform, relate to relevant state agencies, and consider impacts on small business.

Dahlsen draws a contrast between “collusion” in the banking industry and “collision” in the retail industry. Banking and retail are at opposite ends of the regulatory scale — banking is highly regulated, retail hardly at all. Where there is little competition on price in banking, competition on price in retail is fierce and consumers benefit. The “collision” is between retailers and their suppliers, who are often subject to conduct that Dahlsen acknowledges is unconscionable.

“If the public were truly aware of the reality of what is happening and this could be communicated and marketed, then small retailers or suppliers might have a chance of surviving. In the meantime, there will simply be a bubbling on the surface of these tough practices, which many would say are un-Australian,” Dahlsen writes. These are amazing concessions from a former chairman of our largest supermarket.

But at least retail customers are empowered by the competition. Bank customers by contrast are the victims of competition in banking, because banks don’t compete on price, they compete to minimise risk, and they deliberately leave the customer in the dark. Unlike shopping, which we do every day, our banking transactions are few and far between, and with complex financial products like mortgages or superannuation, public understanding is low.

“It is not more regulation that is required, but information, so that the consumer can understand and choose better,” Dahlsen said.

This is where Dahlsen’s submission is most surprising: he slams bank culture as data- and production-driven:

“Customers can sense staff disenchantment and they see how it affects their service. On the whole banks are not great places to work. Policy tends to be top-down, with little notice taken of customer-facing employees. This exacerbates the production-driven atmosphere. Many bank staff live in fear of losing their jobs …”

Dahlsen details efforts taken under John Macfarlane at ANZ to revive a smaller-bank feel, since abandoned. The local bank manager is sadly dead and there is no bank equivalent of the supermarket store walk-through, for example, which allows feedback from customers to front-line staff to percolate back up to management.

“When the CEO of Woolworths visits stores, he uses a dictaphone to record all the comments made to him by staff or customers, which then goes to support office for immediate attention. This is checked the following day to see that action is taken. A surprising number of these comments raise important issues rather than minor complaints of inconvenience. It is difficult to imagine this happening in a bank.”

The dictaphone may have been replaced by a tablet, but Dahlsen’s point is well made. The result? Banks are held in low regard by consumers (never mind the jimmied-up customer satisfaction surveys produced endlessly at the industry’s behest) and the feeling, we discover, is mutual. It is a fascinating submission.