Banks by any other name

Nobody likes banks. That has been a truism for decades: prior to that all but the richest among us were simply scared of them. But the Global Financial Crisis has sharpened our dislike to a razor-edge.

So, what does an astute capitalist do when a trend emerges? Tries to make a buck out of it, that’s right! Which is where a raft of large and continually growing Australian retailers come into the picture (and their exploitation of this situation is surely replicated – or originated – offshore).

We’re talking about massive retail chains like Harvey Norman and A Mart/Super A Mart. With no fanfare whatsoever, they have begun to play the banks at their own game – and their continual expansion demonstrates how smart their strategic ploy has been and how successful they have exploited the banks’ weakness.

Notice the vanguard marketing tactics of these retailers: 24 months’ interest free – no deposit, no repayments till 2011. There are scores of variations on this theme now but the common tactic remains the same. They are effectively offering consumers a loan. It is tricked-up as a commodity purchase – buy a lounge suite, a plasma TV, a kitchen – almost anything you want: just so long as you sign a binding contract to take a loan with them.

The reality is that the consumer items are really just baubles in much the same way as bankers of yesteryear offered home-buyers an all-day sucker as reward for signing on the dotted line. Some things just never change! In fact, you could argue that the mass-produced items offered by these retail chains are more or less give-aways – the cost of inducing us to enter into a debt agreement.

It is noteworthy that these retailers are now starting to specify minimum monthly repayments to secure their deals (a factor of the reduced availability of capital in the monetary system) but their hope is always that consumers will lose their focus and accidentally not pay-out the full balance by the due date thus becoming liable for all the accrued interest penalties. It’s a harsh world.

Of course, the retailers are as thick as thieves with credit houses like CitiBank who provide the finance packages. It’s a cosy partnership that is making both parties very content. It’s just the banks sitting on the sidelines who are gnashing their teeth at the loss of business. None of us will shed a tear for them but we should never forget that there are all kinds of sharks circling us and not all are called banks. Let the buyer beware.