Consumers will be enjoying greater competition between the four big banks. Picture: Bloomberg Source: Bloomberg

Customers stand to win as lenders compete for their business, offering incentives consumer advocates say are "mould-breakers''.

The first salvos were launched by National Australia Bank with a promise to pay mortgage exit fees for Westpac and Commonwealth Bank clients.

Westpac has responded with advertisements that offer to waive annual fees on some mortgages as well as offering rate discounts up to 0.8 per cent.

The Commonwealth and ANZ are yet to return fire.

Treasurer Wayne Swan, who last year commissioned an inquiry into banking competition, welcomed the ``scrap'' and predicted clients to benefit.

``It's about time they had a scrap, it's about time we had a bit of competition,'' he said.

Credit Suisse banking analyst Jarrod Martin indicated customers would benefit after years of ever-increasing bank profits. However, he cautioned that investors with bank shares faced a double-edged sword with returns potentially falling.

``This actually looks like the beginning of a price war and, ultimately, we're just going to lower industry profitability,'' he said.

Consumer advocate Choice has challenged the banks to convert rhetoric into action.

``This (NAB) advertisement seems like a mould-breaker. It's a fantastic differentiation,'' spokesman Christopher Zinn said.

``But what is the substance beneath the style?''

But second-tier banks have warned borrowers not to fall for "window dressing'', arguing the four big banks cannot meaningfully improve services important to customers.

Suncorp Bank executive manager Michelle Barry said it was "unsurprising'' that the major banks "would want to emulate the community  approach''.

"It's very hard for them to do that. They are very large institutions and focused very centrally on major cities.''

Bank of Queensland boss David Liddy said the fight would play into the hands of smaller lenders.

"I think it's just big versus big and whenever they're squabbling, it's all good for the smaller players,'' he said.

Australian Central Savings & Loans managing director Peter Evers said the ads were window-dressing, hiding multibillion-dollar profits.

"Where do these profits come from? Fees and charges on their customers,'' he said.

"And in most cases customers can't afford to move because of exit fees.''

Westpac chief executive Gail Kelly, reporting on a $1.3 billion quarterly profit, said she welcomed the competition.

She said the ads were "signs of excellent competitive intensity in the mortgage market''.

Westpac was provoked into a response following a NAB advertisement directed at its three major competitors claiming: "It's over between us''.