The global SIBOS banking juggernaut hit Sydney last week. But while the world’s biggest, brightest and best financial institutions touted their wares in massive booths down on Level 1 at Sydney’s International Convention Centre, a quiet revolution was taking place in the southwestern corner of Level 4.
That’s where Business Insider met a number of Australian fintech players set on disrupting financial services.
Each of them had a niche they believe they could exploit to improve the customer experience and make their mark. Some wanted to partner with banks, others want to eat their lunch. Regardless of where in the spectrum of potential change the process will eventually take us, there is an unmistakeable reality that transformation is on its way to Australian banking.
Disrupt or be disrupted
As APRA chair Wayne Byers said recently, “companies, regulators and international agencies are all grappling to predict the impact that technology-enabled innovation will have on the structure of the financial sector and the viability of existing business models.”
His message was clear: no business plan is guaranteed, and there’s no reason any bank must survive in its current form.
The financial services entrepreneurs in the Oceania Lounge at SIBOS suggest Byers is right and Australian banking is going to be very different in five or 10 years.
This will be a challenge for the existing players. One of the points Byers also made is that “some incumbents will struggle to afford that investment; for others, the challenge will be successfully managing a large transformation program.”
Through my management traineeship at a major bank all the way back in 1986 to the stint over the past six years that I’ve just finished as a director of Police Bank, varying levels of change, evolution, disruption and reform have been part of the landscape. But what’s happening now is a genuine paradigm shift, where the power and control is being pulled away from institutions and pushed into the hands of customers.
With that in mind, here are four takeaways from the SIBOS conference which are likely to facilitate this change in Australia’s banking paradigm:
The Australian Government has mandated that from July 2019 Australians will have the right to take back ownership of the information they already share with their banks, and in turn share that data with other institutions.
This is the lynchpin, the enabler, that allows many of the fintech innovations which are direct-to-consumer to flourish. That’s because the government – under what Treasury calls the Consumer Data Right (CDR) – is allowing customers to control their data — who sees it, and how it’s used.
Scott Farrell, author of the government’s report into Open Banking and Partner at King & Wood Mallesons, told an audience at SIBOS that data was being elevated in value terms for customers to the status of money.
He echoed what he’s written in the past that the CDR, “is designed to put customers in control of their information, leading to more choice in their banking and more convenience in managing their money, and resulting in more confidence in the use of their data, and their access to the value of an important asset.”
And he said that Open Banking and the CDR is designed to create opportunities and encourage competition in banking.
Open Banking in Australia, unlike other jurisdictions is an opt-in scheme. So it is still incumbent on the entrepreneurs in Australian fintech to make their case for customers to share their data. But it is clear that Open Banking is the enabler for the fintech revolution to gain traction.
Traction is what Australia’s growing cabal of digital banks hope to gain with this technological revolution in banking – with or without Open Banking.
Names like 86 400, Xinja, and Volt may not be household names yet. But these organisations plan to use their new tech capabilities, lack of legacy hierarchy and infrastructure, together with a single-minded focus on the customer needs, to build their brands.
Watching Rob Bell, 86 400’s CEO, Steve Weston, co-founder and CEO of Volt, and Van Le, Xinja’s co-founder and chief strategy and innovation officer, discuss Australia’s challenger banks at SIBOS was instructive as to where they see their competitive advantage.
The concept of a “bank in your hand” and a focus on customers’ hierarchy of financial needs is the platform that will drive customers to move toward their banks, the three suggested.
Speaking to 86 400’s Bell on the sidelines of the conference, Business Insider asked what was so different between a digital bank and the apps provided by major banks we already have.
His response: we’re thinking about it the wrong way.
Mobile apps try to give you a branch experience in a phone. But digital banks like 86 400 are designing their whole business value proposition to be accessible via a smart device. Bell described an environment where his bank not only shows you your balances with 86 400, but allows you to aggregate your other accounts at other institutions and then health check them for applicability and rates for the customer.
That was a theme I heard more than once. It’s a recognition by these new banks that most Australians now bank with multiple institutions and that in enabling all of the data to be accessed in one place the digital bank can effectively become the “main bank” by stealth.
Bell also described a radical idea where the bank could nudge you to use some of the balance in your savings account to pay off your outstanding credit card balance and thus save upwards of 10% in interest costs on the debt balance.
Sounds great, but how do you make money if you are actively working against maximising your net interest margin?
Lower costs, people and technology, less legacy systems. Digital banking is just cheaper to run, according to Bell – and the customer gets the benefits.
Fitbit for Banking
It was clear how this aggregation engine could work when talking to Prashant Ponkshe, marketing lead at Frollo.
Frollo is a platform for consumers to manage their finances. It helps track spending and budgets, allows consumers to link all their accounts in one place, and in doing both these things then empowers goal setting and achievement. Think of it like Fitbit for banking.
On the journey it facilitates this by using behavioural nudges to encourage users to move in the direction they have set themselves. Coincidentally, Ponske told Business Insider that when Frollo won the Metlife Foundation Innovation Competition this year, the team got to spend some time with behavioural economics researcher and writer Dan Ariely in New York.
These behavioural nudges Frollo is using are also part of Moneythor’s push as it helps banks better serve customers.
Moneythor is working with banks for a customer offer. But it’s easy to see how a consumer-directed business like Frollo could see its tech used as a bank as a way of better serving customers.
Indeed, Moneythor is already working with banks around the globe, and Acorns — the app that helps you invest your spare change — here in Australia. And the company announced at SIBOS it had been selected by ANZ as a partner. This will allow the bank to “focus on helping customers achieve their savings goals with personalised spending insights and actionable nudges,” Moneythor said.
Behavioural economics and finance are going mainstream.
But Moneythor’s CEO, Olivier Berthier, recognises the downside in using human biases to nudge them in a bank’s direction. He told an audience that his tool should be kept away from the marketing department because engagement falls when customers get bombarded with nudges.
There’s another element to these nudges though. Will the digital banking nudges and offers undermine the profitability of incumbent banks as technology enables the erosion of banking’s profit margin by shifting customers to the lowest cost lending and highest return savings accounts?
It likely does, through time. That suggests the new, as well as the big, players have the advantage.
Technology as an enabler
Fintechs looking for ways to use payments systems to better enhance the customer experience is not new, but it is getting more competitive.
One company, Assembly, told me it has built a process which allows for a “request for payment” to be sent over SWIFT’s new GPI system which can both speed up the way international payments are made while at the same time providing it in a verifiable and secure manner so as to combat the globe’s rampant cyber fraud.
Another project Assembly worked on enables a buyer to pre-fund a wallet through Carsales.com so that the money for purchase can be exchanged in seconds at the point of sale via the Reserve Bank’s New Payments Platform infrastructure.
It is this growing expectation or desire from customers to have access to instant results in banking that the big banks understand, the Commonwealth Bank’s Peter Maddison, Executive Director of Client Consulting, told Business Insider at SIBOS.
Maddison said Commonwealth Bank understands the change to “real-time thinking” that smartphones and the apps on them have created in banks’ customer base and how that is reshaping the banking relationship.
That move toward swifter satisfaction of desires is also evident in Australian’s biggest purchase and Australian banking’s biggest asset, housing and home loans.
Expectations on the approval and settlement process approaching something closer to real-time, are growing. Ruth Hatherley, CEO and founder of Moneycatcha, told me her company’s blockchain based end-to-end mortgage processing technology could cut the average number of days in the transaction from 42 to just 5.
Hatherley said that “Homechain”, as she calls her mortgage service, is integrated with PEXA and while automated can still allow for manual credit assessment and decision steps in the early stages of adoption.
Hatherley stressed the point was to use technology to deliver a better service to the customer. And a side benefit is that Homechain is also set to save the transacting banks money in the processing and settlement of the loan.
And of course that is a primary element that permeates all the conversations at SIBOS. The disruption that is being wrought by technology, that Open Banking is enabling, is as much about customer focus as it is about the technology. The companies operating in these spaces share a commonality – the customer is their primary focus.
So whatever the new banking landscape ends up looking like, Australian consumers should be the winners.
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