Imagine if you will, a world with a lot less bankers. Incoming analysts no longer make self-congratulatory LinkedIn posts. Those brands, from Deutsche and JP to Goldman are a little less mentally invasive. No one will know what you are talking about if you mention The Wolf of Wall Street, and Margot Robbie is a little less famous. And a lot of the blue suits you see walking around are replaced by ‘Google types’ in khaki cargos and baggy hoodies.
What a nightmare scenario. But it has some incredibly smart people incredibly scared. Jamie ‘diamond in the rough’ Dimon, CEO of the goliath that is JP Morgan is quoted from a January earnings call as being “Absolutely … Scared s***less” about the growing prevalence of Fintech. And he might be right.
Layman’s breakdown and why it matters to you
For those unacquainted with what Fintech is and what it has in store for Jamie’s god invoked battle against them, I’ll try my best to break it down. In essence, Fintech is technology that seeks to improve financial activities. That seems broad, and it is. It’s your Binance and RobinHood, your AfterPay and PayPal, Venmo, square and a collection of Neo-banks (a virtual bank). What they all have in common is their specialisation in a specific financial service or product that can be enhanced through some such technological innovation, like blockchain, robo-advisory and artificial intelligence.
What you’ll notice from the listing is that a strength of Fintech is its sheer diversity. FinTech’s can potentially take any specific aspect of a traditional bank’s business model and improve it. They capitalise on banking’s sustained domination and consequent lack of innovation and advancement. For example, the vast majority of Fintech’s operate virtually, whether that be a Neo-bank or a peer-to-peer transfer business. They don’t incur the physical costs of maintaining branches, and the virtual one click and a passcode nature of their services give them credence with myself, an internet native. In 5 minutes, I can set up a peer-to-peer transfer account that streamlines paying for dinner, drinks and Ubers (in that order). Why bother walking into a bank or even carrying cash for that matter?
Best of all, is the potential that open banking and consumer data rights has for the Australia market. Consumer data rights and open banking allow individuals who are banked with the big four to give consent for them to share their banking data, primarily with Fintechs. This means Fintechs have transparent access to your banking needs in real time. This gives the underdog Fintech a fighting chance in securing a market base. They can tailor their products and services to you personally, and in turn you get a better overall financial service and more choice outside of the Big Four you’ve grown up with. Of course, you always have the option of saying no.
BNPL regulation and what it means for the future of Australian Fintech
What complicates this quagmire is its developing regulation, or lack thereof in some situations. See, nations like to regulate how their currency is being used, and that’s why banks are regulated in part through a central banking system. Its one of the central concerns around cryptocurrency as well (which falls under Fintech). The developing regulatory environment has been spurred on by an ASIC report into buy now pay later (BNPL) frameworks such as after pay. ASIC found that BNPL services incur a 26% higher monthly interest charge than traditional credit card users, 23% more users utilise over 90% of their credit limits and in the last 12 months prior to publishing, 15% of consumers had taken out an additional loan to pay for the service. In short, the BNPL framework is crushing credit card usage in some important metrics, especially with younger people with the report finding 50% of users were aged between 18 and 29. However, with this growth ASIC has become weary of the potential dangers of credit growth in Fintech industries.
The regulation battle is one that’s going to be fought well into the future. In April 2019 the product regulation act gave ASIC a cart blanche in intervening with BNPL and other fintech frameworks. Despite this, an Australian senate committee inquiry in September advocated for quite the opposite, arguing against regulatory intervention. Liberal senator Andrew Bragg went so far as to advocate for active Fintech support to compete against banks and add to consumer choice.
So why does this back and forth matter? Do Jamie’s fears apply to Australia? Is Fintech an eccentric fantasy or is it the future?
The back and forth matters most of all right now because it’s popped up in the 2021 Fiscal Budget. Frydenberg’s $1.2 billion digital economy plan has thrown a spanner into the works. The plan is lukewarm towards the growing Fintech industry, targeting ‘digital skills’ and greater AI capabilities totalling $224.1 million of that $1.2 billion. Its underwhelming for the industry, with double the amount old mate Frydenberg threw towards AI intelligence and further training required to commercialise pivotal Fintech innovations according to Remy Davison, chair in politics and economics at Monash University. We’re in a Fintech limbo politically and its difficult to say what’s going to happen to Fintech’s regulatory boon over traditional banking services.
The numbers alone tell us Fintech has a long way to go. Like a long way. The financial sector makes up 9% of the Australian GDP, employs 490,000 Australians and authorised deposit-taking institutions are valued at $4.6 trillion in Australia alone. In comparison the Australian Fintech market received only $1.4 billion USD investment, down from $2.09 billion in 2019. These figures contrasts an outdated report by Forest and Sullivan which predicted a yearly $4 billion USD investment by 2020. Ouch.
Fintech has a long way to go in Australia before we can bet on a fair Fintech v. Big Four match up.
If you cant beat them, join them
Its easy to tow the line that’s often presented by Fintech eccentrics, the neighbourhood expert cryptocurrency analysts and other individuals who laud the advent of Fintech, decentralised finance and blockchain as a killing blow for the banks. But I have to disagree. Jamie’s nightmare is just that, a nightmare. Yes, Fintechs can provide better services, have cheaper costs and have innovation on their side, but they don’t have the capital just yet (they may in the near future). And the banks, at least here, see the potential.
Commbank, Westpac and Nab created Beemit. It’s the only payment app I use, and the only one my friends use. It, along with the CommBank app and Commsec pocket investor are all the central applications of fintech in consumer banking. To say Fintech is a killing blow to banks is to ignore that they’ve already beaten a lot of them to the punch, especially where it matters. The digital natives.
The Big Four have started major Fintech partnerships, turning foe to friend. Westpac has partnered with 10x, a cloud native banking platform to create standalone digital banking since 2019. CBA has had minor continuous investments in Klarna, a Fintech with a host of services (primarily BNPL) since 2019.
The truth is a lot of the numbers aren’t out yet. We don’t know exactly how much of xyz market the Big Four do and don’t have, but what I can say with certainty is that I don’t plan on changing who I bank with. I do see the banks getting better or at the very least maintaining their position in the Australian financial system, especially in a legitimately competitive environment with consumer data rights and open banking in Australia. The banks just have to try a bit harder, and to paraphrase Jamie Dimon, by god they will.
 All the ASIC report data;