FinTechs are disrupting the financial services sector through the adoption of technology. Through the release of the House of Representatives Standing Committee on Economics report into the four major banks, FinTechs are a step closer to competing with the industry leaders.
The two problems that FinTechs previously encountered were the fact that they lack both a banking license and access to the data that the banks hold. The recommendations set forward by the report look set to change all that in order to enhance competition and transparency.
The report put forth 8 groundbreaking recommendations, including establishing a banking tribunal and requiring a new focus on banking competition.
Combined with their proposals on empowering customers and making it easier for new banking entrants, the Standing Committee looks set to challenge the major banks while at the same time enabling newer, less established companies to enter the marketplace.
As soon as July of next year, ANZ, CBA, NAB and Westpac will be “forced to provide open access to customer and small business data.”
In addition, the report talks about account switching tools and licensing regulations as two areas which need to be considered to make it easier for FinTechs.
UK leads the way for Australia
Four years ago, the UK led the way in easing licensing requirements, which subsequently led to a number of new banks springing up. Challenger banks, as they came to be known, operate exclusively online using the features of mobile banking to deliver flexible, accessible services.
Despite such a modern take on an age-old institution, FinTechs still lack the established trust that banks possess. Even with all the scandals that have surrounded banks in recent years, figures from the UK show that customers want to use the traditional banks for their finances as opposed to startups.
Recommendations benefit both sides
For FinTechs, the calls for transparency help to legitimise their business model. More sharing of data will enable FinTechs to gain a foothold in the market and disrupt the stranglehold that the four big banks currently have on consumers.
On the other hand, some of the report’s recommendations may actually benefit the banks, ensuring they maintain their status as the go-to institutions when it comes to banking, lending and everything in between.
The report suggests that “the major banks be required to engage an independent third party to make recommendations aimed at improving how the banks identify and respond to misconduct.”
Such a move could have the consequence of restoring public faith in the banks; customers’ confidence would be bolstered by the fact that their banks are willing to take steps to identify misconduct and deal with it appropriately. If that were to happen, FinTech companies could remain as little more than a small wave in an otherwise very large, calm ocean.
The key to FinTechs emerging from niche status to truly compete with the industry leaders relies on the big banks failing to take on board the recommendations made by the report. Therefore, they would fail to effectively utilise the technology at their fingertips, while the FinTechs prove that they are someone consumers can trust.