Big Bank Hunting08/03/18
QUTEFS’ Newly appointed Executive Officer Marcus Poniewierski discusses the ‘open season’ created in the banking sector by the new Consumer Data Right legislation, and what the Big 4 banks are doing about it in this weeks edition of The Take:
With the wave of developments in the banking industry over the past few months such as the Hayne Royal Commission, the ACCC’s mortgage pricing inquiry, and the Productivity Commission’s competition review, the Big 4 banks have certainly had their hands full. However, amidst all this turmoil the biggest threats to the incumbent banks, lies elsewhere – within the government’s impending “open banking” regime, and the looming threat of disruption from fintech start-ups and digital “platform” companies such as Amazon.
The open banking regime, due to start on 1st July 2019, is the first cab off the rank for the government’s new “Consumer Data Right” in Australia, with customer data sharing in the energy and telecommunications sectors set to follow in the future. The policy is designed to promote competition, giving consumers control over their data and empowering them to share it with other providers. Counter to the conventional wisdom that considers customer data proprietary and a source of competitive advantage, banks will now be forced to allow customers to share this data with their direct competitors.
The risk for incumbents is that they merely become the utility providing the outflow of customer data but not the customer experience, as they watch profitable areas of their business get picked off. Open banking provides a leg-up to fintech start-ups and global technology companies seeking a slice of the action, a major threat especially when considering 73 percent of millennials say they would prefer financial services from start-ups and tech companies such as Amazon or Google. The Big Four banks know the challenges that lie ahead and have been busy investing billions in technology, change management and partnerships to maintain relevance. The differences in their strategies, however, are rather different.
Westpac has primarily sought to defend itself by pouring in over $100 million in the Reinventure fund, focused on investing in fintech start-ups across different verticals (16 to date), and through FUELD, a data accelerator launched in partnership with fintech hub Stone & Chalk.
NAB has taken a similar approach, providing $50 million of investment funds for its internal business unit NAB Ventures to gain insights from potentially disruptive start-ups, and teamed with Reinventure to fund the Data Republic and Basiq (an open banking platform).
In contrast, neither ANZ nor Commonwealth Bank have a specific investment fund. Most of CBA’s fintech programs are international, and CBA has made few collaborations within the local tech scene (although it’s trialling a digital identity service with Airtasker and has invested $15 million into the quantum computing centre at UNSW).
Joining Westpac and NAB, ANZ recently took an equity stake in the Data Republic. Furthermore, in its attempt to operate like a tech company ANZ has radically shaken up its hierarchy in favour of agile teams, and has adopted Apple Pay into its offering.
How these various strategies continue to evolve moving forward will ultimately determine who emerges as a winner in the changing world of financial services, and is worth keeping a close eye on.