The RBA has warned big tech firms like Google and Facebook could help kill Australia’s big banks. Here’s how.
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The big four Australians banks have held an unassailable oligopoly for decades, but even they might not be able to withstand the assault of big tech.
The Reserve Bank of Australia (RBA) outlined the threat of technological change in a speech delivered by head of financial stability Johnathan Kearns.
“The first [issue] is the general increased access to, and ability to process, vast quantities of data. This is facilitating the emergence of new, technology-driven competitors to banks which could potentially impact their dominant position in the financial system,” Kearns told the Australiasian Finance and Banking conference on Monday.
“This could erode, or maybe even eradicate, banks’ historical advantage in credit risk assessment.”
All of this Kearns contends is only available in an age where Australians are wresting control of their data back through the Consumer Data Right (CDR) and institutions to be coerced by the Open Banking regime when it goes live next year.
“The CDR makes it clear that the consumer owns their own data and Open Banking provides bank customers with the ability to share their account data with other institutions, including non-banks,” Kearns said.
Combined with the Comprehensive Credit Regime (CCR), you’ve never had so much control over your own financial record, nor been so free to go elsewhere for a better deal. In other words, the big banks have from in one regard never been so vulnerable to healthy competition.
But that’s only half the equation. Consider all the data in the hands of those outside the banking sector, held by the likes of Google, Apple, and Facebook.
“For example, PayPal and Amazon have substantial data on the sales of their merchant customers, while social networking interactions can be used to predict borrowers’ commitment to repay their loans,” Kearns said. “Technology firms for which collecting and analysing data is in their DNA are a new type of competitor for banks that have historically struggled to take full advantage of the private data they hold.”
In layman’s terms, there’s a record of every single purchase you make, from the account you pay with and the online merchant to the company that processes the transaction. All of that paints your spending history, habits and financial picture. When the open banking regime comes into play in February, that information will be easier for you to share with your current bank’s rivals. In sum, it’ll help you find the right financial products and find a better deal.
It comes at the same time, the big banks face increased regulation and intense scrutiny in the aftermath of the financial services royal commission in which they were weighed, measured, and found wanting.
Of course, given the at-times questionable business ethics of corporations like Facebook and Google however, our new potential overlords are hardly perfect either. But also, they’re not the only threat.
Take small fintech challengers which continue to emerge and grow in Australia and abroad.
Former CEO of UK giant Barclays, Antony Jenkins, predicted in 2015 it would be these players that would bring about the banking apocalypse back, claiming profits could collapse by over 60% in a David and Goliath battle.
“In my view only a few [incumbent banks] will have the courage and decisiveness to win in this new field,” he said.
Closer to home, Australia’s big four are eyeing tech threats nervously. ANZ has previously described the rise of fintechs as “terrifying” while the Commonwealth Bank has long warned of the “well-resourced” international firms that could hack away at the big banks’ market share.
While fintech is nothing new, there appears to now be current culmination of the implementation of open banking, the CCR, and the CDR, the arrival and growth of challengers like neobanks, as well as a hefty string of scandals plaguing incumbents.
It could spell a perfect storm for the big four.