Neobanks think the Big Four should be scared of them, but are they?
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Back in the 1990s, boutique lenders moved in on the big banks’ turf and now neobanks are doing their bit to shake things up. Is this a cause for alarm for the Big Four banks?
Thus far, three neobanks have unrestricted banking licenses in Australia: 86400, Volt and Xinja, while SME lender Judo has one as well. Inevitably, more will follow in coming months.
Xinja has been the most prominent, having turned to equity crowd-funding twice.
Bendigo Bank Chief Financial Officer Travis Crouch was asked at the Exchange SA conference last week about the issue of neo-banks. His response? The bank got on the bandwagon last year — launching Up last October.
“It’s been a success for us,” he said. “We had expectation of 30,000 customers by June and we reached 100,000.”
“We launched Up because it gives us a demographic we weren’t attracting before. There’ll be more and more coming, it’s the way of the future.”
Up also had a license although it was held under Bendigo’s own license rather than in its own right.
But what about the Big Four? Are they dismissing neobanks as another millennial fad, or do they fear them?
It’s probably going too far to say ‘scared’ but they are not ignoring them either.
The rise of neobanks may not kill the Big Four even if their founders declare they will.
Nevertheless, the industry may be shaken up in a way similar to the 1990s when boutique home loan providers such as Aussie and RAMS emerged. Some of these boutiques, including the two just mentioned, were acquired by the Big Four.
NAB is the only one of the Big Four to have its own neo-bank — with UBank. Despite NAB’s ownership, UBank CEO Lee Hatton has asserted: “We are not trying to build a digital NAB, we are building a very different competitor.”
The remainder of the Big Four seem content with investing in their technological systems.
CommBank will be investing $5 billion in its digital offerings over the next five years. Among the reasons for the investment given by CEO Matt Comyn was “to maintain our leadership position”.
Westpac has been less prominent about its technology upgrades. But it was the best of the Big Four in the most recent Global Mobile Banking Benchmark, conducted by Forrester.
Westpac’s Chief Data Officer Jamie Twiss said in August: “There is no doubt that neobanks will challenge incumbents through innovative tools and digital processes, increasing customer expectations along the way.”
“The real test for major financial institutions like Westpac, who have an incumbent advantage due to our large customer base, will be to offer an equally attractive, seamless digital customer experience.
“Collaboration with partners and investing in fintechs — and the right opportunities at the right time — will also be key to staying relevant.”
ANZ has also made clear it knows it must adapt with consumer expectations. Yet it is confident the day will never come when the neo-banks have taken their place.
Managing Director for Transaction Banking Mark Evans also said last month ANZ could actually gain from neo-banks and fintechs.
“Banking is an industry that has adapted incredibly well over time,” he said. “There are plenty of large consumer brands which disappeared into the aether because they failed to adapt.”
“But banking has continued to evolve with the underlying needs of society and has been able to enhance its core value by either collaborating with or learning from competition.
“Banks can’t do everything in their own right and the pace of change means developments are happening faster than ever before.
“There will be innovative solutions society wants that banks can’t or won’t provide. That’s where fintech will play a vital role — with the help, of course, of banks.
“A huge opportunity for both banks and fintech exists in traditional incumbents assisting startups and disruptors to navigate the complex regulated banking environment at scale to reach the end customer.
“For banks, being negative about disruptors and saying ‘it’s not going to happen’ or ‘we can beat them’ is the wrong way to think. Every one of these disruptors is an opportunity.
“The mindset needs to be partnerships over proprietary thinking, leveraging those partnerships to drive better outcomes for all stakeholders.”