This is what small fintechs are saying ahead of the banking Royal Commission report drop
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This article has been updated to include details of the banking Royal Commission report and recommendations
The banking Royal Commission report has dropped but before it landed, fintech small caps were pretty sanguine about its impact on them.
The year-long investigation uncovered shocking tales of bad and at times blatantly illegal behaviour by the largest banking and financial services companies in Australia. As part of his report commissioner Kenneth Hayne referred 24 companies, including the large banks, for possible criminal and civil penalties.
The report by Mr Hayne was handed to the government in an awkward photo op on Friday afternoon:
Ever had an awkward Friday afternoon meeting?
Josh Frydenberg and Kenneth Hayne sure have. pic.twitter.com/EpQEgYCmRV
— ABC Politics (@politicsabc) February 1, 2019
It was released after the market closed on Monday night.
The government has not committed to implementing all of the commissions, such as those around mortgage broking.
Already the larger banks are trying to appear on side with an angry public: Australian Banking Association chief Anna Bligh admitted on Monday the banks hadn’t lived up to societal expectations of how they should behave, and hoped the report would be “an opportunity to reset the industry and to make things better for our customers”.
They are right to be worried: a wave of class actions are coming their way, the AFR reports.
Smallcap fintechs are sitting tight
Several of the ASX’s smaller fintechs were circumspect ahead of the release.
Arthur Naoumidis, head of property investment platform Domacom (ASX:DCL), says the impact of the Royal Commission has already hit via tighter lending standards.
“Anything that is negative to property or financial planners will have a short-term impact on us, because we’re a property investment platform,” he told Stockhead.
“It’s already had the effect because the Royal Commission has had an impact on lending… and already had the effect on residential property investing.
“I don’t think long term it will change anything… if anything it’ll probably be better because fear is worse than reality.”
In November Mr Naoumidis said it had actually been good for Domacom, as he wanted to muscle in on the property lending market using foreign funding.
In the interim, they’ve secured a trial with one of the big four banks that so far remains unnamed, which given the larger lenders have pulled sharply back from property and business lending may complicate that ambition a little.
Simon Lyons, CEO of reformed digital bank Goldfields Money (ASX:GMY), hopes the smaller size of his bank and their efforts around transparency will allow them to avoid the worst of any blanket changes ahead.
“We’ve rebuilt our business on the basis of transparency, simplicity and honesty in banking so our hope is we stand out as what a bank should be, post Royal Commission,” he told Stockhead.
“We’ve done a lot of work around simplifying our documentation, making it easier for people to understand what we do, how we work, and what we charge them for.”
“We think the smaller lenders like ourselves have been doing a pretty good job over the past few years.
“The real competition for us is taking market share off the top 10 banks in the market, they own about 90 per cent of the market.”
Goldfields’ Achilles heel is Finsure, the mortgage aggregation business they merged with in 2018. Any changes to commissions payments will have an adverse effect on that division.
The recommendations at a glance
The insurance recommendations strongly reflect a number of changes first introduced in the Future of Financial Advice (FOFA) reforms that were passed into law in 2012, such as a ban on trailing commissions and annual renewal of advice fees, but which were vastly watered down.
It may have the biggest impact on smallcap fintechs, with companies like Ensurance (ASX:ENR) operating in the field:
In financial advice:
In culture and governance: