The statements were made as part of presentations to the Financial Technology and Regulatory Technology Select Committee, chaired by Senator Andrew Bragg.
The committee, established in September, received 123 submissions for its investigation into Australia’s fintech sector.
Submissions come from a number of financial services providers, including the Big Four banks, industry body FinTech Australia, individual fintechs and regulators ASIC, APRA and RBA.
In the banking sector, excessive regulatory measures have been pointed to as major obstacles for fintech start-ups, particularly where established incumbents, who control more than 80 percent of market share, are able to influence the resulting administrative formalities.
“To succeed, challenger banks like 86 400 will each need to take some market share from large incumbent banks,” 86 400 said in its document.
“One of the key challenges we face is the continued ability of big banks to influence the outcomes of regulation, even when the regulation aims to increase competition. »
Majors accused of anti-competitive behavior
Representing a number of fintechs, including neobanks Volt, 86 400, as well as other players such as Afterpay, Zip, Prospa and Monoova, FinTech Australia has pointed the finger at incumbent banks engaging in “anti-competitive behavior”.
CBA has previously denied accusations by investment service Raiz that it deliberately prevented its clients from engaging with the fintech, telling them its app increased the risk of fraud on their accounts.
But in FinTech’s recent submission to the Senate committee, it noted that a number of its other fintech members had long received letters from banks reporting that its activities using screen scraping violated the Electronic Payments Code.
Referring to Raiz, the body said: “This bank has sent notifications and emails to its customers who use the service on an ongoing basis.»
“Such letters were seen as a thinly veiled excuse for anti-competitive behavior.”
Screen scraping, a process of collecting screen display data from one application and translating it for another application to display, allows businesses to receive data from customers and provide tailored services.
The fintech industry as a whole has expressed concern that the government could ban the practice, saying that “any attempt to do so would be effectively anti-competitive.”
FinTech Australia further said there is evidence that established banks are not opposed to it, with ANZ being the first entity to use it and NAB and Westpac supporting Basiq, a fintech that uses screen scraping to gather financial data from a collection of APIs. to provide financial solutions.
“Banning screen scraping would not only have the potential to be anti-competitive, but would also be contrary to the government’s report on open banking which states that “open banking should not prohibit or approve screen scraping, but should aim to make this practice redundant. by facilitating a more efficient data transfer mechanism,” FinTech Australia wrote.
Obstacles and pleas for the good of competition
Parent company of 86,400 people, payment solutions provider Cuscal cited a number of challenges facing smaller banks, including difficulties in achieving economies of scale to effectively reduce production costs; not being able to afford large-scale promotion; typically, they face lower credit ratings from rating agencies, making financing more expensive to acquire; and APRA’s prudential standards requiring smaller banks to hold higher capital ratios, thereby reducing their ability to compete on price.
He has notably pushed for pensions to be subject to the CDR, saying it not only has the potential to “stimulate competition between funds, but also to allow members to present their financial data and invite them to submit a Personalized “best offer”. to the member”.
The industry body also urged ASIC to follow Singapore and the UK in adopting a “pro-competitive approach to implementing the competition mandate” and establish programs to raise awareness of alternative suppliers.
UK player Revolut recommended that, to strengthen the competitiveness of the local scene, the government should provide further guidance on the licensing process, including indicative timescales.
He also called for increased awareness and standardization of fintech across the financial services landscape, to increase levels of trust and therefore adoption by the Australian public.
Revolut said it sees Australia as an internationally competitive place to do business, and is committed to creating 30 highly skilled jobs locally over the next year.
New networks could help
86,400 urged the government not to allow incumbents to delay the introduction of new platforms or ecosystems such as the new payment platform and open banking (but the sharing of consumer data between the majors has been delayed by its original launch date of February to July).
He has a positive view of the new programs, but cautioned that they will only be effective if all members support the network and commit to change.
“This is unlikely to be the case where incumbents view the change as having a downside,” 86,400 noted.
He also called for organizations “with the most experience in payments” to be included in the governance of the open banking model, citing the Australian Payments Council, NPP Australia and AusPayNet.
Looking back on its inception, 86,400 said: “Despite the existence of many competitors within the sector (including over 100 ADIs and many non-bank lenders), there was little real competition for the large banks which dominated the market with more than 80% of loans. percent market share in most banking services.
“This lack of competition has allowed our dominant banks to make huge profits while underinvesting in changes to their existing systems that would allow them to meet the customer demands of the future,” commented 86,400.
Access capital
New banks face regulatory and financing hurdles as banking is a capital-intensive business.
According to neobank 86 400, capital reserves for ADI start-ups are limited, although capital requirements are much higher than for other fintechs at an early stage of their business.
“Capital requirements to cover operating expenses (which are the main capital requirement for a non-ADI) represent 25 percent of the capital required by an ADI, with the 75 percent being regulatory capital requirements” , wrote 86,400 in his memoir.
“Early investors in ADIs also face waits of two years or more before profitability is achieved. »
He added that the regulatory treatment of capital for ADIs disadvantages new entrants and discourages investment in technology, noting that the government should consider investing directly in early-stage start-ups through the Future Fund.
The Senate committee will present its final report no later than the first sitting day in October.
