The banks might be down, but Australians consumers and SMEs should not be fooled — they are far from out. The findings of the financial services royal commission, with its revelations of the banks’ widespread malevolent behaviour, might have shocked the wider community, but all the evidence suggests the banks have simply shrugged their shoulders and declared it is business as usual.
Indeed, it’s more than that. The banks still believe — and act — like they have a privileged position in our financial services system, that their dominant market position gives them the right to flex their muscles (political and commercial) against any competitive threat.
In the past, there was little competition. The cost of entry into a bricks-and-mortar market was largely prohibitive. Indeed, the story of banking from the 1980s onwards has been largely consolidation, with larger banks then pushing into new markets such as wealth management and superannuation.
But the internet has changed this. Competitors to the banks can enter the market for a fraction of the cost. In my opinion, how the federal government responds to financial services newcomers — such as neobanks and fintechs — with legislation and regulation that levels the playing field will be the dominant theme of 2020.
Make no mistake. These internet-based companies are starting to snare sizeable market share. At Raiz Invest, we have more than 200,000 active customers. Millennials are attracted to app-based services and are flocking to use them. By contrast, the banks have been slow to respond to technological change — their approach has focused on crushing, not competing, with market entrants.
There is no better example of this misuse of market power than the campaign Commonwealth Bank (CBA) has waged against fintechs. For three years, it has been warning fintech customers that if they chose to share their CBA online bank details via screen scrapping with their fintech provider then there is a security risk.
Screen scraping, which is simply a snapshot of a person’s bank account allowing bank customers to share their banking data, has been given the green light by ASIC and Treasury as a valid alternative to open banking. Treasury has indicated that screen scraping should continue to enable a smoother transition to open banking.
There’s no mention of that pertinent fact in CBA’s campaign — which was initially email-based but now includes messaging via push notifications to a CBA customer’s mobile phone and in-app messaging on the CBA NetBank app. Today, CBA customers still linked to fintech services are receiving multiple messages a week because of this link.
The simple fact is there is no greater risk of fraudulent activity occurring at the fintech app or services level than there is of fraudulent activity occurring to someone not using a fintech product or service. Indeed, the evidence shows activities such as sharing BSB and account numbers with friends and family via email or SMS creates a higher risk of fraud — and the CBA knows this.
From my perspective, CBA’s communications are a microcosm of what’s wrong with the financial services sector — and why the government must act to change it. At every possible junction, the banks use their market dominance, and, believe it or not, still considerable political sway, to hinder competition. They hide behind the cloaks of ‘a stable banking system’ and ‘credit availability’ to retain their privileged position.
Currently, there is a Senate Select Committee Inquiry into Financial and Regulatory Technologies that is looking at these issues. These issues are also on the radars of ASIC and Treasury.
It’s to be hoped that Canberra will finally act in 2020 to create a level playing field for all players in the financial sector — not just the privileged few.
After all, as the royal commission so compelling revealed, it’s a privilege that’s been routinely abused in the past.