By Malcolm Macnaughtan
With so much going on in the news these days, it can be hard to stay on top of it all. So this month I think it’s more important than ever to really sift through the news for the fintech and digital banking stories that are making a difference.
Let’s get to it.
News of LendingClub’s proposed acquisition of digital bank Radius has created much discussion as well as some disagreement about whether it represents the first instance of a fintech acquiring a licensed bank. Some of the motivations for LendingClub are easily understood — including the savings in terms of bank fees and decreased funding costs. Radius holds around $1.2Bn in deposits.
Ron Shevlin’s post highlights additional strategic benefits from the digital banking platform that Radius built. With modern APIs, plus a number of existing fintech integrations, Radius’ platform will create the flexibility for LendingClub to not only diversify its products beyond lending, but also to pursue a platform banking strategy .
What hasn’t seemed to attract as much discussion is Radius’ valuation. At $185m, it represents around 1.7x book value and 29x earnings, and may be giving pause to founders and investors in some of Australia’s neobanks.
From a technology perspective, results announced by CBA and Macquarie this month were interesting. A key feature of both results was their substantially greater than system mortgage growth. Each attributes that to investments in their digital processing capabilities, particularly resulting in faster responses.
Happily for mortgage applicants, there should be even more improvements in the application experience ahead. The open accessibility of Customer Data, starting from July 1, should enable more secure and standardised collection of income and expense data for serviceability assessments. Vendors such as Tic:Toc are also investing in the application of AI to the sometimes complicated process of making sense of all that data.
In 2020, more than ever before, having a modern digital banking platform as a foundation will have a clear, near term impact on the performance of Financial Institutions.
This month the ACCC released a consultation on revised timetables applying to non-major ADIs. The proposed change in timing would require affected ADIs to share data for all product types (phases 1-3) from the outset – 1 July 2021. While Data Holders no doubt welcome the breathing space to Jul 2021, less welcome will be the proposal for a single deadline for all product types.
More complex products like joint accounts will take some work. Consent management for example, where multiple customers must cooperate to confirm their consent, will create a host of complex edge cases that need to be carefully analysed and tested. Banks will want to have had plenty of practice with simpler products first.
Revolut has announced an increased focus on the Australian market, appointing former BoQ executive Matt Bixby as CEO among several new hires. Traditional providers won’t welcome the increased pressure on their cross border payment fees. Presumably RBA Governor Lowe approves however, having recently highlighted the relatively high cost of cross border retail payments as a key area for improvement in 2020.
Just a couple of weeks earlier in the UK, Revolut announced general availability of their Open Banking-powered account aggregation capability. With the CDR coming into effect for the majors in Australia from July 1, it will be interesting to see how quickly Revolut introduces the capability locally, and how soon features like account aggregation become table stakes in the local contest for retail customers.
Following the launch of its review of retail payments regulation, the RBA has been receiving submissions from industry participants. Among the issues the RBA had flagged for discussion was rationalisation of the three domestic payment schemes – BPAY, eftpos and NPP. In their submissions to the review, CBA and @ANZ have strongly supported rationalisation.
For many banks the consolidation can’t come quickly enough. They continue to spend significant sums maintaining or upgrading systems to support these different payment schemes as part of their digital transformation programs. For customers, rationalisation would also simplify the sometimes confusing array of payment options they have to navigate in their mobile and internet banking screens.