How things can change.
Cast your mind back to March 2018 that saw the first round of Commissioner Kenneth Hayne’s hearings on misconduct in the financial services industry. Fast forward to this March. What a difference! Government, regulators and banks are now cooperating closely to limit the economic destruction wreaked on the community, by the drastic measures to contain the virus.
From a digital banking perspective, the rapidly unfolding pandemic will have a profound, enduring effect so it’s definitely a time to be paying attention.
Here are 5 topics in March that caught my eye, plus an update from Backbase.
In view of the impact of Covid-19, the RBA is pressing pause on the Review of Retail Payments Regulation. Some of the issues slated for review including electronic payment fees have already been temporarily addressed by industry with banks including CBA and Westpac reducing some fees.
The Parliamentary inquiry into Fintech and Regtech has also revised its timetable. A further two week consultation has been launched until April 10 for submissions on the impact of the Covid-19 crisis and potential support needed from the government.
The ACCC has also announced some changes. Speaking at the virtual AFR Banking & Wealth summit, ACCC chair Rod Sims highlighted the importance of a competitive market to accelerate economic recovery once the virus is at bay. As a result the Commission is maintaining the open banking July 1 target for majors to share consumer transaction data, but has promised some flexibility.
“If ever there was a time to expedite digital innovation, this is it.” – Rod Sims
Meanwhile, Regional Australia Bank announced that it had become the first Accredited Data Recipient of customer data under the CDR. It will be interesting to see if the bank maintains its headstart in putting the newly-accessible data to productive use.
With fortuitous timing, Xinja concluded 18 months of negotiations, securing what is reportedly the largest single investment in an Australian neobank or start-up. Pending regulatory approvals, the deal makes $160m available immediately. The balance of $273m would be available over the following 24 months, implying a valuation of the bank of around $800m.
Thanks to the raising, depositors who were fast enough to move funds into the now capped Stash accounts can apparently continue to enjoy a generous 2.25% return for the time being.
Other aspirants raising funds will be hoping news of the deal elevates the Australian neobanking sector as an attractive investment opportunity.
Xinja also announced a delay on the launch of their lending products. On the downside it means all those Stash deposits can’t be put to work earning a profit. The upside: Xinja’s credit team will suffer less stress than other neo-lenders who will be worrying about how well the tuning of their new credit decision engines is suited to these unprecedented conditions.
The risk from physical contact created by the pandemic is forcing greater digital banking adoption. McKinsey reports some early statistics from China and Italy, with digital banking engagement increases of between 10 and 20 percent.
“Reluctant users of digital channels are having to give digital a go. After overcoming the initial hurdle, most will not go back.”
This shift parallels the continuing migration from cash to electronic payments. The crisis is accelerating migration, with both consumer and merchant aversion to the risk of contaminated fingers spreading the virus via terminal keypads. Some fee premiums for contactless that previously deterred merchants are also being removed, at least temporarily. Merchants have also proposed an increase in the value of transactions that can be accepted without users needing to enter a PIN.
The Australian Mortgage market had recently seen strong gains for lenders including CBA, Macquarie and ING from their investments in digital. The crisis is likely to reinforce that with restrictions on physical meetings. Some lenders have been moving quickly to adapt their processes.
After convenience, one of the key promised benefits of digitalised banking is improved financial outcomes. Customers’ financial data can be processed to detect patterns, benchmark against aggregate data and generate predictions. Banks can use this to educate, surface timely insights and proactively nudge users towards better outcomes.
Ever since Moven launched its offering around 8 years ago, a promise of improved financial outcomes has featured in the mission statements of most digital banks and personal finance apps. Hard proof of such improved outcomes has been elusive, however now seems like the time for digital banking to deliver on those promises. A large and growing pool of unemployed workers will be looking for effective ways to decrease expenses and make each dollar of savings and income go further.
There are some early examples. Local neobank, Up, has been communicating with customers features in its app that can help. Finance app, Money Brilliant, has been sharing up-to-date information on support and hardship options for its subscribers, plus details of evolving government support and grants.
The coming months surely present an opportunity for banks to use their digital channels to do much more, and in the process build a solid foundation for a long-term future relationship.
Much has been written about the imperatives for banks to transform to digital-first organisations. One route is via a new, separate greenfield bank. The separation can provide teams freedom for fresh thinking and break the constraints of legacy processes and systems.
Digibank, launched by DBS Bank is an often cited example and Backbase will be sharing some interesting insights shortly from an insider to that journey. NAB, Bendigo and recently BoQ are already pursuing variations on this approach; more are due to be announced shortly.
This month, Alex Johnston’s interview with one of the original digital banking disruptors, Brett King, has some useful perspectives on the challenges for those leading such initiatives. Probably the biggest challenge is ensuring teams truly gain fresh perspectives and escape the gravitational pull of how things are done in the incumbent bank.
A PIECE OF GOOD NEWS…
Backbase has topped Celent’s Retail Banking Customer Onboarding Platform vendor assessment, winning both Celent’s Xcelent Technology 2020 Award and Xcelent Functionality 2020 Award. Celent’s report provides a rigorous analysis of the customer onboarding vendor landscape, including a profile comparison of 17 solutions.
ABOUT THE AUTHOR
Dr. Malcolm Macnaughtan is Regional Director for Australia and New Zealand at award-winning digital banking platform provider, Backbase.
He oversees Backbase’s sales and go-to-market success for his territory in Asia Pacific. With an extensive background in technology development and commercialisation, Malcolm helps financial institutions transform their digital channels to get in shape for an increasingly competitive digital and open banking future. He has worked with banks, accounting and advisory firms to apply digital technology to serve their customers more effectively and profitably.
Prior to this, Malcolm’s experience spans diverse roles including start-up co-founder, R&D, product management, and sales leadership.
An engineer by training, Malcolm has a PhD in wireless signal processing and is first named inventor on a number of international patents.