Australia’s banking model faces a probable break-up as global technology firms enter the local market and the consumers become more empowered, the corporate regulator has warned.
Australian Securities and Investments Commission’s chair Greg Medcraft said that familiar banking models would be seriously disrupted in the near future.
“I think given that what we’re seeing in the pressures that are emerging from trust, I think the big issue in banking is that we will see the banking models get disrupted in the next few years and they will probably break up,” Mr Medcraft told The Australian Financial Review.
“The markets will probably force them to break up. I think you will see the technology giants enter the banking system. Clearly where we see massive investments in fintech around the world are in lending and payments systems.”
The chairman of the corporate regulator has been busy. As well as lambasting the banks for out of cycle hikes and zeroing in on the “housing dilemma” at last week’s Australian Financial Review Banking and Wealth Summit, he is also predicting the fall of our banking structure, with the “power of the crowd” forcing the destruction of current models.
While the entry of big players like Amazon, Apple and Facebook into areas traditionally dominated by banks is on the cards, Mr Medcraft said consumer power could be the real catalyst.
“The crowd will be such an enormous regulator of behaviour, the crowd is the one to watch. It’s a positive thing in many respects, but it’s actually really going to shape behaviour,” he said.
“If you go to a branch and you get a teller who treats you badly, you might go online and say that you were treated badly, so the power of the crowd is really important in shaping behaviour in shaping behaviour and perhaps the industry structure.”
Some of the big banking names have been going through changes. ANZ Banking Group is poised to become the first of the big four to move away from the sector’s integrated wealth and banking model, after formally putting its wealth business up for sale for as much as $4.5 billion.
But others like insurer Suncorp are considering to sell-off its life arm and rumours abound that AMP may seek to divest its own risk arm after being forced to announce $1.3 billion of write-downs and losses as it grappled with issues in its life insurance division.
Mr Medcraft. who is set to finish a seven-year stint at the corporate watchdog later this year, has joined the chorus of industry participants decrying another industry tradition – cross-selling – saying that a good bank is one that has the best product for their customer.
“It’s all really about customer outcomes and making sure you don’t have conflicted interests in the products being offered. I don t need to own you or dictate what you buy,” he said.
All employees should also be onboard with company values, Mr Medcraft said.
“There is not where to hide when you have poor culture and poor conduct. It starts at the top but you have to make sure that it doesn’t become white noise in the middle, and you have to recognise that there are subcultures. So i think the first point is to make sure that your values flow through,” he said.
Mr Medcraft also said that lack of trust has lead to the current housing crisis.
Over the past few weeks Australia has been watching as banks increased lending rates to address the prudential regulator’s action over risky and interest only lending.
“It shouldn’t be just simply about the prudential regulator having to introduce cap controls. Seriously, the banks themselves have to take responsibility, that is what responsible lending is about,” he said.
“The banks need to be realistic about saying that we’re not sure you can afford a loan of this amount taking into account your income and expenses. And it’s sometimes very hard for a banker to say no to a loan, but that’s what’s got to happen otherwise it ends up costing everyone. A lot of this is about trust and trusts in the banks.”