Over the past year, four fintechs have been granted full banking licences, several fintechs have publicly listed on the ASX and a “unicorn neobank” arrived on Australian shores.
" Should the big four be concerned that their oligopoly may be ending?”
In recent decades, the Australian banking sector has consolidated around the four major banks as state banks were privatised and several regional banks were taken over.
However, following a turbulent time for established banks with increased scrutiny and lower levels of trust, the incumbents are increasingly taking notice of fintechs, who have their sights firmly on their customers.
Fintechs are not encumbered with legacy technology and established organisational structures, allowing them to be more nimble and focused on the customer. They also promise a new, digital first alternative to the banks.
Should the Big Four be concerned their oligopoly days may be numbered?
Very real threat
Banks around the world, including those across the Asia Pacific, are waking up to the fact fintechs and big technology companies are a potential and very real threat.
In response traditional banks are revamping their digital business strategies and user experience while boosting investment in new technologies and product offerings. They are also revamping their banking apps with more data analytics and personalised services.
Regulatory changes sweeping the globe are also forcing the big traditional players to share customer data with fintechs and new market entrants. We’ll soon see this in Australia too, with open banking slated to launch to consumers in early 2020.
Banks are also increasingly partnering with fintechs - focusing on collaborating rather than competing. Some of the big four are providing warehouse funding facilities for lending startups and buy-now-pay-later companies or offering wholesale funding for online mortgage lenders.
In the venture capital market, investment into Australian fintechs has jumped threefold in the first half of 2019, underscoring the optimism and opportunities investors and startups alike see in the country.
But can that strong pace continue, particularly as competition intensifies and incumbent players up their game?
As the old saying goes, it’s difficult to make predictions, especially about the future. And in a market that’s as cyclical, volatile and high risk as venture capital, that’s even harder to foretell.
But there’s good reason to expect the growth in investments and overall fintech activity will last longer. More startups and investors are looking to surf the wave of opportunities opening up as a result of open banking.
Fintech fundraising in Australia more than tripled to $US401 million in the first half of 2019 from $US122 million in the same period last year, making the country the fourth biggest fintech market by funds in Asia Pacific (behind China, India and Singapore). The number of deals in the country also rose 10 per cent to 23 in that period.