The statements were made through statements made to the Select Committee on Financial Technology and Regulatory Technology, chaired by Senator Andrew Bragg.

The committee, established in September, has received 123 submissions for its inquiry into Australia’s fintech sector.

The statements came from a range of financial services providers, including the big four banks, industry body FinTech Australia, individual fintech companies and regulators ASIC, APRA and the RBA.

In banking, excessive regulatory measures are cited as major obstacles for fintech startups, especially when incumbents who control more than 80 percent of the market share are able to influence the resulting red tape.

“To succeed, each of the challenger banks like 86400 will need to take some of the market share away from the large incumbent banks,” 86400 said in its presentation.

“A major challenge we face is the continued ability of big banks to influence regulatory outcomes, even as regulation is aimed at increasing competition.”

Majors accused of anti-competitive behavior

Representing a number of fintech companies, including neo-banks Volt, 86,400, along with other players such as Afterpay, Zip, Prospa and Monoova, FinTech Australia pointed out that incumbent banks were engaging in “anti-competitive behaviour”.

The CBA has previously rejected allegations investment service Raiz deliberately blocked its customers from engaging in fintech, telling them its app increased the risk of fraud on their accounts.

But in FinTech’s recent submission to the Senate committee, it noted that a number of its other fintech members had long received letters from banks noting that its screen-wiping activities violated the ePayments code.

Citing Raiz, the authority said, “This bank has sent notifications and emails to its customers who use the service continuously.”

“Such letters are seen as a thinly veiled excuse for anti-competitive behavior.”

Screen scraping, a process of collecting screen display data from one application and translating it for display in another application, enables businesses to receive customer data and provide personalized services.

The wider fintech industry has expressed concern that the government could ban the practice, saying “any attempt to do so would be effectively anti-competitive”.

FinTech Australia also said there was evidence that established banks were not opposed to it, with ANZ reported to be the first entity to use it and NAB and Westpac backing Basiq, a fintech that uses screening to collect financial data from a collection of APIs to deliver financial solutions.

“Banning screen wiping would not only have the potential to be anti-competitive, it would also be at odds with the government’s Open Banking report, which states that “open banking should not prohibit or condone ‘screen wiping’, but should aims to make this practice redundant by facilitating a more efficient data transfer mechanism,” FinTech Australia wrote.

Obstacles and pleas in the name of competition

The parent company of 86,400 payment solutions provider Cuscal cited a number of challenges facing smaller banks, including difficulty achieving economies of scale to effectively reduce production costs; the inability to afford wide publicity; generally withholding lower credit ratings from rating agencies, making it more expensive to obtain financing; and APRA’s prudential standards, which require smaller banks to maintain higher capital ratios – reducing their ability to compete on price.

FinTech Australia said the key components of national competitiveness are capital and finance, tax, skills and talent, culture and regulatory measures – particularly related to open banking.

In particular, he is pushing for pensions to be subject to CDR, saying it not only has the potential to “encourage competition between funds, but also to allow members to submit their financial data and invite them to submit a personalized “best offer” to the member”.

The industry body also called on ASIC to follow Singapore and the UK in adopting a “pro-competitive approach to implementing the competition mandate” and creating awareness programs for alternative providers.

UK player Revolut has recommended that in order to increase the competitiveness of the domestic scene, the Government should provide further guidance on the licensing process, particularly with indicative timetables.

He also called for increased awareness and normalization of fintech technologies in the financial services landscape, increasing levels of trust and thus acceptance of productions by the Australian public.

Revolut has said it views Australia as an internationally competitive place to do business, pledging to create 30 highly skilled jobs locally over the next year.

New networks can help

86,400 urged the government not to allow incumbents to delay the introduction of new platforms or ecosystems such as the new payments platform and open banking (but the sharing of user data between major companies was delayed from the original February launch date to July).

He has a positive outlook for the new schemes, but warned that they will only be effective if all members support the network and are committed to the change.

“This is unlikely to be the case where the change is seen by incumbents as a downside,” 86,400 noted.

He also called for organizations “with the most experience in payments” to be involved in driving the open banking model, listing the Australian Payments Council, NPP Australia and AusPayNet.

Looking back at its inception, 86400 stated: “Although there were many ‘competitors’ in the industry (including over 100 ADIs and numerous non-bank lenders), there was little real competition with the big banks dominating the market with over 80 per cent market share in most banking services.

“This lack of competition has allowed our dominant banks to make huge profits while not investing enough in changes to their legacy systems that would allow them to meet the customer demands of the future,” 86,400 commented.

Access to capital

New banks face regulatory and funding hurdles, and banking is a capital-intensive business.

According to neobank 86,400, capital pools for ADI startups are limited, although capital requirements are significantly higher than for other early-stage fintech companies.

“Capital requirements to meet operating expenses (which is the key capital requirement for non-ADIs) are 25 percent of the capital required by ADIs, with 75 percent being regulatory capital requirements,” 86,400 wrote in its filing.

“Early investors in ADIs also have to contend with expectations of two years or more until profitability is reached.”

He added that the regulatory treatment of ADI capital disadvantages newcomers and discourages investment in technology, noting that the government should consider direct investment in early-stage start-ups through the Future Fund.

The Senate committee will present its final report on or before the first day of the October session.

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting mainly on banking, financial services and wealth.

Prior to joining the team in 2018, Sarah worked in commercial media and produced stories for a current affairs program on public radio.

You can contact her at [email protected].