Australian fintech industry disrupting big four banks
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Australia’s big banks look set to be among the losers as the Australian fintech industry grows – taking revenue from the big banks.
Frost & Sullivan’s Fintech in Australia – Trends, Forecasts and Analysis 2015-2020 forecasts the Australian fintech market to reach more than AU$4 billion in revenue by 2020, including $1 billion in completely new added value to the Australian economy.
“What is more arresting is that the report highlights the fact that Australian banks are set to lose out on AU$13 billion in aggregated revenues as the Australian fintech sector is set to take $10 billion in aggregated revenues away from the big Australian banks and contribute $3 billion of new revenue to the Australian financial services sector from 2015 to 2020,” Frost & Sullivan says.
Audrey William, Frost & Sullivan Australia and New Zealand ICT practice head of research, says the disruption should be of serious concern to the financial services sector.
“While Fintech will not end traditional financial services, Australian fintech is in the development stage of the business cycle and already the fintech start-up space has grown rapidly in Australia,” William says.
“Frost & Sullivan believes that the Big Four banks must react or face a large dent in future profit growth,” she adds.
“The decline in return on equity will continue with the disruption from the tintech sector.”
Frost & Sullivan says fintech has decentralised financial power and provided dynamic new solutions to old problems, with products that offer stability in a new and innovative way and at a lower cost than the big four banks.
“Frost & Sullivan believes that the inertia and stability of the Big Four banks is more a weakness than strength, and will be increasingly exposed as such without a clear strategy to decentralise the existing suite of banking products,” William says.
Saranga Sudarshan, Frost & Sullivan Australia and New Zealand ICT practice research analyst, says out of the big four banks Westpac Banking is the most engaged with new technologies to combat fintech disruption.
“WBC opened an innovation lab in September 2014 and has already invested AU$50 million in companies throughout the Fintech sector, with blockchain trials and mobile payments through its partnership with Android Pay to begin in 2016,” Sudarshan says.
He ranks the Commonwealth Bank of Australia second behind Westpac in its likelihood to succeed with its engagement with the fintech sector, saying as the bank with the highest market capitalisation, CBA has the most to lose from the disruption of the fintech sector.
“CBA already started trialling blockchain technology with its subsidiaries at the end of 2015; a revolutionary step in the transformation of the banking sector, and has set up two ‘Innovation Labs’ designed to research artificial intelligence and machine learning systems with a third lab planned in London in 2016,” Sudarshan says.
“The internationalisation of technological research is a key element of CBA’s strategy into the future.”
Frost & Sullivan says both banks have committed early resources to engaging with fintech. However, it says while NAB and ANZ have developed strong engagement strategies, they have been late in committing resources, compared with Westpac and CBA.
“The future growth of the Australian fintech sector will depend on how much the government chooses to favour the Big Four banks and keep the financial sector regulated against market volatility,” Frost & Sullivan adds.