Fintech's rally while Banks tripping...shhh

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For all the talk at one of the most important gatherings in the annual Australian financial services conference calendar about the current state of banking and where the consumer sits in all of this, there seemed to be one key element missing.

For all the talk at one of the most important gatherings in the annual Australian financial services conference calendar about the current state of banking and where the consumer sits in all of this, there seemed to be one key element missing.

Yes, the Australian Financial Review’s 2018 Banking & Wealth Summit had a lot to say about how banks had taken advantage of customers, particularly in light of the Royal Commission’s investigations into misconduct. Of course, there was a lot of hand wringing about putting the customer first through better and tougher regulatory oversight, starting with the great idea of ensuring the banks actually comply with their existing legal obligations.

And while there was plenty of discussion about how to inject much-needed competition into the sector, it was very much left to the sidelines about practical ways that can come about as far as customers are concerned.

In terms of specifics, Fintechs may seem a little old hat nowadays and perhaps are no longer considered the competitive threat or an opportunity they once were as far as many of the attendees were concerned at the Sofitel Wentworth Hotel in Sydney this week.

But I can assure them that Fintechs are alive and well and some six years after the revolution in Australia began, we are making real inroads into the wider financial services sector. Here’s why.

In an industry traditionally dominated by large players, the emergence of platform-based services is likely to result in a dramatic shift in the balance of power.

And as technology penetrates every aspect of life, retail banks could become largely invisible to consumers, as traditional banking activities become ever more commoditised. This has already begun in the age of virtual assistants (Apple’s Siri, Microsoft’s Cortana, Amazon’s Alexa), pay with fingerprint, tap, and now face — all of which seamlessly fulfil daily personal and financial obligations, informed by data gathered from our fully connected lives.

All of these technologies are available today, supported by advanced data analytics, voice authentication, artificial intelligence (AI), connected devices, APIs (application programming interface) and cloud technology.

Retail financial services are being further digitised via mobile wallets and a plethora of payment apps, robo-advisors for wealth and retirement planning, equity crowdfunding platforms for access to private and alternative investment opportunities, and online lending platforms.

These services are not simple enhancements to banking services, but entirely new ones.

From a consumer perspective, this enhanced service experience is key to attracting and retaining the next generation of customers. Fintech’s growth is being fed by changing consumer behaviours and attitudes, led by the rising tide of millennials, and a move towards platform-based business models.

Gen Y/Millennials (interestingly the same generation) already makes up 22% of Australia’s population, and will form 50% in the next 5 years taking over the workforce. This generation will become significant driver of banking revenue in the near future, and their expectations and behaviours are distinctive.

They embrace and trust new technology, seek advice from alternative sources (for example, social media) and demand greater levels of speed, customisation and convenience. They are also increasingly less loyal to their financial institutions, with 28% of Gen Y holding financial products with three or more institutions according to KPMG Australia survey.

Much-maligned as they are, Millennials are more likely to access their bank accounts via Facebook or Apple, not bank apps and certainly not bank branches, so to survive in the future, financial services need to live in the same space as their customers. If you are comfortable transacting on Amazon for goods, why would you not be comfortable buying an insurance policy through them?

From a borrower perspective, the combination of individually tailored loans based on an applicant’s personal financial history — rather than the collective/portfolio approach taken by other lenders — is a powerful message. Fast, responsive and highly personalised customer service, paired with an innovative product, and the ability to deliver a frictionless and near-immediate process from quote request, to approval, and funded loan, makes this a compelling market advantage.

Technology platforms, (like WealthSimple’s Robo-Advisers), also offer consumers access to Asset management solutions. Online Marketplace Lending platforms, such as Clearmatch, liberate attractive investment asset classes previously accessible only to the banks, whist not only providing transparency to fees that are substantially lower than the incumbents, but full look through to the individual assets being funded by individual investors.

So while the bankers and regulators discuss at length about what to do about the incumbents and how to really put the customer first, I would argue the debate has already moved on.

The innovation revolution is already given consumers a voice and they are slowly but surely being heard.

Anna Harper is Chief Financial Officer and Head of Markets at Sydney-based Clearmatch, the world’s first, multi-asset class, fully fractionalised transparent financial marketplace in the cloud.