By Bruce Nixon, Holocentric CEO
I’m sure you’ve noticed that Australia’s fintech space is booming. It has been predicted that our fintech sector will be valued at $4.2 billion by 2020 – up from just under $250 million in 2015.
Even the Australian Government recognises the importance of the role fintechs are playing and will continue to play in our financial arena. The Treasury website states, “We want to see fintechs in Australia become a locus of creative thinking and business activity.”
The biggest factor driving this incredible growth is our banking ecosystem, dominated by the big four banks. It’s a double edged sword in some respects. While we have one of the most stable (and regulated) banking sectors in the world, we also have a limited level of competition.
Because of this our banks have remained complacent and haven’t felt the pressing need to innovate at break neck speeds. Rather they have continued to grow in size and complexity, all the while getting by on legacy technology that although constant, can be inflexible to change.
Change is happening fast
The pace of change in the banking space is increasing, driven by new technology, disruptive new service delivery models and rapidly changing consumer expectations. This is opening the door for innovative, nimble fintech startups that are revolutionising the market, and fast.
These fintechs are not bogged down with the same operational complexity that the big banks have to deal with. Fintech’s nimbleness is a clear advantage in the market that is not just ripe for disruption, but is demanding it.
Where does this leave the incumbents?
There’s no doubt our big banks enjoy healthy profitability, in fact the big four banks combined have a profit approaching $30 billion. But they are being challenged on many fronts to protect that profitability. What may have worked in the past is no guarantee for growing or even stable profitability.
What this change is proving is that complacency will be a killer while agility is an enabler. For a long time banks haven’t had to do much to retain market share. Now it’s no longer a matter of ‘if’ they will be threatened by new models and new players, but ‘when’.
Fintechs in the form of global tech giants are looming ever closer. Companies like Apple, Amazon and Alibaba are seeing the opportunity to gain market share in Australia and are starting to offer innovative banking products to their already loyal customer bases. According to a recent KPMG report, 84 per cent of millennials would consider banking with a tech company if they had a better product or deal than a traditional bank.
Not to mention the toll technology and new regulations are having. For instance, the New Payments Platform (NPP) to be introduced in October 2017 will mean bank accounts can be assigned to phone numbers or email addresses, making your bank account portable. This is likely to have an impact on customer churn as the NPP could make switching banks easier.
Competing in this new fast-paced, technology driven environment will require all players, big and small, to have a clear understanding of how their business operates, otherwise they will caught off guard.
It sounds simple, but the reality is the big banks have become so complex that they have little understanding of how all their different silos operate – the left hand mostly has no idea what the right is doing – or how organisational change will realistically impact the business.
Now more than ever banks need to understand their operating model with a focus on understanding customer journeys and the internal processes that support them. This needs to happen now. If they wait until their profitability is threatened and starts eroding, it will be too late.
To facilitate this level of change and new technology, what’s required is the operating model to be reimagined so businesses are more able to become customer centric. The operating model, embedded in a business management system, needs to be able to connect the people, processes, policy and technology across the organisation in order to improve customer experience.
While there remain many uncertainties about how the banking sector will adapt and the impact fintechs will ultimately have, what is certain is that it will be an interesting journey to witness.