Many of us that work in the sector talk about the post-Royal Commission world.
It’s a pivotal moment that has shaken Australia’s trust and confidence in our financial services sector.
We have since seen a tightening in the lending environment, signs of consumers seeking to retreat from the big banks towards the mid-sized and more customer focused banks, and an unknown factor around potential new regulation, but certainly a more robust regulator with more powers than before. The sector will find it challenging in the short-term, but when we overcome the hurdles presented by the Royal Commission then we will likely see a drastically different sector in ten years’ time.
Undoubtedly, the Royal Commission highlighted inconsistencies between consumer outcomes and the practices of big banks – but Australia’s diverse financial services sector is made up of so much more than the Big 4. A strong customer focus and profit need not be contradictory. Many of Australia’s best performing banks – both by profit and by customer satisfaction – are mid-sized. To support the growth of this sector there are a number of initiatives the Government and regulators can implement to ensure not only a level playing field, but to encourage the growth of diversity and competition in the sector.
Take Teachers Mutual Bank Limited, one of the largest mutual banks in Australia with over 198,000 members. Not only are they experiencing significant growth, but they have also held their position as one of the world’s most ethical companies for the last five years – demonstrating community good and growth aren’t mutually exclusive.
While not mid-sized, the start-ups of today are the mid-sized businesses of tomorrow. Providing robust but clear avenues of entry for disruptors, such as neobanks, ensures that the financial services sector can continue to evolve alongside consumer needs while providing the same safety and assurance Australians have come to expect from the financial services industry.
Download our mid-sized business report to read the full Financial Services insight.
Here is a short introduction to our three recommendations to help boost the Financial Services sector:
The post-Royal Commission world and proportionate regulation
This cost of regulation is easily absorbed by larger ADIs – the big banks – but can put undue pressure on the smaller ADIs – such as customer-owned institutions – that strive to compete in an environment where the cost of compliance is already burdensome, and the changing nature of technology continues to strain resources.
Using data and analytics to better engage with customersTechnology is an enabler – and the financial services industry is better placed than most to understand its customers and respond to them intuitively based on their actions. According to the World Bank, a whopping 98.9% of Australians (based on our population) have a bank account – that’s an impressive data set.
Support for disruptors and R&D
The new banking landscape will be fast-paced, adaptable and agile – our regulation needs to match. The trick will be to ensure we have the right regulatory settings to allow fintech and neobanks to establish, thrive, and continually innovate.