Like a car crash on the freeway, it’s been hard to tear our eyes way from the devastation of the royal commission.
Tales of scandal greet us from the front pages of the major papers each morning, peppered with officially-scripted apologies and promises to fix “mistakes”. Resignations and departmental sell-offs abound.
But what does this all mean for the nation’s fresh-faced fintech sector, and indeed the finance industry as a whole?
Technology to lead the new era
One thing the commission has made very clear is that banks do not have the depth in technology to offer a viable service and retain shareholder value in the coming decades of disruption and tightened regulation.
It has also highlighted the need for a new system of operations and compliance that is independent of the human penchant for error and self-serving decision-making.
This is where fintech can help put Humpty back together again.
Australian fintech businesses are already built from the ground up to satisfy regulatory obligations at scale. They are ready to meet and exceed the anticipated new regulatory landscape. They can offer credit market solutions to anticipated tightening around responsible lending and regulatory obligations by licensing its IP, or through acquisitions by the incumbents.
They don’t rely on things like credit scores, age, and collateral to understand an applicant’s ability to service a loan. There is minimal manual inputting in lending processes, and very little way to present falsified documents.
Fintechs are able to rapidly and cost-effectively implement technologically scalable solutions in these areas. This presents a huge opportunity to the sector.
An appetite for change – Consumers
But it’s more than just the fact that fintechs have a range of tangible solutions. Australians are also ready to embrace these solutions.
The rise of fintech lenders in Australia over the past 30 years has revealed an appetite for Millennial-focused financial providers who operate entirely outside of the traditional banking and lending system. Customers are increasingly demanding tech-based, personalised, mobile-centric solutions that satisfy their credit needs in a way that suits them, 24/7, which is exactly the offering of most fintechs.
Because banks do not currently offer this, they will be forced to find technological solutions that don’t just meet regulatory constraints and responsible lending obligations. They will also need to satiate the new digital appetite of consumers that is being driven by fintech.
An appetite for change – Banks
With the scale of what is coming, it will be nigh-on impossible for banks to meet all of the challenges of the royal commission and changing consumer demands in-house.
With this is an increasing appetite for finding ways to integrate fintech solutions into their systems – as we’re already seeing overseas.
The banks’ processes are currently out of date when it comes to assessing borrowers’ ability to service additional debt. As an example, the royal commission noted that banks often “took applicants’ word for it” regarding their income and expenses when assessing a customers’ debt obligation – instead of accessing their bank statements electronically to gain a true picture of their financial situation.
In contrast, fintechs have algorithms and processes that make these assessments automatically, without a human in the loop inputting, or asking for, information.
Given the impending focus on regulatory tightening, the appetite for regtech in particular is also likely to be significant. The ability of regtechs to license their technology to the big banks could solve a big part of the banks’ problems, while instantly boosting the reach of these smaller regtechs.
In the end, fintechs across a range of verticals are poised to help banks solve a large number of issues caused by their legacy tech, and the labour-intensivity of their businesses.
They will use automation, AI, machine-learning, and any number of other sophisticated tech-based processes to clean up this car crash – and prevent the next one from happening.
This presents a staggering opportunity for the fintech sector. And now is the time to begin the clean-up.
Clayton Howes is CEO of consumer fintech lender, MoneyMe