Then along came the GFC, and suddenly the conversation changed. The truth of bank fallibility was exposed: banks had been taking undue risks because they didn’t bear the consequences or losses.
As it turned out, they weren’t actually very good at assessing certain types of risk after all.
This massive hit to our trust in banks, combined with radical transformation through advancing technologies and analytics, saw a host of online lenders stepping up to offer tech-based lending solutions.
But online lenders weren’t the only ones to find opportunity in financial services disintermediation.
The infamous ‘big tech’ juggernauts, such as Alphabet, Amazon, Tencent, eBay, and Facebook, are now eyeing off this underserviced lending market.
With a relevant digital reputation among consumers and considerable resources, they can deploy the same mountains of cash that banks can, but with the technological capabilities of fintechs and lots more consumer data and understanding.
This makes ‘big tech’ the real threat to banks and fintech's potential allies. So, what are banks doing to prevent the ‘big five’ using data, cash, and tech to swoop in and change the game forever?
Not enough. Not only do Australian banks largely lack online lending capabilities, they also seem to lack the ability to partner with anyone who has these.
It’s been far easier to work with regional tier-2 Australian banks and alternative lenders than with any of the big four.
Regional banks seem acutely aware of their tech deficit, the deep pockets of the majors, and the threat from the global tech giants. Importantly, they also seem to want to address this.
In contrast, big banks still seem to feel safe. So, a partnership deal with any one of them can take anywhere up to 18 months – long enough to starve any fintech startup into non-existence!
Interestingly, in overseas markets such as the UK and the US, big banks are far more readily equipped for online lending than their smaller overseas counterparts.
So, what are the big overseas banks doing differently?
Attitude plus action
Firstly, they see technology and innovation as key drivers of economic growth – not something to pay lip service to – and actively believe in the need for change.
This attitude feeds their action. Instead of viewing fintechs as a threat, Bank of America and JP Morgan Chase, as two examples, have actively sought fintech partnerships to strengthen their tech capabilities.
Overseas incubators are also not the marketing gimmick they can be here in Australia. As another example, Santander's startups emerging from its laboratories have a high degree of probability of working with the firm in the future. The same cannot be said for bank-led incubators in Australia.
In Australia, the pace of 'fintegration' between fintechs and banks has been slow in the uptake. This has left significant coins on the table: in this case, an undersupply of small and medium enterprise loans to an annual tune of AU$90 billion in Australia.
While Australian banks continue to lag in leveraging fintech, Aussie fintechs might be wise to consider opportunities found off our shores.
Because what worked well for the last 10 years is no predictor of what may happen tomorrow. Until Aussie banks understand this, they will always be a step behind their overseas counterparts.
Martin McCann is chief executive and co-founder of Trade Ledger.
