Fintechs won’t topple big banks: Spectrum

In a report compiled by Spectrum principal Damien Wood, he argued technology, while “driving disruption in many industries”, would not topple “long standing dominant players” in the banking industry.

“Small and medium sized fintechs could struggle to compete with Australia’s large banks,” Mr Wood wrote.

“We see disruption as a modest threat to the credit risk of major Australia banks.

Newcomers to the banking industry, who may already be on digital platforms, nonetheless face “several challenges in competing with banks on distribution”, Mr Wood said.

Big banks have already secured a dominant market share of customers and are well-equipped with resources to invest in technology, service and product delivery, he added.

“The newcomers’ customer interface has to be markedly better to entice someone to switch from a bank – all things being equal,” Mr Wood said.

“Customer inertia can also be strong.”

Major banks also have the advantage of “very strong” brand awareness, “longevity” and “stability” on their side, Mr Wood added, as well as “track record and breadth of services to win the business”.

“When one thinks of where to deposit or borrow money, though, fintechs are unlikely to spring to mind,” he said.

“For the bulk of creditworthy borrowers, banks or their brokers too are the first call.

“For a safe, cyber secure and convenient place to leave your excess cash, banks beat fintechs.”

Finally, big banks have stronger risk management than fintechs, with the former benefiting from “experience garnered from generations of bankers passing down lessons”.

The latter, according to Mr Wood, are “flourishing” in “high risk lending”.

“When the credit cycle eventually turns for the worse, we will see which lenders managed to have priced their risk appropriately,” Mr Wood wrote.

“We back the major banks to be doing a better job than fintechs in risk management.”

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