Speaking on a panel at the Australian Securitisation Forum in Sydney this week, PwC Asia head of digital financial services, Thomas Achhorner, said incumbents will most likely muscle in on any innovation from disruptors and “mimic” their offerings more successfully.
“It is fair to say that an online digital mortgage is something that every bank in this country is currently working on,” Mr Achhorner said.
“Not only the mortgage itself, but a broader, ecosystem-based experience starting from the real estate purchase all the way to insurance and everything that happens downstream from the mortgage.”
Asked about the impact of fintech disruptors, the PwC partner said banks typically react to new fintech players in three ways.
“One is they might collaborate with them and establish partnerships and build them into their own platforms,” Mr Achhorner said.
“The second one is the incumbents create the capabilities themselves – they mimic what fintechs do. Or, in the third case, sometimes fintechs are ignored,” he said.
“In the long term many fintechs will disappear because the incumbents have better cards in this game. They have the means, the funding, the brand, to some extent the trust although that is eroding a little bit, and they have the customer base.
“If there is a new offering from a peer-to-peer lender, for example, the incumbent who is able to mimic what the fintech does very quickly will probably win.”
Mr Achhorner said this is already happening in other sectors, such as financial advice, where banks are dominating robo-advice.
“In the long term most fintechs disappear, with a few exceptions. About 98 per cent will disappear,” he said.
However, as banks continue to work on a digital mortgage product, one of the biggest hurdles they face is codifying credit rules.
“The first challenge is to codify those rules in a systematic fashion,” Mr Achhorner said. “Before you can even think about putting the decisioning into a machine. That will be critical. It will be critical for every financial institution to put its own rules, and its own credit rules, into this machine.”
If successful, this has the potential to increase the consistency of decision making and reduce operational risk, Mr Achhorner said. However, he warned that if everyone has the same rules or similar rules we might see fluctuations in the market very quickly.
“Which is what happened when algorithmic trading was introduced into financial markets,” he said. “Everyone did the same thing. This could happen in the credit market as well where everyone tries to lend to the same ‘good’ risks and nobody lends to the poorer risks anymore.
“So we could see a huge imbalance. A reasonable or more prudent model is something more hybrid.”