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In an address to the Business Forum at the annual Australasian Finance and Banking Conference, head of financial stability at the Reserve Bank of Australia (RBA) Jonathan Kearns spoke of the technologically driven shift in the banking landscape.
Mr Kearns noted the increased availability of “vast quantities of data”, which he said has facilitated the emergence of new technologically focused competitors that threaten the established market’s “dominant position” in the financial sector.
According to Mr Kearns, the growing availability of data and the increased presence of technological disruptors in the marketplace could particularly threaten the competitive edge of established banks in the credit risk assessment space.
“A substantial influence on banking at the moment is the rapid pace of technological change,” he said.
“We are currently seeing a massive increase in the availability of, and ability to process, data.
“This could erode, or maybe even eradicate, banks’ historical advantage in credit risk assessment.”
Mr Kearns observed that the continued shift in the availability of data would be fuelled by the introduction of the consumer data right (CDR), open banking and comprehensive credit reporting.
“The CDR makes it clear that the consumer owns their own data, and open banking provides bank customers with the ability to share their account data with other institutions, including non-banks,” he noted.
“Using these data, a non-bank could, for example, suggest accounts or cards that better suit a customer’s needs or use the information for detailed credit assessment.
“In addition, comprehensive credit reporting will provide [bank and] non-bank lenders with greater information about potential borrowers’ credit history.”
Mr Kearns added that tech-based disruptors are becoming “more valuable” for banking services, noting that much of the data collected by such firms could be used to predict consumer behaviour, including a borrower’s capacity to repay their loan.
He continued: “Technology firms for which collecting and analysing data is in their DNA are a new type of competitor for banks that have historically struggled to take full advantage of the private data they hold.
“How well individual banks respond to technology challenges will no doubt influence their relative success.”
Moreover, the RBA’s head of financial stability noted that tighter regulatory requirements imposed on banks and growing community expectations off the back of public scrutiny would also undermine their competitive advantage, with non-bank players not subject to the same obligations.
However, Mr Kearns said he expects the banking sector to continue playing a “critical” role in the Australian economy.
“Australian banks in particular serve critical functions in the Australian economy by providing credit intermediation and more generally facilitating economic activity,” he said.
“Australian banks are profitable and resilient, and a strong banking sector has contributed to Australia’s extended run of economic growth.”
He concluded: “It’s hard to imagine a modern economy without a banking sector. The eight largest Australian banks can trace their history back, on average, over 140 years, [but] what role today’s individual banks play in the provision of banking services in the coming decades will depend on how they adapt to the challenges they face today.”
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