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Appearing before the House of Representatives standing committee of economics last week, the chiefs of Bank of Queensland, Volt Bank and Judo alongside industry body Australian Banking Association (ABA) shared their thoughts on how to boost competition in the sector.
Anna Bligh, chief executive of the ABA, championed deregulation, saying it was important for smaller banks that lacked the resources of their major rivals and struggled to climb the “mountain” of requirements and standards.
“There is a raft of new regulation and compliance requirements right across the industry, and they are largely applied uniformly, regardless of the size and resources of the entity being regulated,” Ms Bligh said.
“This is a particular burden for non-major banks.”
One example of such regulation posing as a barrier for smaller banks was the issue of protecting against laundering and finance terrorism, which she warned requires a fixed cost of investment and could be unfair to smaller entities.
Another piece of regulation Ms Bligh focused on was allowing e-signatures, calling in-person signing a barrier to the lending process.
Treasury recently released exposure draft legislation to make the government’s COVID relief allowing e-signatures permanent, which the ABA has urged the government to progress.
“Witnessing and signing documents in person can add days to an approval process,” she said.
“It’s a tool that no one needs or wants. And frankly, in this day and age, it’s just not necessary. The government was right to provide temporary relief [through COVID], but that relief has now expired.”
Bank of Queensland CEO George Frazis echoed Ms Bligh, affirming the bank is “very supportive of electronic signatures”, noting time delays in the lending process can disproportionately affect rural customers.
“A big part of our BOQ brand is broader Queensland. About 30 per cent or more of our operations is in regional/rural. To actually have electronic signatures, to avoid that physical postage of documents is a big positive in terms of getting decisions to customers earlier,” he said.
“One thing as a customer, if you’re a small business, or even a customer waiting for approval for a home loan, any delay creates a huge amount of anxiety and also delays them getting on with their business. Electronic signatures definitely improve that process.”
BOQ’s average loan approval time frame is around 10 days, according to Mr Frazis.
He also argued against allowing any more consolidation with the big four banks, as his own organisation was wrapping up a merger with ME Bank.
“We personally would not be supportive of any further consolidation, if that could be avoided with the four majors,” Mr Frazis told the committee.
However, when facing questions around the ME Bank deal, he argued the merger would drive more competition in the sector.
“If you look at the combination of BOQ and ME Bank, which is strategically very compelling, that does create a much more competitive environment,” Mr Frazis said.
“But even with that combination, our combined group has in the order of that 3 per cent share of the baking sector, so we are still quite a small player.”
Further, the BOQ CEO commented he would support measures that ease “onerous requirements” and support competition for fintechs on a regulatory basis – in the interest of competition.
What do neobanks think?
The parliamentary hearings on Thursday (1 July) saw the House committee question neobanks for the first time in its inquiry into the financial services sector post-Hayne royal commission.
Both Volt founder and CEO Steve Weston and Judo Bank cofounder and chief Joseph Healy agreed the incumbents have not rewarded their customers for being loyal, which presents opportunities for disruption.
Mr Weston referred to interest rates across savings accounts, noting introductory rates which taper off after a few months and rates which are only given after achieving a certain hurdle, such as a number of transactions.
“That is banking of yesterday, and you ask the incumbents: ‘Why do you do that, when you say that you want to put the customers at the centre of what you do? You know most of them are getting a lousy deal’,” he said.
“Their response would be like this: ‘Hey, everyone does it’. Or, ‘We don’t break any rules – the terms and conditions clearly say that. So, we’ll just keep doing it... if the customer is silly enough to forget about, that’s their fault’.”
Mr Healy echoed Mr Weston, commenting transaction costs and the hassle of switching banks have caused a “significant inertia” – allowing the institutions to not be as competitive.
“Making it easier for people to move banks can create opportunities, and choices are really at the centre of a more competitive banking system,” he said.
“The reality today is that, while banks are not aggressively pursuing new customers at low interest rates, their loyal customers are paying a loyalty penalty, actually being charged, you know, sometimes 2-3 per cent higher than the new customer, and that is always allowed to continue because the ability to switch, or the choices open to customers are not attractive enough.”
Both neobanks expect open banking will boost competition, when customers are able to see all of their accounts and credit card loans and to compare against other products. Mr Weston said the regime will remove complexity in switching, as banks will need to share customer data.
Mr Healy added that while lenders can face a lot of competition in the mortgage segment, the SME side is quiet.
“In the SME economy, there’s a lack of competition. It’s a complicated segment of the economy to bank, it requires a very different set of skills... so I would ask what kind of competition [are we looking for]?” he said.
“How many banks are disrupting, or are capable of disrupting the status quo? I think that’s what the emphasis should be on, rather than on the quantum.”
[Related: Banks say responsible lending adds complexity, hinders SMEs]
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