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During a parliamentary hearing with the Senate select committee on Australia as a technology and financial centre on Wednesday, Judo Bank chief executive Joseph Healy reflected on the state of the banking industry.
He cautioned against deals where major banks acquire fintechs, saying he did not believe it is in the “best interests of the market for that to happen”.
The comments have followed NAB’s move to buy neobank 86 400 for $220 million earlier this year, planning to merge the fintech with its own existing digital subsidiary, UBank. In the following months, the big four bank would flag intentions to buy Citi’s Australian consumer business.
“The reality is that access to capital will quite often force smaller players into the arms of bigger players. But I personally feel that does nothing to promote competition in the future,” Mr Healy told the committee.
“So my strong bias would be to allow new entrants, new innovations, to flourish and not have them captured by the stifling bureaucracy that you will find inside large incumbents.”
Reflecting on his career in banking that has exceeded 35 years, the former ANZ, NAB and Citi executive said he could not think of an example of a small and agile fintech going on to prosper after being bought by a large incumbent.
“What happens is that they get suffocated, stifled and, ultimately, killed by bureaucracy,” he said.
“Specifically, in the context of the financial services sector, I think there is a real opportunity to have a very pro-competition approach that stops smaller players, smaller startup innovators, from being subject to acquisition by large incumbents.”
The CEO also added that the incumbent players have a motive to block innovation and competition in the market – to protect their dominance.
“You have to remember that we [Australia] have one of the most profitable banking systems in the world, which is a good thing,” Mr Healy said.
“But it’s one of the most profitable banking systems in the world because it’s weak in terms of competition, so all of the incentive of the incumbent system is to maintain the status quo, whilst obviously publicly towing the line in terms of being supportive of competition, or at least not blocking competition.
“But the reality is that we have a system that is heavily concentrated and dominated by powerful players who have an ability, if not to stop, to slow down innovation, and that’s not good.”
Australia’s economy is in desperate need of more competition in the banking and financial services sector, with policy and regulation needing to be more supportive, he added.
Mr Healy went through the regulators, noting APRA’s concern with the stability of the banking system and ASIC’s mandate to protect consumers and market integrity.
“We have a regulator in the form of the ACCC, that wants to prevent a reduction in competition. But that’s different from being pro-competition,” Mr Healy told the committee.
“One of the weaknesses in our regulatory architecture today is that we lack a pro-competition policy framework.”
He also commented there had been a “market failure in the provision of banking credit to the SME economy”, with banks leaving small businesses neglected as they fixated on the residential mortgage market.
However, Mr Healy had observed that the banks’ appetite to lend to SMEs has grown over the last six months.
The comments echoed previous criticisms Mr Healy has made on the lack of competition among banks in the small-business lending space.
Judo has estimated that unmet credit from the SME economy is in the order of $120 billion.
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