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If you use your mobile phone or the web to do most, if not all, of your money management, then you’re a part of the digital revolution that has disrupted the banking and finance world in the last couple of years.
Furthermore, this revolution has only just begun. Digital has become not just an additional feature offered by banks, but a fully integrated mobile experience in which customers can do everything from opening a new account to getting a loan approved – all without ever setting foot in a physical branch.
Riding this wave of disruption are a few pioneering start-ups that are redefining the banking industry by connecting on a personal level with a new generation of mobile-first consumers.
At CeBIT Australia 2018, leaders from four such start-ups discussed how their companies are differentiating themselves from the big banks and how digital has fundamentally changed banking for Australian and global consumers.
Sharing their views as a panel were Martin McCann, CEO and co-founder of Trade Ledger, Dominic Pym, co-founder of Up, Eric Wilson, CEO and founder of Xinja, and Bronwyn Yam, Director of Product at Tyro Payments.
Banks and other traditional financial institutions have steadily integrated more and more technology into their products and services. But the technology that was meant to improve self-service capabilities, shorten waiting times and enhance customer service has also caused a disconnect in a particularly ignored sector of the market – small to medium enterprises (SMEs).
All panellists – whose companies were born out of identified opportunities to offer more value through personalised and intuitive banking experiences – agreed that the global banking and finance industry has become removed from the people and communities they serve, resulting in a need for new financial independence.
“In Australia, most banks are retail or full service. And then you’ve got institutional banks. SMEs get lost in that service offering and their problems aren’t heard,” said Yam.
She added that since the global financial crisis, SMEs have only been able to borrow half the amount they used to be able to. This shrinkage and availability of credit has injected a lot of fear into SME owners, adding to the stress of borrowing in Australia, which tends to be more stringent compared to other countries in the region.
Considering that SMEs contribute more than 50% of Australia’s GDP, banks that aren’t creating initiatives to support and help them grow are in fact missing a huge opportunity. It’s the reason FinTech start-ups like Tyro and Up have been able to find customer demand in what’s traditionally known to be a saturated and largely impenetrable market.
It’s not just SME-focussed services that are lacking. Wilson says a general lack of human understanding and compassion has given the banking and finance industry a bad reputation, driving consumers to seek more honest, transparent and reliable service from alternative players like Xinja.
Bank services are essential, but over the last few decades, driven by a need to improve convenience, cash has become increasingly replaced by plastic, and that’s also caused a disconnect between people and their money.
Gone are the days where people want to see a bank manager for advice – technology has removed that need. But because the consultative process is removed from the modern banking relationship, people also don’t receive advice about (and therefore don’t realise the value of) investing, saving or budgeting anymore.
The rise of “challenger”, or alternative banking institutions, is aiming to change that.
Neobanks like Xinja, differentiate themselves on reinventing and creating financial products that make people’s lives better. One of the ways they add value is to use technology to alert customers and jog them into better behaviours that constantly improve their finances on an ongoing basis, ultimately leaving the customer much better off.
This is a huge difference from the typical banking experience of yesterday, when communication between institutions and customers was jargonistic, confusing and often impersonal.
Open banking – a model that allows customers to securely share their data with other financial institutions and reap benefits such as easier transference of funds and product comparisons – is another example of an alternative banking method that’s gaining traction among consumers.
Although open banking hasn’t properly arrived in Australia yet, it’s gained traction in the United Kingdom since legislation was put in place in January this year.
When discussing the future of finance given the disruption we’re experiencing today, and whether or not Australians are ready for a revolutionised banking experience, all panelists agreed that the change we’re seeing now will soon become the norm. They also agreed that more change is on the horizon.
In order for the proliferation of alternative banking solutions to occur, however, it was consensus that government support is key, from both a regulatory perspective and bringing in what’s been successfully done in other markets.
“US-based companies like Stripe or Raiz have created significant scale in a market that was thought to have no more room for improvement. They’ve come out and innovated in an industry people said no one else could break into. There’s definitely opportunity to expand in adjacent industries,” said McCann.
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