Australia’s major banks will be forced to make banking data available from the start of the 2020 financial year, with the bigger players in the local market expected to have their ducks in line come July 1, 2019.
The mandate comes by way of a new Open Banking regime that forms the first phase of a new Consumer Data Right (CDR) that will allow individuals to “own” their data by granting them open access to their banking, energy, phone, and internet transactions, as well as the right to control who can have it or use it.
The initiative has been touted as giving consumers more choice, but the Big Four have been signed up as a result to spend a large chunk of money to make it happen.
Addressing the House of Representatives Standing Committee on Economics on Thursday, Westpac CEO Brian Hartzer said he predicts the initial financial damage due to Open Banking to be around AU$200 million.
“Technology projects, the investment required in these things are enormous. Open Banking in the first instance is probably going to cost us somewhere in the AU$150 to AU$200 million to implement because of the complexity of our systems environment,” he said.
“There’s only so much investment and so many technologists who can work on all these things at once.”
The committee was concerned that smaller financial players with fewer resources are beating the likes of Westpac to some of the mandated milestones under the new regime, but Hartzer pointed to the many products and services his bank offers as having to remain a priority.
“A smaller bank with less capability to offer to its customers and fewer products will find it easier to do something than a larger bank with a complexity of products and systems like Westpac,” he continued.
Hartzer said Open Banking will be a good thing for consumers, and that his bank also supports the regulatory regime. He rejected the idea that the Big Four banks are at risk of having their business taken from underneath them by newer players, such as fintechs, as they progressively enter the Australian market.
Hartzer believes that only a relatively small portion of people are driven solely by price in financial services, and that for those who are, there are lots of options they can switch to.
He said technology will make it even easier for people to switch financial institutions over time.
“What it reflects … is the fact that people view the bank as a service, not just as a product, and bankers themselves have contributed to the problem here, I think, which is that for many years banks looked at themselves as packaged goods companies,” the CEO explained.
“They advertised their products on the basis of features and pricing; my insight and the way we approach our business is actually we’re a service business and you come to Westpac because of the quality of people there, because of the institutional strength, and our willingness to sort things out if they do go wrong.”
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He also said customers are driven to the quality of technology provided.
“We’ve got world-class mobile banking capabilities, we’ve got world-class payments capabilities, and so our strategy is to say, ‘sure, you can compare just the price, but actually the bundle of services that you get with us is worth staying for’,” Hartzer said.
“They value convenience, they value security, they value service — and a lot of people value the front-line banker that they get to know.
“If you reflect on the number of people that say, ‘I’ve banked with Westpac my whole life, they’ve always looked after me, I recommend Sally in the branch, she looks out for me’ — that’s the sort of thing that drives the majority of the behaviour.”
Hartzer rejected the idea that multiple brands under the Westpac banner — St George, Bank of Melbourne, BankSA, and RAMS — gives the public the fear that if they switch, they’re still staying with the one bank.
This is the fourth round of hearings from the committee, but the first since the Banking Royal Commission kicked off and the first since the federal government agreed to the dates of the Open Banking regime.
Also facing the committee was ANZ bank CEO Shayne Elliott, who again touted the Open Banking regime as positive for the industry.
“The reality is the non-majors are growing at a rate faster than the Big Four — their market share collectively is the fastest-growing part of the Australian banking system today,” Elliott said on Friday.
“There are 27 new banks, I believe, seeking a licence with APRA either through the sandbox regime or actually formally seeking licences to enter in to the market. I think the completive environment is far more intense today than it has been in at least 10 years.”
Of concern to the committee is that such competition isn’t being reflected by the balance sheet the Big Four are producing.
Combined, Westpac, ANZ, the Commonwealth Bank of Australia, and the National Australia Bank (NAB) have significant pricing power and higher-than-average returns on equity and large market shares; they also hold a 95 percent share of the entire Australian finance industry.
Elliott claimed that ANZ currently boasts a 15 percent market share.
“We’re consistently losing market share,” he said.
“We’ve got new players in terms of digital-only banks, people coming into the payments system or wealth — I believe that the market is more competitive today in terms of the number and style of competition than it has been.”
According to Elliott, new players represent both a threat and an opportunity to ANZ and the other Big Four.
“One side they’re clearly a threat. We have all these new banks coming with great services and offering digital this and that, and there’s lots to like about those,” he told the committee.
“On the other hand, I see it as a relatively small bank with 15 percent share, if we do well, if we service our customers better than we have in the past, if we invest sufficiently in some of those new services, if we’re smarter and more focused on our customers than our competitors, and we use our data — our customers’ data — to help them more effectively, I believe we can win.”
Elliott, who initially was the only Big Four CEO to embrace the idea of Open Banking, said ANZ is “completely committed” to the impending regime.
“I believe there’s benefits to the community, and if we actually get our act together for ANZ as well,” he added.
For the first half of the 2018 financial year, ANZ reported AU$3.49 billion in after-tax profit, up 4 percent year over year.
Westpac reported AU$4.2 billion in after-tax profit for the first half of FY18, up 7 percent year on year after spending AU$1.3 billion on transforming the bank over the past 12 months.
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