Fintech Australia Chair Simone Joyce Says Banks are “Risk Averse,” Suggests that Better Policies Are Needed to Support Fintechs

Rebecca Schot-Guppy, CEO at FinTech Australia, says that her organization thinks that Australia is on the right path in terms of financial technology adoption and its overall approach to developing its economy.

Rebecca, whose comments came during the Select Committee on Financial Technology and Regulatory Technology meeting and conversation with Simone Joyce, Chair, FinTech Australia and CEO at Paypa Plane, noted that it’s a good idea to encourage the development of an “overall competitive” ecosystem.

She believes that competition could lead to “more international Fintechs launching their services in Australia, bringing with them talent, thinking and technology that will grow our overall ecosystem.”

Rebecca added: “While competition has improved, there are still some policy factors holding it back. The (Consumer Data Right) CDR only launched last year and will be transformative for competition. But, to realize its impact, we need to speed up and streamline onboarding and accreditation.”

Rebecca further noted that there are still “inconsistencies in the current rollout.” For example, Australian ADIs, authorized deposit-taking institutions, are “at a competitive advantage when applying to access CDR, compared to the larger lenders.” She also mentioned that many of these bigger lenders are “fully audited” public firms, and the process needs to made a lot simpler to “reflect” this.

She continued: “We also see a case for the creation of an MPP CDR sandbox that would allow Fintechs to explore new products and innovations with more regulatory freedom. This should also be tied to government KPIs for CDR adoption that can be used to measure the uptake of this new technology and a benchmark for our progress.”

She pointed out that payments infrastructure like the MPP should be a lot more accessible to the Fintech sector. Rebecca believes that this “in part can be achieved by lowering the cost associated with accessing it and also by establishing access pathways that do not solely rely upon ADIs and their willingness to sponsor fintechs into payment infrastructure.”

Rebecce added that the Australian government must work cooperatively with the industry to “prevent bank interference in hindering competition.” She pointed out that this has “less to do with fintechs’ exits driven by banks, such as NAB’s acquisition of 86 400.”

She further noted that her organization encourages this, as they believe it can help with growing the ecosystem and create funding opportunities for Fintechs. She added that they’re “pointing to instances where major banks have used their leverage and market power to create scenarios that slow the growth of the sector, including debanking many Fintechs.”

She continued: “We believe it would be beneficial for the industry to gain access to the electoral roll to facilitate KYC checks, we [also] ask the government to consider further tax and policy related measures aimed at improving overall access to capital. This includes further tweaks to R&D to add a premium that rewards industry collaboration with publicly funded bodies.”

She also mentioned that her organization members support an overall reduction in the business tax rate to 25% in order “foster international company expansion into Australia and keep our ecosystem globally competitive.” Additionally, she wants the nation’s government to “consider the UK’s approach to its ecosystem of government backed loans for the Fintech sector.”

She added: “Through further collaboration, Fintech Australia and its members aim to see Australia emerge from the COVID-19 pandemic stronger than when the pandemic began. We look forward to providing further guidance and helping to realize these ambitions.”

While discussing other industry developments, the meeting Chair pointed out that an argument was made to the committee that there was an “unsophisticated” regulatory framework which was “leading to debanking.”

Responding to a question about whether she sees debanking as “being linked to the policy framework,” Simone Joyce stated: “I think that banks are risk averse and that’s appropriate for them. But, because there is no framework that leads them through on a safe path by adhering to it and getting to yes, they default to no. It’s the easiest, safest and known path. If there were a policy driven regulatory framework that allowed them to check off certain criteria and ensure that the party that they were considering banking met those criteria, I think that we would see banks more inclined to say yes.”

Rebecca added that “it’s not just digital assets” and that “it’s actually a significant amount of payments businesses.” Joyce noted that this is “critical for payment companies, because it’s often not just the ability to bank funds; it’s the ability to access payment infrastructure via that sponsorship agreement with the ADI, which means they get cut off from their raw materials and they can’t operate.”

Joyce further noted that when a banking institution agrees “to allow a payment company to access the payment rails by the ownership of that particular ADI, the payments company takes on the burden of responsibility to ensure that they are performing appropriate KYC, making sure the funds are being transferred appropriately et cetera.”

She continued: “Because there was a move away from that as something the banks were willing to do, looking at the investigations by AUSTRAC into Westpac and other banks recently, the way to fence that happening is to debank companies that they don’t have that purity of oversight about where the transactions are.

So instead of looking at the partnership with the payments company as a commercial venture whereby they can drive transactions into the banking infrastructure, it becomes a risk more than a benefit.”

While commenting on how it may be easy to gain access to the payment system via an ADI, Joyce noted: “That is the only path that exists. If there was another path that was open or even if there was, as Rebecca mentioned in her opening statement, a sandbox, where both parties could get comfortable with each other operating in a safe environment, that would go a long way towards it.

But having the ability as a company to apply for independent access to the payment infrastructure in Australia would open up competition in this space.”