Published on December 3rd, 2015 | by Ivan Widjaya0
Disruptive FinTech Operations – The Model Australian Banks Need To Adopt In The Near Future
Although Australian banks posted record profits for the past few weeks, a KPMG report has revealed that systemic challenges are threatening what for the past 2 decades has been the golden era for Australian banks.
Despite the rising profits, return on equity fell from 15.5% to 15%, and KPMG has warned that it will only keep falling. Costs are rising, and reduced dividends and branch closures could become the standard over the next few years. Disruptive upstart competitors are putting extended pressure on the banks. the next few years are going to be crucial to the outlook of the big banking sector.
In the face of the Australian Reserve Bank’s lifting cycle, the big 4 banks have of late increased interest rates on home loans. Westpac, ANZ, Commonwealth Bank, and National Australia Bank, have all come under fire for these moves. Their response has been to complain that since regulators have increased capital requirement from them, they have had to take action. However, this simply emphasises the underlying challenges they face by having to please regulators, shareholders, and customers.
KPMG’s Asia Pacific head of banking, Andrew Dickinson, has warned of the potential impact of scrambling to ensure short-term returns to shareholders, saying they “risk significantly damaging their long term franchise value and reputations.”
In terms of customers, he pointed to changing demographics, the “digital revolution and the rise of fintech competition”, which provide attractive alternatives only recently available. The banks, unfortunately, have not found a way to catch up.
KPMG Australia head of banking Ian Pollari highlighted this, saying “At the core of this will be the digital enablement of distribution channels, particularly branches which represent such a significant portion of the banks’ overall cost base. In addition, banks need to continue redesigning middle-and-back office processes and increase the use of outsourcing.”
Modernising the aspects of their internal functions that have been neglected is seen as the way forward if banks want to rescue their grip on the financial sector.
Following the Forex example
The result is that banks must, as a priority, automate and optimise costs of their operations. In so doing, they’ll shift most of their transactions online – a move that is long overdue, seeing as Forex companies have been taking advantage of the rapid changes in technology for years.
FX companies have, understandably, been at the core of the FinTech revolution. One of the reasons is that, with foreign exchange being global in every aspect of their nature, they quickly saw the benefits of digital banking.
Forex firms, such as World First, have been leading in automating services. This has helped not only their efficiency, but their reputation as well. They’re seen as being customer-friendly and painless, whereas big banks are still seen as cold and distant corporations. World First are currently establishing a firm footing in the Australian market, and the banks will need to follow their example.
Transferring money across the globe has been made easy and accessible. The drudgery associated with the big banks needs to change.
Online investment tools
Another FinTech industry that is taking off in a way that should put the banks on alert is that of online investing. Online investment tools, such as Betterment who are the largest automated service, have made investing simple even for the layman, and in doing so have managed to lessen fees.
Investing was once the domain of the economically-minded, but that has changed entirely. Firms like Betterment are growing rapidly, attracting customers who only use the big banks with reluctance. The extensive array of online tools in the sector have entirely changed the game.
The same goes for loans. The people at businessloancompanies.com have reviewed multiple providers of business loans in the UK and USA.
Smart technology is clearly the way forward in the financial sector. Australia’s big banks are fine for now. Their profits are higher than ever. But, as the KPMG report has exposed, this will not last for long unless action is taken. FinTech companies, especially Forex and online investment, are leading the way, and if banks are to keep up, they’ll need to follow the digital example. It may be more urgent than previously thought.