This was big news…
As reported in the AFR last week (my emphasis):
‘One senior banker noted that in the whole history of the APRA stats there has never been a case where a lender’s share of the owner-occupier home loan market has shrivelled by 0.75 percentage points in the space of a year.’
The latest statistics showed an ‘unprecedented slide’ in ANZ’s market share of home loans.
This should worry ANZ shareholders.
Earnings from mortgage lending is the biggest source of bank profits. Less market share equals less profit.
Unless of course they think the property market is going to tank at some point? If that happened, less market share would be good.
Could ANZ management be playing 3D chess here?
Alas, I doubt it…
But it’s not just the size of the fall in market share for ANZ that matters. It’s also the speed of it.
The same senior banker quoted in the AFR added:
‘Changes in market share in the country’s home-loan lending market, usually take place at a far more glacial pace.
‘If you had a really great strategy and implemented it incredibly well, the best you could hope to increase your market share by about 0.5 percentage points over a period of five years.’
To reiterate, ANZ lost 0.75% market share in just one month. That could take over five years to claw back…
The problems aren’t just confined to ANZ either, although it seems to be suffering the worst out of the Big Four.
All major banks are seeing loan growth stall to record lows.
So, what’s going on here?
Let’s look a bit deeper…
The perfect storm
According to analysis from Morgan Stanley, it’s all about competition. Competition the big banks can’t keep up with.
Check out this chart:
You can see that as the loan growth from the major banks starts to retreat (red line), the rise in non-bank loan growth (blue line) has shot up, reversing a trend in place since the 2007 GFC.
As reported in the AFR, the big banks are falling down in two critical areas:
‘Jonathan Street, chief executive of Thinktank, a commercial lender with a $1 billion loan book, said small and non-banks were ready to compete on price and service, particularly time taken to approve a loan.’
Speed and cost.
Sounds simple enough to fix, you’d think.
Yet it’s an issue that won’t go away quickly. Despite their market share and size, big banks have large costs to cover and antiquated technology to deal with.
And as we saw recently with AMP’s wealth management arm, they loathe to compete on price, until they have no other choice.
[Editor’s note: The decision to stall competing on price by AMP cost them dearly. The AMP share price is at record lows and it’s looking like a basket case. A warning sign for all banks perhaps…]
On the other hand, nimble fintech challengers are leveraging cutting-edge tech to streamline the lending process. It’s resulting in cheaper costs, cheaper loans for customers and faster approval times.
And with trust in big banks at all-time lows at the same time, it’s creating the perfect storm of disruption…
A global story hitting our shores in 2020
Australia’s big banks have been relatively very lucky so far…
The China stimulus in 2008/9 saved them from the post-GFC meltdown experienced elsewhere in the banking world.
And more recently they’ve managed to avoid a tide of tech disruption that’s hit other major markets a lot sooner. Mostly through regulatory barriers gained through political influence.
But in this global world you can’t hide from progress forever.
The tech is ready to roll and the political protection is gone thanks to the Hayne Royal Commission.
Which is why I think 2020 is going to be the year the fintech wave hits our shores in a big way. Volt, Revolut and 86 400 are just three of the players getting ready to storm our beaches.
I — along with millions of other Australians — am on the wait list for all three.
And the smart money is flowing into these upstarts fast.
For example, business bank contender, Judo, just secured $247 million in Series B funding including investments from Goldman Sachs and Credit Suisse.
Not bad for a bank that’s only a year old!
As Business Insider explains, this tidal wave won’t be stopped:
‘Australia is the latest geography neobanks are flourishing in, and these players would be wise to learn from the experiences of their peers in other countries.
‘While Europe, and the UK in particular, have been at the forefront of the neobank movement — we’re now seeing players crop up across the world. A number of players from the UK have gained substantial traction, millions of customers and investor capital, with many now beginning expansion into new territories like the US.’
In the US, the battle of the banks has taken an interesting twist.
Here, we’ve seen community banks (like Aussie credit unions) partnering up with fintech disruptors to the benefit of both.
‘Instead of trying to beat a wave of high-growth financial technology start-ups at their own game, a group of small banks is opting to join them.
‘These low-profile community banks quietly run the plumbing underneath billion-dollar fintech firms such as Square, Stripe and Robinhood — handling mundane banking activities for them like holding customer deposits and underwriting loans — while the tech firms remake finance for a digital age.’
This all leaves you with some questions to answer…
How will fintech play out in Australia? Can the big banks adjust in time? Are bank dividends under threat?
And most importantly — how can you profit from this immense opportunity at hand?
I’ve been thinking long and hard about all this for many months.
And today, you can see my top fintech picks taking on the banks in this free report.
Editor, Money Morning