Tomorrow Is D-Day for the Banks: Open Banking and Rise of Fintechs

Today is the last day of the financial year. And what a year it has been…

No one would have been able to predict our current circumstances back on 1 July 2019. A historical, world-changing pandemic that has upended society as we know it.

It’s been an incredibly wild ride, in more ways than one.

Obviously, the clear standout has been the devastating hit to societal health. Both physically and financially.

Any loss of life is clearly a tragedy. But the long-term legacy of COVID-19 is likely to be the loss of jobs and hit to the economy.

However, that doesn’t mean it’s all bad news for everyone.

We all must realise that there will be winners and losers from this pandemic. A topic that we have covered plenty of times already in Money Morning, and likely will continue to cover until the virus is gone.

That’s the beauty of humanity.

No matter how bad things get, someone or something will always rise to the challenge. Finding a way to thrive while others struggle. Especially in the realm of business.

Don’t believe me? Well, just look at the financial services industry.

On the one hand we’ve seen the banks get absolutely smashed. Grappling with the reality of looming debt impairments, low interest rates, and ongoing regulatory scrutiny.

Then, on the other hand, we’ve got ‘fintech’ companies like Afterpay Ltd [ASX:APT]. A stock that hasn’t just survived the downturn but boomed in it. Reaching new all-time highs as recently as last Wednesday.

They’re not the only one either. The entire fintech scene has been booming lately. It has been an incredible financial year for the sector.

But the upcoming year is shaping up to be even better…

Free Report: ‘Why Your Bank Dividends Could Be Under Threat’

It’s time to open up

As of tomorrow, 1 July 2020, the next stage of open banking officially begins in Australia.

It will mean each of the Big Four Banks will be required to become more transparent. Providing info on credit cards, debit cards, savings accounts, debit accounts, or transaction accounts — if requested.

All you have to do is ask your bank for your details and they will give it you. For the savvy-minded, that means finding a better deal or rates should be easier. As Finder co-founder Fred Schebesta comments:

Gone are the days of trawling through the internet for the best deal – with CDR [consumer data right] it will all be in the palm of your hand,

Finally, you’ll be able to see all of your banking information in one place and, better yet, you could see savings suggestions sent to your phone as a notification.

Sounds fantastic, right?

I know I’ll be putting these new rules to good use. But I’m under no illusion that I may be one of the few to do so.

It’s no secret that Australians are pretty lazy when it comes to banking. With eight million people having never changed banks ever in their lifetime.

I get it though, switching banks is a hassle. As of tomorrow, at least some of that hassle will be remedied, though.

However, the real winners of open banking aren’t you and me.

Instead, it will be the fintechs that come out on top. Companies who are already reshaping what the modern financial services industry looks like.

An industry that will gradually care less and less about money, and care more about data.

Fintechs in the brave new world of banking

To give you an idea of the impact of open banking, take this quote from David GW Birch:

In the open banking era, fintechs will not vanish, but they will innovate and operate in a different way.

They will not need to partner with incumbents, since they can use open banking infrastructure to get access to their customers’ data that the banks have, and their costs to market should be reduced through the use of standard interfaces.

This means that the fintechs will be able to focus on the customer journey and user experience to bring new products and services into the market.

The key takeaway from Birch is this last sentence. The idea that fintechs will focus on the ‘customer journey’ and ‘user experience’. Because, if I’m being honest, that is their major drawcard.

Afterpay isn’t a household name because they offer cheaper transactions. They’re a household name because they offer a more accommodating transaction.

It is the ease, simplicity, and reliability of their technology that is valuable.

With open banking though, it is the data behind these transactions that will become paramount. Finding ways to tailor their offering to individuals based on how you spend your money.

It is going to be a brave new world where data and money collide. A world where I can’t see the banks being able to put up a fight.

No matter how I look at it, the fintechs seem like the clear winners in all of this. At least, for those that know how to cater to what customers need.

Either way, as of tomorrow open banking will arrive. Whether the banks are ready for it or not…


Ryan Clarkson-Ledward,
Editor, Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks by dissecting the latest events affecting the world.

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