Where to Invest When Rates Start to Rise — Open Banking is Finally Here

In today’s Money Morning…but it won’t kill capitalism as we know it…same story, new players…open banking is open for business…and more…

[Editor’s note: In this episode of The Money Morning Podcast, analyst Lachlann Tierney talks with precious metals expert Brian Chu about all things silver. If you’ve ever wondered about investing in silver, silver demand from electric vehicles and solar, or even the possibility of a Reddit short squeeze on the metal, this is definitely worth a watch.]

So, I left off yesterday’s rather grim assessment of the Fed and Powell on a bit of a downbeat note.

And that is because it is certainly a topic worthy of pessimism. But that doesn’t mean you and I, as Aussie investors, need to throw in the towel.

For the most part, as I’ve been trying to stress, this inflation narrative is a concern but not an insurmountable one. It is something that I expect will rattle markets, and maybe even roll a few central banking heads, but it won’t kill capitalism as we know it.

In fact, as my fellow editors and I have been telling you over the past few weeks, it could be the catalyst for the next major economic paradigm. One that brings technology like blockchain, cryptocurrencies, or stablecoins into the fold.

As Schumpeter put it, capitalism needs ‘The perennial gale of creative destruction.

So while the Fed and other reserve bankers are doing their best to bring about that destruction, it is up to us to find the creative innovation that is borne from it. Which is why today I want to focus on one sector in Australia that I think is set to boom in this reflationary period we’re entering…

Same story, new players

First off, let me just start off by pointing at the obvious place for investors to park their capital in an inflationary/rising interest rate environment.

The banks…

Yes, love them or hate them, the Big Four seem like an obvious haven for investors in the coming years. Especially after coming out (relatively) unscathed from the pandemic. Granted, we could still see a hiccup or two if loan defaults start springing up.

That’s an argument for another day though.

Because right now, what you should be focusing on is what the banks are doing. With Westpac, CBA, and ANZ all raising their fixed rates in recent weeks. A move that is telling for both property and equity investors.

It seems like all but a formality that the Big Four will fatten their purses once more. Reaping the rewards of the forthcoming reflationary period.

But, I wouldn’t be so sure.

As we’ve seen in recent years, Aussie banks are finally getting a run for their money. With our local fintech sector bustling with new and old competitors alike.

And no, I’m not just talking about ‘buy now, pay later’.

A fad that has been well and truly done to death. With the ‘easy money’ likely been and gone.

Instead, the real focus in my view will be the next wave of fintech upstarts. Things like neobanks, AI-lending, and even blockchain integration.

The fact of the matter is there is a huge opportunity to eat into the Big Four’s market share. With smaller and more nimble businesses ripe to snatch customers with better deals and more efficient platforms.

Especially with the advent of full open banking now less than two weeks away…

Open banking is open for business

See, last year, in the midst of the pandemic, new open banking rules came into effect for the Big Four. Forcing them to implement capabilities to share their customer data with competitors.

A big first step toward open banking.

This year, though, as of 1 July, the rest of the financial industry will now have to follow suit. With any and all authorised deposit-taking institutions (ADIs) required to have the ability to share their customer data upon request.

Meaning all banks, credit unions, and some licensed fintechs will now be beholden to these rules.

And once that happens, I suspect we’re going to see a lot of fintechs start to take advantage of it. Using these open banking reforms to lure in customers with better offers. Especially once rates start to move — either officially from the RBA, or from the Big Four’s greed.

After all, you just need to look at ANZ’s recent decision to cut its savings rates — the second time this year — to see how little they care for their customers. Especially while they’re simultaneously hiking their lending rates, as I’ve already mentioned.

That’s why I’m not only optimistic, but glad, that open banking is finally here.

Because it is about time the banks had to deal with some real competition. After all, as one local fintech, Frollo, found out, Aussies are looking for better service:

  • 74% of survey respondents would utilise a transaction insight and categorisation feature to better understand their spending
  • 68% of respondents would use an account aggregation feature which would display various bank and financial accounts from different institutions in one place
  • 63% of respondents would take advantage of an income and expenses verification feature to make home loan or personal loan applications faster
  • 58% of respondents would use a product comparison feature to compare their products to those from different institutions

So, just to really drive it home, I do think it is important to be aware of why inflation and early rate rises are an important topic right now. But as I’ve hopefully showcased today, if only briefly, it doesn’t mean opportunities will dry up in the market.

It will simply open up the possibility for new trends and companies to take the ASX by storm.

And while fintech isn’t a particularly new sector, it still has a lot of exciting potential for disruption. Particularly with the upcoming data right changes next month.

Just one example of many more to come, I’m sure.

Because at the end of the day, no matter how much the Fed or anyone else screws with the economy, good businesses will rise to the occasion. For investors, it is simply about whether or not you can find them.

And that, dear reader, is what we’re here for.


Ryan Clarkson-Ledward Signature

Ryan Clarkson-Ledward,
Editor, Money Morning

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.

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.

To find out more about the publications Ryan works on and how you can subscribe, please click on the corresponding link here:

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