Jost Stollmann

Australia’s major retail banks are squandering an opportunity to lend up to $60 billion to the country’s two million small and medium sized businesses because their loan conditions are too restrictive, Tyro Payments said yesterday.

The comments follow the release of an Australian Government’s commissioned inquiry report last Friday into bank lending, which found the big four banks consistently engage in practices that cause significant harm to some small business customers.

Tyro Payments Executive Director Jost Stollmann said Australia’s large banks typically insisted that small business owners put their family home up as collateral for any business loan, rather than relying on the positive cash flow of the business.

“In the 21st century it is a ridiculous restriction that Australia’s big banks are insisting that any small business loan must typically be collateralised by property, rather than the cash flow of the business itself,” Mr Stollmann said.

“This is impeding innovation and job creation, and reinforces the notion that Australia’s large banks in many cases are actually curtailing economic growth.

“We know that Australian SMEs want to borrow up to $60 billion a year more than they currently do to grow their businesses, hire new staff and innovate.”

Tyro research has also found that banking red tape is robbing more than 880,000 small and medium sized businesses of four weeks’ productive work time a year, costing the national economy almost $7 billion annually.

Mr Stollmann’s comments come as the Federal Government’s own commissioned inquiry, by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), found that banks have consistently failed to implement changes to address persistent problems, despite repeated opportunities to do so over the past decade.

The ASBFEO inquiry – completed in just over three months – investigated the circumstances surrounding a number of cases of alleged small business mistreatment by the banks, and concluded loan contracts between banks and small businesses, put the borrower at a distinct disadvantage.

It found that since the Global Financial Crisis of 2007, there have been 17 inquiries and reviews that had produced more than 40 recommendations relating to the small business sector.

The ASBFEO report makes 15 recommendations—four to the federal government and 11 to the banking sector—to address the overall finding that the big four banks “consistently” engage in practices that can significantly hurt some small operators.

ASBFEO will also publish six monthly scorecards on the progress banks are making in response to the recommendations contained in the ASBFEO report.

ASBFEO Ombudsman Kate Carnell conducted hearings with the big four banks at the end of 2016 as part of her inquiry.

As Australia’s only technology company with a bank license, Tyro recognises the restrictions of the big banks’ traditional lending model. Therefore it offers unsecured cash flow lending to small and medium sized businesses.

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Brendan Malone

Fintech companies are moving in on traditional financial services providers as their products and services gain popularity, grabbing market share and talent while forcing down costs.

Traditional jobs may be lost and even one of the big four banks could disappear, according to a panel of the nation’s leading fintech entrepreneurs speaking today at the Fintech CEOs on the Future of Finance seminar, being hosted by OnMarket BookBuilds.

Panellist Ben Bucknell, chief executive officer of OnMarket BookBuilds, an Australian fintech behind OnMarket, an innovative online portal giving retail investors direct access to IPOs, says fintech is reshaping the investment industry and opening up career opportunities for today’s university students.
“Investment opportunities that were only previously available to the very wealthy just five years ago are increasingly available to everyone though financial technology. There’s never been an easier time to transform a good idea into a business plan. That creativity is very attractive to young people. We’re aiming to draw them to fintech before they get trapped in a middle-office role preparing PowerPoint presentations just to feed an outsized mortgage,” Bucknell will tell the seminar, being hosted by OnMarket with the University of New South Wales’ University Network for Investing and Trading (UNIT).

Fellow panelist, Jost Stollmann chief executive officer of Tyro Payments, said the bank of the future will be a technology company with a banking licence. Tyro calls it the ‘Nextgen Bank’ and is building such a business. He predicts one of the big four banks will disappear with the fintech onslaught.

“According to a recent Frost & Sullivan study, Fintech in Australia – Trends, Forecasts and Analysis 2015 – 2020, the Australian fintech sector is set to take $10 billion in aggregated revenues away from the big Australian banks and contribute $3 billion of new revenue to the Australian financial services sector from 2015 to 2020. This train is coming fast. Can an old-style bank respond and stay competitive? Maybe. Can all of them? Probably not. Just think: one of the big four banks could disappear in the next 20 years. The only question is, which one will it be? Unless the banks can unbundle their products, overcome their legacy infrastructure and compete with low-cost ‘provider agnostic’ digital platforms, they might well cease to exist,” Stollmann said.

“Australia cannot afford to be complacent. More and more of this country’s best and brightest minds are leaving the big banks in order to start their own business and reinvent banking. The government, regulators, and the wider community should encourage and enable these entrepreneurs and their efforts. We are well-placed as a country to lead ‘Nextgen’ banking and it will take courage and commitment to get us there.

Fellow panellist Brendan Malone, chief operating officer of Acorns Australia, which has released an app that automatically invests a person’s spare change, says disruptive business models will survive and thrive, forcing down costs for customers while taking some business away from the banks. “Fintech companies will not only be able to capture bank customers, but drive down fees across the industry – in a similar way online stockbrokers did at the beginning of the century across the whole stockbroking industry,” he says. “However, a big challenge for fintech start-ups is winning the confidence of customers; winning confidence about providing a seamless and reliable service to our customers. People automatically have that confidence in the banks, but as a fintech, we’ve had to earn the trust of our customers.”

Another panellist, Doug Morris, chief executive of Sharesight, a leading online share portfolio management software business, agrees costs will be forced down, but only gradually. Traditional financial services jobs too will be lost.

“Technology companies can truly provide lower cost and better solutions, but the overall impact on finance won’t be a massive upheaval of the banking system overnight. Instead, you’ll see a constellation of apps that will have more of a slow burn effect. Remember that it takes wilful and passionate consumers to truly change an industry.”

Like OnMarket’s Bucknell, Morris says the fintech industry is drawing talent away from the banks and other incumbents. “It’s clear that there are fewer qualified candidates joining investment banks, for example, and they are going to tech companies instead. Moreover, traditional financial services distribution and marketing jobs are under threat. I’d encourage [university graduates] to gain experience in analytical, data-driven, marketing if possible. This skill set permeates most fintechs,” says Morris.

Georgia King-Siem, a senior manager with KPMG, says the disruption caused by fintech will continue as financial services become automated and commoditised – but only fintech businesses that truly innovate will stand out and win market share.

“Understanding and embracing innovation and the disruption it brings is necessary for survival – we must evolve or face extinction. On the flip side, those that innovate effectively will have a greater opportunity to increase profitability, productivity and develop a sustainable competitive advantage,” she says.

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