With the Royal Commission inquiry into financial misconduct already revealing a culture of enabling malpractice, banking activities will not return to the way they were before.
Executives from the Big Four have faced a grilling by politicians to explain how they allowed some of these issues to arise and how they plan to prevent them from happening again.
Thursday saw bosses from ANZ and Westpac undergo questioning, and one issue that cropped up was the new Open Banking policy, which is set to come into force next year.
This policy will require the big banks to make their banking data publicly available from the start of the 2020 fiscal year. They have until 1st July 2019 to assure regulators and politicians that they are prepared and heading in the right direction.
Open Banking is part of the new Consumer Data Right (CDR) policy, which will give citizens more ability to control the data that companies hold on them by providing access to broadband, phone and banking transactions.
The CDR initiative allows individuals to decide who can or cannot access this data. This should increase competition across the board as consumers seek the information that best suits them and their needs. The initiative will be a big cost for the banks, which will need to overhaul their information and technology systems to be able to carry out the demand.
Westpac CEO Bryan Hartzer said it would cost the banks around A$200m and noted that “the investment required in these things is enormous.” Blaming the “complexity of our systems environment” for the cost, Hartzer said that the process is only in its first stage and that more costs could occur later.
He added: “There’s only so much investment and so many technologists who can work on all these things at once.” Hartzer said it is natural that a smaller financial institution would look like it is performing better compared to CDR regulations, but this is only because it will have “less capability to offer its customers and fewer products.”
ANZ CEO Shayne Elliott said he expects Open Banking to be a positive initiative for the industry, citing a need to keep up with the times and react to the recent growth of smaller players.
Elliott said that “non-majors are growing at a rate faster than the Big Four – their market share collectively is the fastest-growing part of the Australian banking system today.”
He added that there are now 27 new banks looking to enter the market, all of whom are either seeking a license from APRA through a sandbox format or with official licensing. Elliott said that the competition in the market is at its strongest for “at least ten years.”
The Parliamentary Committee is worried that the trends concerning competition do not reflect the profits turned out by the Big Four, given their stronger pricing power and ability to get more returns on equity.
Elliott was unconvinced that this is an issue, noting that ANZ’s market share is still dropping and is now around 15%.
Calling new banks both a threat and an opportunity for the big banks to successfully react to new challengers in the finance industry, Elliott said that ANZ will be fine if it takes the right approach.