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Trust deficit means fintechs will fly

by Alexandra Cain | 18 Feb 2019

Leading fintech founders believe the fallout from The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is a great opportunity for them to wrest market share from the major banks. 500 Trust deficit means fintechs will fly

They believe their existing focus on customers is a serious competitive advantage they can exploit as mainstream financial services businesses reposition their operations subsequent to the release of the final report last week.

Jason Wilby, director of insurtech Huddle Insurance, says for too long, there has been an imbalance of power in the financial services sector.

“Now is the time for new and emerging fintechs to flip the financial services industry on its head, for the benefit of customers not providers. To ensure we don’t continue on the same path, all businesses in the financial services sector need to shift their focus to winning back the trust of consumers, by placing them at the heart of their business model.”

He expects the fintech sector will increasingly provide a better way of banking. “The lesson for both emerging fintechs and the broader financial services industry is this: put people in control of their money, how it’s used and how it’s managed.”

It’s a sentiment with which start-up veteran Mick Liubinskas concurs. “The royal commission into banking represents an opportunity for fintechs to create products focused on customers rather than profits. These innovations still need to exist within a more regulated world, but the lack of care and respect shown for customers is an invitation to disrupt for entrepreneurs looking at this massive market.” 

Pat Garrett, CEO of robo investment service Six Park, believes technology and innovation are critical parts of the solution to many of the problems uncovered during the banking royal commission, which means big things for fintechs.

“The revolution is already under way, with consumers tired of paying high fees for lacklustre service and performance, and the royal commission has accelerated awareness of alternatives to traditional models.

“The main areas of concern highlighted in the wealth management sector were high fees, poor accessibility, conflicts of interest and poor transparency for clients. These are exactly the issues technology and services such as robo advice are addressing – this is how robo advice evolved in the US in the wake of the financial crisis.”

He believes more widespread adoption of robo advisers could help wealth managers address compliance, operational efficiency and transparency issues, delivering benefits for both consumers and banks. 

Around the world, major institutions are embedding robo-style products to address issues similar to those uncovered in the royal commission. For instance, Goldman Sachs has taken a stake in UK-based robo-adviser Nutmeg.

Local banks may also follow suit, and either fast track the development of internal robo advice capabilities, or buy them by acquiring established robo advisers. This may help streamline the advice process, improve record keeping and help advisers demonstrate they have followed an ethical and client-centric approach.

CEO of digital asset management company Caleb and Brown, Prash Puspanathan, says the royal commission opens the door for more widespread adoption of technologies such as blockchain, which offers superior record keeping functionality. 

"One of the findings of the royal commission was the veil of opacity the banking system has systematically built around itself, and the need for this to be dismantled, for the sake of consumer protection as well as disruption of monopolistic practices.”

As such, Puspanathan believes more transparent blockchain-based technology should be widely adopted throughout financial services. Additionally he says fintechs will benefit from a more accountable banking system post the Haynes’ report.

“Fintech companies have been hard hit by uncompetitive industry acquisitions. Greater accountability for such actions will only lead to a net benefit for the fintech industry. The royal commission is a watershed moment and change is inevitable. A more agile, lean and open banking sector should encourage greater incorporation of fintechs into existing outmoded systems and practice models for the benefit of the whole sector."


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