Digital banking: Banks tackle fintech challengers
by Nick Abrahams


According to the Millennial Disruption Index, 71 per cent of young people would rather go to the dentist in Marlborough than listen to what their bank is saying, and new research from Viacom’s research arm, Scratch, finds a third of Millennials expect to be bank-free in the near future.

Meanwhile 75 per cent say they would prefer financial services from start-ups and tech companies such as Apple or Google.

US fintech phenomenon, SoFi, has been at the forefront of new customer acquisition and retention strategies, including career counselling and using data analytics to match-make their customers in “Singles Nights” cocktail functions.

The Big Four Australian banks know the challenges that lie ahead and have been busy investing billions in technology, change management and partnerships to maintain relevance.

Nick Abrahams is a corporate speaker on innovation and the future, and leads the APAC Innovation Practice for global law firm Norton Rose Fulbright.

Each has established significant innovation labs in their head offices to design new products and services. ANZ co-invested in its Sydney lab with IBM as part of a broader $450 million deal and has an offshore lab in Singapore. CBA also has labs in Hong Kong and London.

Westpac’s all in

The most structured approach is Westpac’s $100 million investment in the Reinventure fund.

Reinventure offers, not just investment dollars, but a strategic relationship with Westpac to help scale the business.

Reinventure has 16 investments, including Society One & Valiant (lending), Hyper Anna & Zetaris (data), OpenAgent (property), Flare (HR), Fillr (facilitation), Auror (crime prevention), Assembly (payments), Doshii & HeyYou (hospitality), InDebted (debt recovery), Coinbase (cryptocurrency) & Nabo (social media).

In September 2017, Westpac, in partnership with fintech hub Stone & Chalk, launched FUELD, a data accelerator taking eight start-ups per intake.

Westpac has also made direct investments outside the Reinventure platform, including taking more than 90 per cent of Uno Home Loans to collaborate in online mortgages; 16 per cent of Australian cyber security operator, Quintessence Labs; 10 per cent of digital wallet provider Inloop; and an unspecified percentage of medical financial management start-up, Surgical Partners.

NAB more traditional

NAB has a more traditional approach, publicly announcing $50 million of investment funds for its internal business unit, NAB Ventures.

NAB Ventures has invested in Medipass (health) as well as offshore players, Veem in the US (rorex) and Wave in Canada (financial management platform).

The jewel in the crown for NAB’s investment portfolio is its stake in online accounting wunderkind Xero. NAB, through its subsidiary BNZ, was one of the first investors into Xero.

The team at NAB Ventures have their work cut out for them to achieve similar results with the investments they are making today.

The incumbents are leaving old rivalries behind and joining forces to fight a new competitive threat, for example NAB Ventures joined with Reinventure to fund Data Republic (data) and Basiq (open banking platform).

CBA and ANZ less structured

Neither CBA nor ANZ have a specific investment fund. In 2015, CBA acquired TYME, a South African mobile banking operator which has allowed it to expand quickly in Indonesia, China and Vietnam.

In August this year it invested more than $14 million in Silicon Quantum Computing, a company attempting to develop the first silicon-based quantum computer.

In 2015 ANZ bought micro-donation charity start-up Shout for Good and earlier this month announced the acquisition of REALas (property). Chief executive Shayne Elliott, after shaking up the hierarchy with a move to agile teams, has signalled a greater willingness to invest in start-ups, so watch this space.

It has taken a while for the traditional lending divisions of the Big Four to see the emerging fintechs as potential customers.

The new fintech lenders particularly have a need for capital but have had to seek support outside the Big Four. This has hampered growth and added to their cost of capital.

Partnerships with start-ups

However, things appear to be changing in 2017 with listed fintech ZipMoney getting a $260 million line of credit from NAB and, a few months later, $40 million of investment from Westpac.

Non-equity strategic partnering is a lower-risk way for the banks to access the innovation spark. NAB has a strategic mortgage broking partnership with REA as well as a partnership with Visa and Canadian Imperial Bank of Commerce for online travel tools.

NAB has also partnered with Telstra for a digital marketplace for small business, Localz in the healthcare space and Melbourne Business School for a customised course for its executives.

CBA partnered with Airtasker for identity verification and Kounta for payments. Its partnership with OnDeck for small-business loans won Collaboration of the Year at the 2016 Fintech Awards.

Westpac has partnered with Prospa to provide loans to small business.

ANZ partnered with Honcho to help small businesses get started, and global fintech Invapay in the payments space.

ANZ was also first to market with the contentious Apple Pay payments solution, electing not to join its Big Four colleagues in a court challenge to get a better deal from Apple for the solution.

Macquarie joins the fray

While not a member of the Big Four, Macquarie Bank has been embracing innovation. Just recently it launched its open banking platform, which allows users to port their information between financial services providers.

Open banking has been mandated in Britain and it looks like it is only a matter of time before such open platforms are required in Australia. This reduces the competitive advantage the Big Four have as a result of their data and creates great opportunities for the fintechs.

Macquarie has been active in the fintech financing space with a £40 million ($71 million) warehouse financing deal with LendInvest, a British-based online platform for financing short-term mortgages and a portfolio financing deal with MoneyLion, a US-based mobile personal finance platform.

Macquarie also bought $5 million of loans from listed Aussie P2P lender, Direct Money.

Additionally Macquarie partnered with four broking firms to provide Kubio, a cloud-based business loans origination platform for brokers, and partnered with Xero, Tyro and BPay to provide an improved payment solution.

The Big Four know Millennials are set to become the largest customer demographic and, while their efforts fall short of singles’ nights for the lovelorn, they are racing against the clock to stay relevant – or at least be preferable to a trip to the dentist for root canal surgery.

Nick Abrahams is a corporate speaker on innovation and the future, and leads the APAC Innovation Practice for global law firm Norton Rose Fulbright. He is a co-founder of legal disruptor LawPath and is on the board of ASX-listed software company Integrated Research. He is the author of the book Digital Disruption in Australia.

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