Treasurer says make it easier for ADIs to call themselves banks will encourage new wave of fintech lenders
The Government is going to make it easier for authorised deposit-taking institutions to call themselves banks, in the hope it will reduce the cost of loans.
Currently only ADIs with more than $50m in capital can call themselves a bank but Treasurer Scott Morrison
says this prohibition will soon be removed.
“There are approximately 58 ADIs in Australia that will then be entitled to call themselves a bank, boosting their market appeal and their ability to secure cheaper funds,” Morrison noted. “The benefits to the customer are simple - cheaper loans.”
Morrison pointed to the UK, where easing usage of the word bank in 2013 encouraged the growth of new ‘digital banks’ such as Monzo and Starling. According to Morrison “it led to a flood of new online lenders into the market, forcing the major banks to slash their interest rates and product pricing.”
New entrants in Australia
APRA has tried to make it easier for ADIs to call themselves banks in recent years, with new banks including Bank Australia, previously the Members and Education Credit Union.
However, there has been only one new bank licensed in the last decade that was not already an ADI or subsidiary of a foreign bank. Tyro, an early entrant into the EFTPOS business, was granted a banking license in 2015.
Credit unions, mutual and challenger banks have provided a number of competitive interest rates to clients in recent years. Due to their small size, however, they have often been overwhelmed by surges in lending: one of the biggest, CUA, halted all investment lending in April.
More needed to encourage competition
Morrison’s assumption that Australian challenger banks can follow the path of their UK counterparts has a number of flaws.
The UK is years further along the track of open banking (comprehensive credit reporting) for which the Australian Government is only now developing legislation. Sharing data plays an important part in the model of many fintech banks.
Non-major and challenger banks in Australia are also hamstrung by APRA’s capital requirements, which force them to hold more capital than even for the most high-quality loans. This makes it more expensive for them to lend than the majors.