Digital disruption disrupting brokers

by Rebecca Pike25 Sep 2018

Digital disruption could be a threat to broker networks, according to APRA chairman Wayne Byres.

The chairman spoke at the Australian Prudential Regulation Authority’s (APRA) Curious Thinkers Conference in Sydney yesterday (24 September).

He discussed the impact on emerging fintechs, saying it was “too soon to tell whether the financial world faces evolution or revolution”.

Outlining several scenarios which could play out, Byres said either way the production and delivery of financial services would change.

In his speech, he said technological advancements in finance will change in the future as new technologies have already allowed smaller businesses to enter the space.

Here he said, “The advent of digital distribution and servicing removes the need for branch and broker networks.”

Further discussing the future, he said, “Open banking and comprehensive credit reporting will help new competitors to challenge established players. And, of course, regulators are making it easier to navigate the process of entry into the regulated financial system.

“Taken together, competition in the supply of financial services will only intensify.

“On the demand side, consumer attitudes are changing. Customer loyalty appears to be declining: consumers are increasingly comfortable switching brands, trying new technologies and conducting business online.

“Successive scandals in the financial sector, highlighted by damaging evidence exposed at the Royal Commission, have also rightly encouraged consumers to think harder about how they manage their money.

“For an industry that has built many of its products and practices to take advantage of customer inertia, that ‘awakening’ will only increase the challenges.”

Byres said that APRA’s job would be to ensure regulated entities are “resilient and responsive” to change.

He also warned that many financial institutions had not invested properly for the future. He said many focus on two themes: investing in new technology to beat off competitors and the need to invest in cyber security.

However, the theme that attracts less attention is often the need for ongoing investment into existing systems to make sure they remain fit for purpose.

Byres highlighted APRA’s system review which found a number of instances where systems were at their end of life but had no funding plans in place to maintain them.

He said this was a particular issue with the upcoming introduction of Comprehensive Credit Reporting, where forward-thinking banks would already have had the practices in place to record the information now needed to be handed over.

Looking at the emergence of TechFins, tech companies which are moving into the financial services sector, Byres said this would test the boundaries of financial regulators but questioned whether if “like Uber, consumers flock to the service, can the law stand in the way?”.

He added, “Like everyone in the industry, APRA recognises change is coming. But sadly, our crystal ball is as cloudy as everyone else’s.

“Without clarity as to how the industry will evolve, our goal is to make sure we gather the skills and intelligence needed to be well-prepared to respond to whatever technology-driven changes lie just over the horizon.”