Fintech warns of “knee-jerk changes”

by Rebecca Pike23 Jan 2019

The long-term effects of increasingly stringent banking regulations and how they are changing the way financial institutions do business need to be considered, according to one fintech.

Looking at the impact of the Royal Commission before the final report is released, Avoka said while it may solve immediate problems “knee-jerk changes” in response to public ire and increased tightening of the reigns could deliver unintended consequences.

Dr Christopher Wooldridge, head of client advisory at Avoka, questioned whether the finance industry would lose talented staff who wanted to head to a less regulated industry.

He said, “It’s a delicate balance and an important responsibility for regulators who must ensure that changes are thought through with as much consideration of the effect on present and future business as the risks involved with not making changes at all.”

Wooldridge said the Royal Commission could also impact bank lending to complex entities.

He added, “Whilst Open Banking was happening long before, the Royal Commission has highlighted significant wrongdoing which is driving the conversation about transparency in banking and ease in switching products.

“As a result, there’ll be an impact on lending decisions for both small and large entities. There are also additional complexities for larger organisations, such as KYC (know your customer) for organisations with multiple stakeholders.

“The question for these larger organisations becomes, ‘How does a bank enact the additional obligations without negatively impacting the customer experience?’

“Avoka has seen this develop as a global, emerging trend and has already been deeply engaged in solving these complicated problems for clients such as HSBC.”

Sales director Australia and New Zealand, Nick Edwards, also said that the Royal Commission could affect the way bank products are sold and distributed.

Edwards said, “Change is already happening. In some circumstances, like CBA, the diverse, mega financial institutions are being broken down with a view to banks focusing on banking.

“Two additional themes will likely emerge, firstly, the sales culture and sales incentives in aligned and third-party distribution will either be removed or more tightly regulated to better support customer outcomes as opposed to product sales.

“Secondly, there’ll continue to be a higher proportion of direct sales. That is where individuals do their own research, make their choices and transact directly with an institution, probably via digital means.”