Treasurer wants more digital banks and ‘cheaper loans’

Federal Treasurer Scott Morrison has outlined how removing the prohibition of the term “bank” could lead to a “flood of new online lenders” and drive rates down for consumers.

Speaking at the Financial Services Council in Sydney on Monday (30 October), Mr Morrison explained how APRA’s increased powers — including oversight of non-bank lenders — will be beneficial for Australians and boost competition.

“We have provided APRA with a new reserve power over the lending activities of non-banks,” the Treasurer said.

“It will be able to adjust the rules when it sees activities from non-bank lenders that contribute to instability within the Australian financial system. We envisage this is a last-resort power, but a critical tool for APRA were it to become necessary to step in.”

Mr Morrison said that APRA will also have “eyes on the ground” with its ability to collect data from the non-bank lender sector.

“We want the non-banking lending sector to be strong, vibrant and resilient, because it is vital source of competition in a market concentrated around five dominant players.

“The customer needs them to thrive, which is why I have introduced legislation to lift the prohibition on the use of the word ‘bank’.”

Currently, only ADIs with more than $50 million in capital can call themselves a bank. There are approximately 58 ADIs in Australia that will be entitled to call themselves a bank, which the Treasurer believes will boost their market appeal and their ability to secure cheaper funds.

“The benefits to the customer are simple: cheaper loans,” Mr Morrison said. “But it is not just about the current players in the market. This change knocks down a significant barrier for new entrants — nimble and innovative lenders that care less about [brick-and-mortar] branches and more about giving customers a better deal.”

The Treasurer pointed to the UK, where authorities similarly removed the prohibition on the term “bank”, which led to a flood of new online lenders into the market, forcing the major banks to slash their interest rates and product pricing.

“Almost 60 new banks have piled into the UK market since regulatory changes in 2013, including digital banks like Monzo, Tandem and Starling — banks that sell themselves as ‘mobile first’,” Mr Morrison said.

“The future of our banking sector, under this similarly reduced licensing burden, is rather exciting.”

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