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Big banks to withstand surge in fintech disruption: S&P

The “mortgage-focused” model of the major banks will help them absorb an acceleration in fintech adoption in response to COVID-19, according to S&P Global.

In a new analysis, S&P Global Ratings has assessed the preparedness of Australia’s major banks for an expected rise in fintech disruption.

S&P noted that it expects consumers, particularly the younger demographic, to “quickly embrace” new technologies as they become available, pointing to the swift adoption of contactless payments in Australia, relative to other parts of the world.

According to the ratings agency, the open banking regime will be the catalyst for a rise in fintech-driven competitive in the banking sector, with the regulatory environment facilitating the entry of new disruptors.

The COVID-19 crisis is also expected to accelerate demand for fintech solutions, with social distancing measures amplifying the need for end-to-end digital services.  


“The country’s banking sector is entering a period of significant change as market participants respond to new technologies and increasing customer demand for tech-driven convenience,” S&P stated.

However, despite a forecast increase in competitive pressures, S&P expects the major banks to absorb threats posed by disruptors by leveraging their “dominant market position”.

“Collectively, the four major banks control about 75 per cent of the Australian banking sector, giving them significant influence over the rollout of fintech innovations to the Australian population,” S&P added.

According to the ratings agency, the big four banks’ higher exposure to residential lending would also offset any potential losses incurred in channels more susceptible to technological disruption. 

“Their profitable, mortgage-focused operating model has lower susceptibility to tech disruption than overseas banking sectors that are more reliant on fees and non-interest income, in our view,” S&P continued.


The major bank’s stronger capital positions are also expected to support their own attempts to match the technological capitalises of new disruptors, albeit less efficiently.

“Incumbent banks’ high profitability also gives them room to invest in new technologies. New players in the Australian banking sector have a significant head start on the technology front, with the incumbents weighed down by legacy systems for their core operations,” S&P continued.

“However, incumbent banks are investing significantly to upgrade their systems. New entrants also face the challenge of building a sustainable customer base in the face of much larger, better resourced competition.”

S&P concluded that as a result of the major banks’ resilience to fintech competition and the “niche focus” of many new entrants, it expects to see “partnerships as more likely than an all-out disruption”.

This comes just a week after the government finalised its “enhanced” regulatory sandbox, allowing fintechs to test the viability of new products without first holding the required licences.

The regulatory sandbox period was extended from 12 months to 24 months, and ASIC was empowered to make decisions over when the licensing exemption starts and ceases to apply, in order to protect the interests of customers.

[Related: Fintech regulatory sandbox finalised]

Big banks to withstand surge in fintech disruption: S&P

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