In a submission released yesterday in response to the Financial System Inquiry (FSI) final report, the CIFR noted there is significant disruption on the horizon in financial services.
“The timing of its arrival is uncertain, but it will nevertheless be significant,” it said.
The CIFR noted that digital disruption has proceeded at a slower pace in industries where there is a great degree of trust involved between the provider and the end consumer, such as financial services and health.
“Regulators have a key role to play in ensuring that trust in the system remains intact,” it said.
Peer‐to‐peer (P2P) lending is an online marketplace that connects borrowers with investors, enabling participants to bypass the banks. The CIFR argues that the scale of margins available in banks’ consumer lending books makes this business attractive for disruption.
“Increasing customer dissatisfaction represents an early warning signal to relevant stakeholders that the industry is vulnerable to disruption,” it said. “A relative lack of product innovation in the banking sector enhances the scope for disruption.”
The issue of consumer fairness is another area that has disruptive potential, according to the CIFR.
For example, consumers are typically charged a uniform interest rate on their borrowings, irrespective of their creditworthiness, it said.
“This is profitable for the banks, but is hardly fair on the consumer.”
The CIFR submission argued that the object of disruption is not to replace the banks, but to look at a specific area where there is potential to create a better value proposition for customers.
“Once an area of potential service improvement has been identified, the next step is to obtain regulatory approval for a proposed new solution.”