After hearing Stephen King from the Productivity Commission (PC) claim that challenger lenders do not have a realistic chance at competing with the major banks and will ultimately be “gobbled up” by them, Dominic Pym said the advantage that challengers such as his company Up, along with the likes of Volt and Xinja, have is that they are technology companies with a focus on improving customer experience and the ability to move and adapt fast.
Speaking on a panel at the Australian Payment Summit in Sydney on Tuesday (27 November), Mr Pym said: “We spin up our entire banking platform in 45 seconds… and we do that thousands of times so that we can create mass parallelisation to do testing. We do automated testing using technology, which would normally take a bank weeks or even months to do... We test thousands of devices, hundreds of operating systems, every single possible use case scenario and do all of that in 26 minutes.
“We do [that] twice an hour, so about 50 times a day, so that we can deploy these product innovations to our customers. This month (November), we’ve averaged 10 deployments to customers a day. So, if you want to know how we differentiate from the big banks, they can’t do that.
“We don’t have to wait six months and have an external firm come in and do an external audit. We actually do it all in real time. That’s going to take years for the big banks to catch up.”
A different mindset
Communicating a similar sentiment during the panel discussion, Steve Weston, the CEO of Volt Bank said that for the challenger bank, “it’s not about providing banking services” but allowing people to “live better”.
“We see banking as a utility. We’re a technology company, so we’re interested in building technology to improve customer experience for people to live better... Our view is that banking services should seamlessly fall into the background and they should be things that happen automatically. [It] shouldn’t have to be a big effort that you have to put into it to live your life,” Mr Weston added.
At a previous panel discussion, Melisande Waterford, the general manager of licensing at the Australian Prudential Regulation Authority (APRA), said that new entrants with alternate business models and offerings, such as neobanks, have a “completely different mindset and a different approach to providing a service” that the major banks would have difficulty replicating because of their legacy systems and frameworks.
Mr Pym also presented the adoption of Apple Pay among the major banks as an example of the banks struggling to adapt to emerging innovations in the market, saying that ANZ is the only big four bank to offer the digital wallet.
“We launched in the market, about eight weeks ago, instant issuance for Apple Pay. We’re working with Google to do the same thing, to bring that to Australia. We can actually disrupt the big banks because the big banks haven’t done that and could’ve done that in the last five years,” the Up co-founder said.
“I think we do have a good opportunity to make a big difference and build a decent market share.”
Apple Pay’s launch in Australia was met with some resistance from the likes of Commonwealth Bank, National Australia Bank, Westpac, and Bendigo and Adelaide Bank who sought non-exclusive access to Apple’s near-field communication (NFC) chip so that they could offer their own integrated digital wallets to iPhone customers in competition with Apple’s digital wallet without using Apple Pay.
Apple argued against providing access to its NFC chip on the grounds that it would “undermine the availability, security and privacy” its customers expect when using its devices to make payments.
While the banks claimed that customers are more likely to change credit card providers than smartphone makers, the Australian Competition and Consumer Commission denied authorisation in March 2017 for the banks to collectively bargain with Apple and boycott Apple Pay on the grounds that it would “reduce or distort competition in a number of markets”.
The example of the major banks refusing to offer Apple Pay, therefore, could be more reflective of their attitude towards competition, rather than their inability to innovate, as they do offer other digital wallets such as Google Pay, Samsung Pay, Fitbit Pay and Garmin Pay.
Room for more players
Mr Weston noted during the panel discussion that regardless of the major banks’ current collective market share, there is room for many more players to enter and compete.
“If you look at most of the banks in Australia, apart from the top half dozen, their market shares are only small. There’s a lot to go around. [The major banks have a market share of] 80 per cent. You only need to take 1 per cent of that in a realistic time frame and you have a multibillion dollar business,” the CEO of Volt said.
Mr Pym argued that neobanks are increasingly taking customers from the big four banks by offering “a better customer service, a better product, [and] in some cases, a better price” but noted that Up doesn’t necessarily seek to offer the lowest price because the company believes that would be a “race to the bottom”.
“We think you need a competitive price, but you need a better product and you need a better customer service,” the Up co-founder said.
“If we look at Monzo, they’re getting 15 per cent of all new sign-ups in the UK at the moment, and if you look at the switches between them, they’re the third largest switching bank in the UK as of last month (October), so they’ll [have] 2 million, 5 million, and 10 million customers before we can blink.”