Senate fintech inquiry to investigate competition, debanking

The fintech committee, which recently renamed itself as the Senate Select Committee on Australia as a Technology and Financial Centre, has outlined new issues it will be exploring in a recent issues paper, before it wraps up the inquiry on 30 October.

For the last phase of its inquiry, the Senate committee will focus on removing barriers to Australian growth as a technology and finance hub, with its mandates including the policy environment for neobanks and issues relating to debanking and competition.

The recent closure of Xinja Bank and NAB’s $220-million purchase of 86 400 has prompted the committee to investigate competition in the banking sector, with the policy landscape to be examined.

In a recent address to members of industry body FinTech Australia, committee chair and Liberal senator Andrew Bragg referred to APRA investigating what is not working for the banking sector.

The prudential regulator released a discussion paper in March, where it declared it would change the framework for how it grants banking licences.

“It’s important that APRA go through its own process of finding out what’s not working. For example, why would a bank pay interest on deposits but not open a mortgage book?” Mr Bragg said.

“That is a question for APRA to think about as we maintain our policy of driving more banking competition. We don’t want investors to lose faith in Australia as a jurisdiction promoting neobanking.”

The inquiry will also explore debanking, a practice where traditional banks reportedly suspend the accounts of fintechs they compete with while citing regulatory or risk concerns.

The government referred to debanking occurring across digital currency businesses in a 2016 report on fintech.

According to Mr Bragg, debanking could also threaten fintechs’ access to the New Payments Platform, the infrastructure allowing real-time payments across banks that was developed by 13 organisations, including the big four banks, RBA, Bendigo Bank, HSBC, ING and Macquarie.

The senator also commented the parliamentary inquiry had heard companies link debanking to an “uncertain policy framework” around fintechs.

“I know this is a major concern for the fintech sector. The experience is that some debanking activities have constituted conduct which could be viewed as anti-competitive,” Mr Bragg said.

“But the ACCC has often declined to act, despite agreeing, in principle, that debanking is a major issue for these projects.”

“This concerns the access to payment infrastructure, we cannot have these entities being effectively shadowbanned by financial institutions merely because they pose a competitive threat,” he later added.

The Senate committee has flagged that it will evaluate the policy framework and the role played by regulators around debanking, aiming to gain a fuller understanding of the practice, including causes and significance. Its remit is broad, Mr Bragg said, and it will be looking to better understand the policy issues that lead to debanking.

In its last submission to the committee, industry body FinTech Australia reported that its members support simplified regulation and lowered barriers for new entrants, as well as introducing a competition and innovation mandate for regulators.

The association also recommended that the government enable companies to log complaints to a central body when they believed they had been hit by uncompetitive behaviour from regulators.

“Regulation in Australia is fragmented and not focussed on innovation and does not foster competition, in fact it can somewhat stifle it,” the submission stated.

“The biggest hurdle and impediment to smaller and emerging fintechs is the volume, complexity, pace of change and evolution and associated prohibitive cost of compliance associated with current financial regulation. This compliance cost places smaller fintechs at a competitive disadvantage and favours larger, more established players, ultimately resulting in stifling of innovation.”

The fintech body also suggested that non-bank lenders may be at a disadvantage when applying for consumer data right (CDR) accreditation, having to undergo a more complicated process compared with their rivals with an authorised deposit-taking institution (ADI) licence.

“Larger companies that have an Australian Financial Services Licence (AFSL) and are a fully audited public company and pass a size test and/or proven track record test, should have a simplified pathway to accreditation the same as an ADI,” FinTech Australia stated.

The Senate fintech committee tabled its second interim report at the end of April, making 23 policy recommendations to the government.

The committee has invited submissions around the matters in its latest issues paper until 30 June.

[Related: 86 400 shareholders approve NAB deal]