Since the beginning of the Australian fintech boom, headlines have proclaimed how our largest financial institutions should be running scared from start-ups.
Now the big four have had a chance to retaliate. What does their reaction tell us about how these big organisations deal with disruption?
Each of the big four has dealt with their fintech rivals in a different way, and for some of them, the cracks are starting to show.
Speaking at an event in Sydney in June 2016, NAB chief executive Andrew Thorburn said the bank was emulating its start-up rivals.
“I actually think we are a fintech company ourselves. We have to have the mindset of a fintech company, and I actually think we’ve got a lot of the assets of a fintech company,” Mr Thorburn said.
In that same month, NAB launched a product – the QuickBiz Loan – from its innovation hub ‘NAB Lab’ on its own – that is, without partnering with a fintech start-up.
“There does remain a question mark around the credit capabilities around some of the fintechs,” Mr Thorburn said at the time of the launch.
“We’ve watched developments in the space and been very determined... to make sure we have our own NAB-branded solution that we’ve built from scratch.”
A similar venture, jointly founded by NAB and Telstra, is small business marketplace ProQuo.
Despite the size of both corporations, ProQuo considers itself a start-up and even housed itself next to start-up accelerator Blue Chilli.
While NAB has gone its own way on several ventures, it has also pledged $50 million to invest in start-ups and develop partnerships with innovative companies through its NAB Ventures fund.
Meanwhile, Commonwealth Bank has taken a very different approach. The bank partnered with payments start-up Kounta earlier in the year. It followed a partnership with small business lender OnDeck.
The deal with OnDeck saw it pick up the Fintech-Bank Collaboration of the Year honours at the Australian Fintech Awards in 2016.
While partnerships between financial institutions and start-ups have become common, it’s Commonwealth Bank’s attitude towards the fintech sector that also sets it apart.
At an Australian Information Industry Association lunch in Sydney, Commonwealth Bank’s chief information officer David Whiteing spoke of the need to embrace newer technologies and be ahead of the market.
“We should mirror the society in which we operate, so if we become really good at being inclusive we will be able to harvest the ideas and respond quickly,” Mr Whiteing said.
“One of the things that my leadership team talks about quite a bit is that today we are a technology team in a bank that has a technology halo. Tomorrow, if we get this right, we will be a technology company that does banking services.”
The big four lender has already established an innovation lab in Hong Kong and begun experimenting with blockchain technology.
At 180-years-old, ANZ is far beyond its start-up years. Earlier this year, ANZ boss Shayne Elliott told a Melbourne fintech gathering he was ready to forge partnerships and invest in start-ups.
However, speaking with The Sydney Morning Herald, Mr Elliott also outlined the bank’s challenges.
“Investing in start-ups is not hard for banks. We have lots of money to write cheques. The difficult thing is figuring out how we can internalise that intellectual capital,” he said.
Two key partnerships announced by the bank include York Butter Factory, a Melbourne incubator and co-working space and Honcho, where customers are referred from its small business banking websites to receive discounted business registration, marketing and data storage.
ANZ’s recent venture with Apple to offer phone users Apple Pay is also an indicator of things to come for the bank, signalling its willingness to adopt technologies built elsewhere.
“The days of a bank needing to own every piece of technology are gone,” ANZ managing director for pensions and investment, Peter Mullins, said recently.
“We believe we can achieve better outcomes for our customers by partnering with a specialist provider committed to the technology investment and product innovation needed to provide a world-class offering.”
Westpac is arguably the big four bank that is furthest along the fintech curve. Reinventure Fund, of which Westpac is the largest funder, has invested in a huge number of fintech start-ups.
Through Reinventure, $50 million will be invested in Australian technology start-ups such as Society One, Valiant Finance and Coinbase. Outside of the fund, Westpac has also partnered with SME lender Prospa.
At the 2016 Banking and Wealth Summit, Westpac CIO David Curran spoke about the new technology ecosystem between banks and fintechs.
“My guess is we will continue to see more collaboration in financial services, and that will start with more partnerships between banks and start-ups – because that’s what we’re used to – just a few people and easy to define contracts,” Mr Curran said.
“Over time, we’ll move to more of an ecosystem model where more and more people will be working together, with new inter-relationships that aren’t that clear. That starts with more partnerships and moving into new ecosystems. The technology is taking us there whether we like it or not.”
What can the big four teach us about fintech?
The banks that are not going to lose at fintech are going to find the best tools at their disposal and admit when they don’t have them, thus the partnerships.
The banks that are becoming the best innovators are working with fintech, not against it. They are admitting that while they are market-leading, a startup may be worth listening to.
While there is no clear answer whether partnerships are the best strategy for every company, any answer that best drives innovation for a fintech company, bank or otherwise, should be what’s adopted.
Elizabeth Barry is a senior writer at finder.com.au
