Australia’s banking ecosystem is facing transformation on many fronts, according to Bruce Nixon, CEO of software provider Holocentric, with escalating technology, changing customer expectations and profound new delivery models ensuring Australia is the “perfect breeding ground” for fintech proliferation.
Research firm Frost & Sullivan anticipates sharp growth in the Fintech market through to 2020, with a 2015 analysis forecasting the Australian Fintech Sector to record a compound annual growth rate above 76 per cent and hit $4.2 billion by 2020; of which $1 billion will be completely new added value to the Australian economy.
Nixon told AB+F that growth is in large part thanks to the systematic stagnation of Australia’s long-protected banking sector, dominated as it has been by four unassailable institutions, facing historically minimal market competition and with no consequent urgency to innovate.
“But this has changed,” Nixon said. “Escalating technology, changing customer expectations and disruptive new service delivery models, are opening the door for innovative, nimble fintech startups to revolutionise the market.
“Fintechs are not bogged down with same legacy back-ends or the same operational complexity of the big banks. This nimbleness is a clear advantage in a market that is ready for disruption."
Dated, not integrated
According to APRA Chairman, Wayne Byres, large parts of financial firms’ core operating platforms are “still based on technology that is increasingly dated, and not as integrated as it needs to be".
“Companies must continue investment in existing technology platforms while at the same time putting money into new technology which may well replace it," he said. Speaking at an industry event last week, Byres noted the urge to create new tech while ignoring the heritage systems is certain to create problems into the future.
“This conundrum exists for all firms we supervise,” he said. “And the issue is going to rise in importance as time goes by."
Nixon agreed that the big banks are facing multiple threats to operability, profitability and plain sensibility.
“Not just fintechs. Regulatory and technology changes, like the NPP, IFRS and changes to credit card merchant fees, will also require transformation within their business operations.”
According to Nixon, it is critical banks understand how they will operate in conjunction with Byres "shiny new toys".
“Whether back-end systems are re-written, replaced or modified, these wonderful consumer-facing apps will only be as good as the weakest link,” Nixon told AB+F. “This may be the creaking, old systems at the back end, the processes applied to the task or the people who need to perform the work to ultimately deliver the customer service.”
Ultimately, according to the Holocentric CEO, regardless of the approach taken, there needs to be a clear understanding of how the business will operate in the future once the new technology is implemented.
“It’s remarkable. Many organisations still undertake changes without building a model of how everything should work and see just where the future operations of the technology might sit within all the organisational constraints," he said.
The result is that fixes need to be applied “after the event”, adding further complexity and greater difficulty and expense in making future changes.
Nixon said a greater understanding of how all aspects of a financial business must operate can be gained through “a model that identifies all the connection points".
“This model will assist greatly in the transition to the new tools and result in successful integration, faster change and better customer experiences,” he offered.