Why Royal Bank of Scotland may hold key to open banking

An Australian solution to business banking competition is about to get a dress rehearsal in the UK, according to Tyro’s chief executive Jost Stollmann, and the Turnbull government will need to pay more than just attention.

Last month, the UK Government hatched a radical plan for the troubled Royal Bank of Scotland (RBS) to fund initiatives that would escalate competition and repopulate viable funding options for SMEs.

In the wake of another round of public hearings into the performance of the big four banks, Stollmann posited, “what if the Australia Government found a way to motivate the Australian banking oligopoly to open up banking?”

“There would be an obvious backlash from the Big Four, as such a plan would undermine their dominance that has ruled supreme for so long,” Stollmann suggested. “Yet, it would be a day to rejoice for digital challengers.”

Not just for Tyro, but also the many new fintech start-ups who have long called for policy changes to be made in the banking sector to free up competition and to provide SME consumers with more flexibility in who they choose to bank with.
 

Viable challenger banks

The proposed UK package will essentially stimulate viable challenger banks, which in turn will support more SME clients on-boarding from the RBS, as the UK Treasury puts it: "paid in the form of ‘dowries’ to challenger banks to use to incentivise switching."

And a separate fund has also been proposed to invest in financial technology. Other large established banks, such as HSBC, Lloyds, and Barclays, would not be eligible to benefit from the proposal.

So, why would the Royal Bank of Scotland come to the party and support disruptive competitors?

An HMT spokesperson told AB+F, Treasury’s proposal provides “a clear blueprint to increase competition” in the UK’s business banking market, and would help RBS resolve one of its most significant legacy issues which has held back the sale of the taxpayers’ stake.

The RBS is rather over a barrel on this due to its legacy commitment given to the European Commission as part of the life-saving state rescue package during the Global Financial Crisis. The Edinburgh-based lender was rescued with £45.5 billion of taxpayers' cash at the height of the global financial crisis in the world's biggest banking bailout.

“RBS must deliver on its remaining State aid commitments and this new plan represents the most effective way of delivering the pro-competition objectives behind them,” the HMT spokesperson said.
 

Blueprint for competition

Consequently, Stollmann believes British SMEs are being presented with “a huge opportunity”, especially those wanting to enter the hyper-growth phase of their business cycle.

It is this implementation of an entirely new blueprint for banking competition that Stollmann told AB+F,  would literally “blow the playing field (between challenger banks, the growing fintech ecosystem and the established banking sector) wide open.”

According to Stollmann, Australian banks have failed the SME community.

"I've said this time and time again: Imagine how many more jobs, products and services could be created by SMEs if banking supported them?

“Imagine the increase in the number of SMEs turning into hyper growth innovators just from having the available funding afforded to them?"

“Imagine how many more Tyros could hit the market if the Australian Government provided funding pools and effective policy-enablers that allow fintechs to compete?”

The RBS plan, should it move forward, “will be a game-changer” not only for challenger banks in the UK, but also for SMEs looking further afield for a fair go, he suggested. And the Turnbull Government best "sit up and take note" of the steps that their UK counterparts are taking, “because this is such an opportunity for our market”.

“SMEs, in future, could be calling the shots on who they choose to bank with and this is a culture shock that the Australian banking sector is in desperate need of,” he added.

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