The imminent open banking scheme presents huge opportunities for Australian FinTechs, but comes with some very real risks, SocietyOne chief executive Mark Jones said.
The peer-to-peer lender recently hit $500 million in lending, a record for an Australian company, and with open banking, a comprehensive credit reporting scheme and the Royal Commission driving customers away from the big banks, the future looks bright for the local FinTech sector.
The open banking scheme starts from July next year, with the big four banks required to provide customer data on request to data recipients – largely FinTech companies such as SocietyOne, but also between each other.
While this provides big opportunities to smaller companies, it will be a threat if it’s not done properly, Mr Jones said.
“Open banking is a big opportunity for us but it’s also a big threat. It’s a big opportunity because it means we can get access to information that lets us meet customer needs better and faster,” Mr Jones told InnovationAus.com.
“The more we understand about our customers, the better we can match products to their needs and do things quicker,” he said.
“On the other side, I think open banking is going to mean that it’s really important we remain trusted, and that people still have confidence in us. As a FinTech industry we need to make sure that we use customer information appropriately for the right purpose, at the right time, and that we don’t abuse their trust. If you lose that trust then you won’t get the information.”
The competition watchdog last week released draft rules for the open banking scheme. Only the big four banks will be subject to the scheme next year, with other providers to be included from 2020.
FinTech companies are keen to get their hands on data to be made accessible through the scheme, and will be able to apply for accreditation to become a data recipient.
Criteria for this accreditation will include that the company has the “appropriate and proportionate systems, resources and procedures in place”, a business plan and evidence of internal control mechanisms and risk management processes. Accredited data holders will be listed publicly on the ACCC website.
“An appropriate balance needs to be struck to ensure that the criteria for accreditation do not impose unnecessary barriers to entry,” ACCC said in its draft rules.
Open banking isn’t the only upcoming policy that has FinTechs excited, with the federal government’s comprehensive credit reporting scheme set to be fully rolled out by September next year.
“That means I’ll have a better understanding of the customer, and won’t be extending credit to someone who might be overloaded. The sooner that comes in the more we can make things better for customers,” Mr Jones said.
Under comprehensive credit reporting, all banks would be required to provide credit information and active consumer credit accounts to eligible reporting bodies. Legislation for the scheme was introduced to Parliament in March this year, but has remained in the lower house since.
The legislation for the Consumer Data Right, which underpins the open banking scheme, is also stalled in Parliament and yet to be passed.
Mr Jones said it’s important these pieces of legislation are quickly passed to give the banks and FinTechs a chance to prepare for their implementation.
“We’d like to see the comprehensive credit reporting and open banking legislation get in so we can report on it. It comes back to making sure they’re set up properly and done properly – we support the reviews but we’d like to see them in soon,” he said.
The ongoing Financial Services Royal Commission, which has been shining a light on various atrocities taking place in the sector, has also provided an opportunity for local FinTechs like SocietyOne, he said.
“It has meant that the public is generally more willing to consider an alternative to the big banks. It comes back to trust.”
“It has created an environment where they are willing to get a second opinion and check the other options,” Mr Jones said.
SocietyOne last week became the first Australian FinTech to hit $500 million in lending, with an aim for this to double by next year. Mr Jones, who joined the company in February this year and took over the top job last month, said this rapid growth is set to continue.
“That experience has meant we’ve worked through our business model and activities, and we’ve been growing consistently for the last three or four years. What we’re seeing is we’re ready to accelerate that growth on the back of those learnings and the position the business is in,” he said.
“Our aim is to provide better deals than the banks and that’s coming to life.”
Before joining SocietyOne, Mr Jones served as an executive at Westpac and Citibank, and has enjoyed being more hands-on at the smaller FinTech company.
“As a person in a big bank I could really see the FinTechs were really building. The objective of a FinTech is to fund a customer need and find a solution at speed, usually in a completely different way in a cost-sense and digitally,” Mr Jones said.
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