After nearly 70 days of hearings, pouring through more than 10,000 public submissions the banking royal commission's final report has been released. In it, Commissioner Hayne explains that one of the “complicating” factors is the impact of technological developments on the financial advice industry.
Hayne writes: “Many in the industry have recognised that technology is likely to play an important role in the future of financial advice, but there is not yet a clear picture of what that role might be. Any recommendation directed to altering the current structure of the industry would need to grapple with the fact that the industry itself will very probably look very different in five years’ time.”
While many are still grappling with the commission’s findings, what’s clear is the overwhelming theme of the report is a call for the banking sector to provide more transparency and better customer experiences. Some of Australia’s financial technology leaders have reacted to the report, saying technology is the key to providing a more seamless experience for consumers when it comes to financial services.
Here's what they had to say:
Aris Allegos, CEO and Founder of Moula
We welcome the release of the Hayne Royal Commission’s final report and hope that the Commission’s recommendations will encourage more transparency and a fairer go for Australian small business owners seeking financing.
The Reserve Bank of Australia has found that more than one-fifth of businesses report that they have found it relatively difficult to access finance. According to Digital Finance Analytics’ 2017 SME Survey, unsecured business loan applicants now face a 74% rejection rate, up from the previous
year, where businesses had a 67% likelihood of being rejected by traditional lenders.
A banking system that is characterised by transparency and ease of use will enable heightened competition with new financiers, fintech and regtech offerings entering the market to better serve consumers. As a result of the heightened spotlight on the industry, we’ll start to see better rates, deal terms, and product experiences, which is great news for business owners and consumers.
The recommendations from the Royal Commission clearly show that banks’ underwriting still hasn’t adapted to the new lending landscape: applications involve cumbersome submissions, and documentation requirements are often prohibitive. Responsible lending plays a huge part in Moula’s business model, which focuses on sustainable underwriting.
Small business lenders owe it to their customers to not only streamline the process but also to practice responsible lending. This means only backing good business to ensure that small business owners receive funding that is affordable, accessible, and contributes to their sustainable long-term growth.
Stephen Jackel, CEO of myprosperity
myprosperity welcomes the Royal Commission’s report into Australia’s banking and financial sector as it highlights the need for financial firms to better articulate and demonstrate value in the services they provide.
Financial advisers have unique expertise that many consumers rely on, and the vast majority of the ones we work with see the report as an opportunity to refocus the conversation around the on-going needs of customers. And we agree. We hope today’s final report propels the industry towards more transparency and delivers better outcomes to consumers by creating a unified framework for technology, banks, and advisers to work together.
Dan Cohen and James Windon, Founders of Flare HR
Our fear coming out of the Royal Commission is that average Australians will be stuck footing the bill for the bad behaviour of the financial services industry.
That bad behaviour is making people believe that they now must become more educated, make more complex choices, take more time, and spend more money, just to tread water -- let alone make any real progress. It’s turning financial health into a source of stress, instead of safety.
We live in a time when technology is making our lives simpler, easier, more transparent. When you can make fewer, simpler choices, and reap hugely positive outcomes. From the way you work out to the way you eat to the way you get to work. Now is not the moment to artificially devolve the financial services sector to make things move more slowly and add more layers of regulation and complexity.
Sam Riley, CEO and Co-Founder of Ansarada
Whilst the industry may be approaching the Royal Commission recommendations with a feeling of pain for the reform required, we see the outcomes as a huge gain for customers and the long term health of our banking system. The final recommendations by Commissioner Hayne challenge the financial services industry to reframe cultural alignment with customer needs and market expectations. Operational adjustments will be significant and this will, no doubt, be an iterative process to re-establish trust.
To achieve this, the industry needs to adopt and embrace smart and nimble technology that will actively respond to the recommendations by surfacing market and business risks early, enabling challenges to be addressed internally before they mature and provide greater transparency for boards, the custodians of governance, to make informed decisions that are in the best interests of the organisation and its shareholders. The advantage will shift to those organisations that have tools designed for transparency that will make them confident and ready.
Peter Langham, CEO of Scottish Pacific
Treasurer Frydenberg points out that affordable access to finance is critical to the economy. The success of the SME sector is vital for the economy. It’s important that the changes flagged in today’s Royal Commission report don’t negatively impact the flow of funding for SMEs.
To keep SME funding flowing, there should be broad business and political sector support for promoting viable alternatives to the banks that are available for small business funding. Scottish Pacific has teamed with ASBFEO to work on a guide to small business lending to be widely distributed later this year, so that more business owners – and vitally, the accountants, brokers and business consultants who advise them – know where to turn to and what their options are. Ideally, we'd like the banks to hand out this guide to their business customers so that if the banks turn down a loan, the business owner knows their other options.
Small business owners must be prepared to seek out alternative financiers to the banks -- there are a range of funding options already available to them if they look beyond the banks. Interest in alternatives is already increasing – Scottish Pacific saw a doubling in SME funding enquiries in December 2018, compared to the previous year. Business owners are looking to do things differently, in light of the Royal Commission.
Australia’s cooling property market, along with more stringent lending conditions introduced due to the Royal Commission, will definitely impact SME owners who need to use their home as security for their business loan.
Mark MacLeod, founder and CEO of Roll-it Super
The Royal Commission evidenced a financial services sector riddled with conflicts of interest and greed. Hayne’s emphasis was on the organisational culture, leadership and incentives that drove a sales and growth culture at the expense of customers, the law and the ethics of individuals within the sector.
Fintech startups and investors with rent seeking, ethically questionable business models, based on selling private individual data, having high or hidden fees, exploiting customer ignorance or financial desperation, should be on notice and will face the risk of criminal charges. Change is coming and it is not just going to impact the big banks.
Fintech needs to build around ethical, sustainable business models. In a sector devoid of trust, fintech startups can differentiate themselves and shine a new light of openness and transparency.