Australian business banking was a hot topic before
the COVID-19 pandemic brought the economy’s
remarkable three decade recessionless run to an
abrupt halt. The Big Four’s extraordinary double
digit return on equity (ROE) outcomes achieved since
the four pillars regulation was introduced in 1990
has not gone unnoticed by bold Neobanks entering the
market at increasing frequency.
Tyro, Judo Bank and now Avenue are all targeting the
85 percent Big Four share of transaction banking and
credit as nominated by business owners, CFOs and
corporate treasurers directly interviewed by East &
It is not just peripheral products in the sights of
nimble new entrants emboldened by the new
Open Banking regime either. The incumbent
major’s bread and butter strongholds are also under
threat as evolving customer expectations see
transaction banking, cash management and payments
fall into the cross hairs.
Competition is Never Enough
In response to the Hayne Royal Commission
identifying a lack of legitimate competition in
banking broadly, the government was urged to elevate
one of the country's main regulators to become a
‘champion’ of competition in financial services.
What followed was the first new authorised deposit
taking licences issued in decades (ADI) with more to
"We see some very bad commercial decisions since
we've had the four pillars policy. We need one of
the regulators to be a competition champion, to take
the primary responsibility for putting the case for
competition ” - Productivity Commission Chairman,
The majority of the challenger bank sector is
targeted at retail banking with the remainder
focused on the small to medium sized enterprises
segment (SME). Small business owners have been
crying out for more attention for many years and
although barriers to entry are high, the opportunity
East & Partners primary research reveals sharply
declining customer satisfaction, particularly around
perceptions of value for money, and a low
preparedness to advocate their bank positively to
friends and colleagues. In fact, most small
businesses are highly antagonistic and searching for
alternatives. Customer switching intentions have
reached recorded highs for SMEs and corporates
The latest Neobank offering, Avenue, is seeking a
full banking licence by Q4 2021. Headed up by former
CBA executive George Confos as CEO with founders
Dale Hurley and Colin Porter of CreditorWatch fame,
the group has raised A$11.4 million in funding
buoyed by the success of Judo’s A$1 billion
valuation following a series of successful raisings.
Since inception in 2016, Judo now has 55 bankers
servicing 650 customers, amassed A$1.5 billion of
deposits and written A$1.6 billion in loans.
The sector is also marked by the increasing presence
of non-bank finance providers led by Scottish
Pacific along with Prospa, Lumi, recently Enova
acquired On Deck and peer-to-peer lenders such as
So what is the most critical pain point identified
RFP research leading to churn away from
incumbent banks? Practical real world solutions with
defined day-to-day operational benefits that save
time…shouldn’t digitisation have solved this
All banks face the daunting task of overcoming
remote customer dealings for complex relationship
banking engagements never before conducted online.
Improved digital capability has been at the
forefront of investment and strategic planning since
smart phones revolutionised mobile banking in 2007.
In theory COVID-19 enforced remote dealings should
strongly position leading tech savvy offerings to
take advantage. In reality, execution does not
always meet reality and it is here where Neobanks
are poised to pounce.
The main reason corporates are unwilling or unable
to adopt new standards and processes are largely
misunderstood. Trade Finance arguably presents as
the area of banking most resistant to change,
continuing to rely on archaic paper heavy processes.
East & Partners data shows seven out of ten trade
finance customers report system integration
difficulties as the main reason preventing them from
shifting operations to ‘paperless’ document matching
and digital accreditation capability.
One in three customers cite complex supplier
relationships as a key barrier to eTrade adoption,
seemingly failing to align unique supply chain
characteristics with an appropriate eTrade solution.
One in three enterprises suffer from a lack of
advice from their trade bank along with a further
one in four that feel the cost of system transition
is too inhibitive (26 percent).
What is holding
back your business from 'paperless' trade finance
% of Total
Source: East &
Partners Australian Trade Finance Program (N =
Note: sum to over N
count due to multiple responding allowed
The example set by the United Kingdom (UK) provides
a clear path forward, with a vibrant Neobank sector
rapidly emerging alongside the state backed British
Business Bank. Digital lenders such as Starling,
Funding Circle and OakNorth are building their
presence against high street lenders such as
Barclays and Lloyds, even qualifying for the
Coronavirus Business Interruption Loan Scheme (CBILS).
“The challenger banks have got a real opportunity
here. We try and build in a way to get help to
customers as quickly as possible. We’ve been set up
that way; we’re a technology-led bank”
- Starling Bank Chief Banking Officer, Helen Bierton
Australia’s ‘opening up’ of the banking sector is
running five to ten years behind Britain yet
interestingly predates other major banking centres
such as Singapore. Anecdotal evidence suggests major
Singapore corporates are surprisingly holding out on
acquiring new products and services as they wait for
new digital banking licences to be assigned
before they make their next move.
The MAS announced in 2019 that it would issue two
digital/retail full bank and three digital
wholesale/small business bank licenses. The move is
set to allow technology and non-bank providers to
challenge traditional incumbent majors including DBS
The banks are not shirking the challenge however,
DBS Digital Treasurer research which confirms
increasing uptake of application programming
interfaces (APIs) catered to by DBS supporting Skyee,
a cross border payment service provider that serves
merchants in China and Hong Kong to collect sales
proceeds from platforms such as Amazon, and Chinese
companies to make payments to overseas vendors.
with Customer Expectations
As corporates grapple with the once in a generation
coronavirus pandemic crisis, key issues banks and
challengers must address are what remote
relationship management needs from corporates will
look like in 2021 and beyond.
Will COVID-19 curb rising customer churn as
evidenced during the global financial crisis (GFC)?
More importantly, how will incumbents convert on
this artificial relationship “stickiness” into
enhanced wallet share?
Has the pandemic caused customer demand to build up
and if so, when do treasurers anticipate the dam
Attracting and retaining new customers was
exceedingly difficult preceding the crisis, the
proficiency with which banks adapt to the ‘new
normal’ will determine whether challenger banks will
succeed in winning valuable share away.