An interim report released by the Financial Services inquiry on Tuesday labelled technology a powerful force for change in Australia’s financial system.
Changes in Technology will contribute to a string of challenges according to the 400 page report, chaired by ex-CBA boss David Murray. The report made suggestions around the emergence of new technology and where the government should stand, in particular, towards new banking and payment technologies.
The report suggested technology had the power to both increase and reduce competition, “It enables consumers to compare and switch between products, making new business models, such as online-only banks and peer-to-peer lenders, viable.”
While technology can also do the opposite, “Technology is introducing new economies of scale into financial markets. For example, the use of data is becoming increasingly important in understanding risks and meeting consumer needs, giving players with large customer bases the capacity to develop competitive advantages by leveraging their pre-existing data sets.”
The financial system in Australia would benefit from “a central mechanism or body for monitoring and advising Government on technology and innovation,” according to the report.
In addition to this, the report suggests the government should adopt a “technology neutral approach” to new technologies, especially in payments, so regulators cam remain balanced when assessing risks.
Privacy requirement review imminent
The report also draws attention to the growing accumulation of data in financial services organisations, and suggested that the government should review privacy requirements in two years’ time, to protect customer data, identity and security.
The suggestions made in the report were not only limited to financial service organisations but also outside forces which are disrupting the industry, and demanding consumer spending. In particular, the payments space which is facing strong competition from technology disruptors.
“Financial services boundaries are shifting as firms from inside and outside the sector harness the power of data to create and capture value in new ways… Increasingly, technology firms and retail groups are also becoming part of financial service delivery.” The report suggests that this bring along new or intensified risk.
The report suggests that government is well placed to manage these risks, “Although innovation may bring risks, it is important for Government to enable technology’s benefits to flow through the financial system, while also maintaining stability.”
Regulatory perimeters should change as the financial system environment changes, the report states, “regulation should be examined pertaining to superannuation funds, retail payments systems, securities dealers and certain technology service providers of sufficient scale.”
The Australian Bankers Association (ABA) released a statement welcoming the issues raised by the report, “The need to balance the important role technology is going to play in the future of banking, and the benefit it brings to customers, with managing potential risk to customers and the financial system is also supported,” said Steven Münchenberg, Chief Executive of the ABA.
The report concludes that although there are many benefits to technological innovation, it also poses challenges for governments and regulators, “in particular, how to trade off potential benefits against risks,” with a suggestion that both governments and regulators should seek to be flexible in their regulatory approach and ‘technology neutral’ in regulation.
The ongoing Murray inquiry, announced late last year, aims to make recommendations to improve the efficiency and stability of the country’s financial system.
In a previous interview with FST Media, analysts said that banks will have little to gain from seeking to steer the inquiry to raise regulation barriers for non-bank technology players.
Among the boldest technology recommendations submitted earlier this year was the CBA lobbying to raise regulation barriers for new payment entrants, while the RBA called for less restrictive regulation for payment systems.
