Cue the fintech love-in. As a country, we are trying to tap dance furiously to the top of the agile tech tree through boosting ideas such as financial technology — aka fintech, the “hot” idea for Australia in 2016. Everybody is being dragged into the story — from Prime Minister Malcolm Turnbull to Treasurer Scott Morrison, to banks like Westpac, the ANZ, the ASX (the country’s leading casino), and any number of Millennial urgers and tech heads and their urban hipster mates. Peer-to-peer lending, robo-advisers, platforms, cloud computing, big data, bitcoin blockchain ledgers, disruptors (we are urged to think Uber), academics, accounting firms, new ways of doing insurance, home loans, you name it. Here’s what Morrison gushed in a recent release:
“FinTech is going to revolutionise how consumers and businesses, as the drivers of economic activity, interact. This is going to have big implications for demand in the future. We need to be part of best bitcoin casino bonus these changes and we have got to work out the best way to engage with FinTech and prepare for the financial system and economy of the future.
“As Treasurer I want to help create an environment for Australia’s FinTech sector where it can be both internationally competitive and play a central role in aiding the positive transformation of our economy.”
And there was a lot more than this in the release. But not a word about fintech companies being prudent or responsible in what they do, and how the operate and grow. From what Morrison and the Prime Minister tell us, everything is rosy in fintech and the path ahead will be strewn with (bit)coins and gold. — Glenn Dyer
But wait, all is not rosy in fintech in the US. Careful readers of the latest Economist over the long Easter break would have noticed a small story in the finance section headed “A ripple of fear”. It contained some telling figures and comments about what is happening to fintech in the US, particular the fast-growing peer-to-peer lenders:
“IN A financial landscape that ranges from the dreary to the disliked, peer-to-peer lending stands out. P2P firms, also called marketplace lenders, channel loans directly from institutional investors and individuals to borrowers, for a fee. In the process, they have lowered interest rates for many and expanded access to credit. They have been growing pell-mell, in part because their structure allows them to escape much of the regulation being heaped on banks. But recent months have shown that they are not immune to the burdens that weigh down their conventional rivals.
“Lending Club, the biggest P2P firm, doubled its loan book last year … Yet its share price has fallen below $9, from a peak last year of $25. That is chiefly due to America’s slowing economy and rising interest rates … Under such circumstances, delinquent loans tend to increase. Prosper, the second-biggest P2P lender, has said that delinquencies are indeed rising on its riskier loans, although it emphasised that only a tiny subset of its portfolio had been affected and that the deterioration was trivial. Nevertheless, it has raised rates for all borrowers, especially the riskier ones, who now pay 31%. Lending Club has also raised its interest rates.
“… [T]he Consumer Financial Protection Bureau, a federal agency, announced this month that it would begin accepting complaints about P2P consumer lending.”
— Glen Dyer
Disruptors or usurers? Thirty-one per cent is usurious and close to what payday lenders charge (on a generous day). Some boosters for the fintech world claim tech-based lenders in Australia such as Nimble Money are similar. It and its supporters describe it as a “micro lender”, but with interest rates of 50% or more a year on some loans, it seems like a payday loan shark. Earlier this month, Nimble was ordered to refund $1.5 million to 7000 customers who should not have been loaned the money (because they could not afford it). The Economist is not saying these rising levels of concern in the US are life-threatening, it’s just that the first blush of growth may be over and these start-ups will find the going tougher because of rising competition, monetary policy changes, rising interest rates, credit problems, bad debts and all the many other problems that infect day-to-day finance. — Glenn Dyer
Rules, what rules? Regulators around the world are grappling with how to manage fintech without killing it (by treating the start-ups like banks), but not allowing then to develop without some controls. The eventual level of prudential oversight and regulation can’t be too light, otherwise the big banks will attempt to game the system by starting their own operations to bypass the tougher rules that apply to banks. Here in Australia the most important words in the Treasurers comments were buried right at the end of his gushing statement, in the part prepared by his department:
“APRA is currently reviewing its prudential standards/guidance in relation to outsourcing and business continuity management, to ensure, amongst other matters, that our approach is reflective of current industry developments.”
Controls, not unfettered growth and a hands off approach, is the way to ensure fintech is successful and doesn’t get swallowed by the big banks and insurers and fund managers. — Glenn Dyer