Banks may have to sell rivals’ products
Banks could be forced to sell financial products manufactured by competitors under new powers to be given to the corporate regulator.
Australian Securities and Investments Commission chairman Greg Medcraft said the move could break down the economics of cross-selling and force banks to sell their wealth operations.
Foreshadowing the end of the vertically-integrated banking model, Mr Medcraft said new laws will give ASIC a mandate to police competition while “product intervention” powers could be used to ensure banks only sell products that are in the best interests of their customers – which might not necessarily be their own.
Mr Medcraft said the regulator could use its new powers to limit the ability of banks to “cross sell” customers additional products manufactured by another part of the bank, a common tactic that boosts bank profits.
“Customers outcomes are poor from having an oligopoly,” Mr Medcraft told a British Australian Fintech Forum in London last Thursday.
“Generally, the outcomes that are poor often come from selling conflicted products, or a lack of affordability. Cross-selling comes from remuneration structures. If you have competition objectives and a product intervention power … [ASIC] could deal with remuneration structures resulting in poor consumer outcomes.”
If ASIC decided to use its powers to limit cross-selling, the big banks might reconsider owning insurance and wealth management operations, he said, which could lead to asset sales as proprietary offerings were replaced with alternative products sourced from fintech disrupters.
“There is no reason you may want to own something if you can’t cross sell a product,” Mr Medcraft said. “It could change the competitive landscape a lot. [Banks will think] they don’t need to own a fund manager or a particular insurer if they actually can’t force them to sell a product.
“Fintech provides good opportunities for competition.”
Digital currency could disrupt deposits
Mr Medcraft flew to London from Washington DC, where he attended a meeting of the International Monetary Fund on Wednesday that focused on the rise of fintech.
The discussion flagged the potential for massive disruption of the banking industry if central banks decided to issue digital versions of their fiat currencies, which could lead some customers to do away with bank deposit accounts.
“If a central bank can issue cash, why couldn’t a central bank issue just digital currency instead of cash, and transfer it into a [digital] wallet?” Mr Medcraft said. “It is an interesting question that goes begging: why should [customers] pay another rent seeker to hold money in a banking account? That could really transform banking.”
Given that banks use deposits to lend, if customers held digital fiat currency in personal digital wallets rather than bank accounts, the global retail banking model would be turned on its head, forcing banks to lend against the fiat currency as collateral. The IMF will soon release a report on fintech disruption, including scenarios for digital currencies.
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