Startups with $3 million in capital could soon be allowed to challenge the big banks: What does this mean for the fintech sector?
The hurdles that startups have to overcome to become authorised banking institutions may soon be lowered, with the Australian Prudential Regulation Authority (APRA) encouraging competition from disruptors looking to challenge the big banks in a discussion paper released on Tuesday.
The APRA discussion paper proposes revisions to the existing licensing framework that governs which organisations can be classed as authorised deposit-taking institutions (ADI), and these revisions would see a “phased approach” taken in the ADI authorisation and licensing process.
This would allow financial startups with $3 million or more in capital to “begin limited operations” before possessing a full banking licence, according to the paper.
Designed to make it easier for applicants to navigate the ADI licencing process, this phased approach would be an attempt to stimulate increased competition within the banking sector, and would see a new “Restricted ADI” licence introduced. This licence would allow applicants to begin restricted operations while they are still in the process of developing the required resources to gain a full ADI licence.
Holders of these restricted licences would still be “strictly limited” in their activity, according to the paper, and a startup “would not be expected” to actively conduct banking business during the period it holds this restricted licence. Rather, it would act as a safeguard that reflects the relative infancy of the businesses using this licence.
The regulator is also proposing to open up the bank licensing process even further, allowing startups with “innovative or otherwise non-traditional business models or those leveraging greater use of technology” to apply for this restricted ADI licence.
The discussion paper and its proposals will be open to public feedback until November 30 this year, after which APRA plans to release its final regime early next year.
What startups would need to qualify
Startups hoping to secure these restricted ADI licences would need to have $3 million or more in capital — a big step down from the current requirement that requires ADIs to have $50 million in capital to be considered a bank.
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