ACCC welcomes fintech competition just not to the benefit of the Big Four's pockets

Meanwhile, Afterpay argues that Australia requires a regulatory culture that can provide more certainty and support for emerging fintech businesses and better deal with competition issues.

Australian Competition and Consumer Commission (ACCC) chair Rod Sims has clarified remarks he recently made around financial technology startups (fintechs) being bought by members of the Big Four banks, telling a Senate committee it would be a shame if they were all acquired.

"We always find that when somebody's either exiting or wanting capital, they can get a much better price from the biggest player," Sims said on Thursday. "So there is a strong correlation between how much you get paid for being acquired and how much it's anti-competitive … they benefit more from removing the competition, that's why we're always concerned about these issues."

While he said the ACCC has no power to prohibit it happening as it's a matter for the courts, he said there is an "extra layer of interest" the watchdog has in mergers or acquisitions by the top tier banks, verses the second tier.

"If you've got some really promising startups that seem to have momentum, seem to be offering innovation and benefiting consumers, I think you do have to be wary when they get taken out by the Big Four because that might smother the innovation, but more particularly from an incentive point of view, they might not want to cannibalise their existing customers," he said.

Offering guidance to fintechs, Sims said "selling out to the biggest player" may not be the fastest way to get quick access to capital because there may be more hurdles to go through in terms of approvals by the watchdog.

"We think fintech, neobanks are just fantastic. We're a competition regulator, a consumer regulator -- we really want consumers to benefit and the whole digital world has opened up great prospects for competition. We want to make sure that competition and innovation is maximised," Sims continued.

"We're just overwhelmingly in support of the use of new technology innovation and I think in the banking sector, you can just see how it can bring benefits because you don't need the personal interface, you can just do it digitally."

The Big Four comprises ANZ Bank, the Commonwealth Bank of Australia (CBA), National Australia Bank, and Westpac. Sims pointed to remarks made by CBA CEO Matt Comyn yesterday when delivering the yellow bank's financial results for the first half of 2021, saying rather than scooping up startups, CBA would invest further in its venture arm, X15 Ventures.

"One thing we need to realise is these are big institutions, they often do set up digital units which can allow them to innovate themselves," he said. "Westpac/Afterpay -- if I understand that correctly … that still allows Afterpay to be a separate competing entity to Westpac."

Afterpay co-founder and CEO Anthony Eisen also appeared before the Select Committee on Financial Technology and Regulatory Technology on Thursday, adding to Sim's remarks that the partnership with Westpac has allowed his company to leverage banking infrastructure without recreating it, which he said is a condition for standing up a neobank in Australia.

"We've got no desire or aspiration to recreate a bank in the traditional sense," he said.

The Select Committee on Financial Technology and Regulatory Technology, which after handing down an interim report in September that made 32 recommendations on how to ensure a thriving and innovative ecosystem in Australia, re-opened its inquiry to focus more on a post-COVID world.

The committee asked Afterpay for its opinions on the regulatory environment in Australia and recommendations on how government could help grow the local fintech and regtech scene.

Eisen believes that in order to stay competitive, Australia requires a regulatory culture that better deals with competition issues and provides more certainty and support for emerging fintech businesses.

"A lot of new business models don't fit in one particular box and the ability to deal with businesses that don't fit into a particular box has been a real challenge for regulators in Australia," he said. "A holistic approach to regulation is probably required.

"As a new company, in a new industry, when you're dealing with regulators that have an interest in parts of your model, but not all of your model, it becomes quite challenging to know how to navigate your path forward."

He also argued that having access to highly skilled staff from across the globe is vital.

"Yes Australia has made some great progress, but so has everyone else. Many studies indicate our competitiveness as a location to base a fintech business has actually declined over the last decade, which means that other countries are moving quickly to take up these opportunities," Einsen said.

While he said Australia has an innovative, "entrepreneurial spirit", given the population size, it often lacks the specific experience needed to build the global platforms needed for fintech businesses. He said bringing the world's experts down under could unlock the potential of existing talent.

"At a time when Australia has never been a more attractive place to live and grow your career, I firmly believe with the right approach we can secure our spot on the global stage -- but the competition is fierce," he said.

Afterpay has its major base in Australia, employing 600 local staff with plans to grow that over the next year. It also has staff based in London, New York, San Francisco, and China.

"If we were to ask our very top talent in America today if they'd like to move with their families to Australia, given what's transpired over the last 12 months, we would have a very, very high call up rate, even if we conditioned it with a one-way ticket," Einsen said.

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