Lack of banking API in Australia is 'crazy': Cannon-Brookes

Atlassian co-founder Mike Cannon-Brookes has shared his long-standing views of the Australian banking industry and reminded fintech entrepreneurs to take advantage of regulatory changes and shifts in the financial environment.
Written by Tas Bindi, Contributor

Atlassian co-founder Mike Cannon-Brookes has once again criticised the Australian banking industry for being inefficient, hogging an unfair share of the profits, and refusing to provide open access to consumer and business data.

Cannon-Brookes said that this, combined with impending financial regulatory changes and the fact that Australia has a sophisticated, technology-adopting population, presents a compelling environment for fintech entrepreneurs.

Speaking at this year's StartCon in Sydney, Cannon-Brookes said that because banks have access to so much data, it's not easy for consumers to switch banks.

"The lack of a banking API in Australia is crazy," Cannon-Brookes said on Saturday.

"We should be able to import our bank accounts just like we can import our mobile phone numbers."

He reminded the audience that 10 years ago, telecommunications providers were reluctant to import phone numbers, claiming that it was too difficult -- but now it's easy to transfer phone numbers when switching telcos.

"I think the same thing should happen with banking," Cannon-Brookes said. "Your banking transaction history should be your data that you can take with you if you choose to switch [banks] or if you choose to allow a fintech company to access that to provide some sort of service.

"It's quite obvious strategically why the banks have no interest in that being the case."

Cannon-Brookes said that banks make about AU$1,000 in profit per person per year.

"I've got three little kids -- they're five, three, and one -- and they generated AU$1,000 each for the banks last year. It doesn't make any sense," he said. "It's because there's a lack of competition in banking, the regulation is too tied up."

According to The Australia Institute, Australian banks' profits equate to 2.9 percent of GDP, making them the most profitable in the world. Their return on equity averages around 15 percent, when 10 percent is considered an impressive performance in other countries.

Also speaking at StartCon 2016, Paul Bennetts, co-founder and CEO of Spaceship, said the Commonwealth Bank of Australia (CBA) is about the same size as global banking giant Citibank in terms of market capitalisation.


Paul Bennetts, co-founder of Spaceship, and Mike Cannon-Brookes, co-founder of Atlassian at StartCon 2016.

(Image: StartCon)

Given the degree of power held by the big four banks, it's very difficult for emerging players to get inside and survive long enough to create a viable business, Cannon-Brookes noted.

He said Tyro -- Australia's newest bank, which Cannon-Brookes made a significant personal investment in -- is the only company in 20 years that's been able to get past those barriers to serve the often overlooked small business market.

"Like most startup stories, it was a three-year mission that was going to be easy. Ten years later, [Tyro is] still running through mud," Cannon-Brookes said.

He added, however, that after 10 years, Tyro is now a AU$100 million company with 250 people, and is still growing fast. It's also a regulated entity.

"I think Tyro might be worth more than Atlassian one day," said Cannon-Brookes.

A big challenge for fintech startups going up against established players is building trust. Cannon-Brookes said the big marble lobbies and the vaults all create a perception of trustworthiness for banks.

"Money ... is not stored in a vault. It's in a mainframe," he said.

Cannon-Brookes said it helps to provide some kind of guarantee to customers. For example, a bank like Westpac does not have to worry about providing any form of guarantee when a customer deposits AU$50 into their savings account, whereas a relatively new company like Tyro does.

This is why the Tyro Smart Account is a protected account under the Financial Claims Scheme, which guarantees repayment of depositor funds of up to AU$250,000 per account holder in the event of insolvency.

Cannon-Brookes said fintech entrepreneurs need to decide clearly whether to compete with the big banks or to partner with them.

"Obviously, competing with them is a much scarier prospect. Trying to use them as a channel seems a lot more attractive -- they have 22 million customers, 3 million business customers," he said.

"They're trying to get better at partnering with fintechs, but they're also a dangerous partner to have."

Nektarios Liolios, co-founder and CEO of Startupbootcamp Fintech, shared a similar sentiment, telling ZDNet that partnering with banks usually comes with strings attached.

He noted, however, that fintech entrepreneurs sometimes need banks to validate their proposition, because they might need a banking partner for distribution and liquidity. A big challenge for fintech startups, though, is getting banks to test their technology in the first place.

"The big four in Australia to varying degrees think they know what they're doing," Liolios said. "I don't see them playing an active role in encouraging and nurturing fintech innovation. A lot of it at the moment is still at the stage of noise."

Liolios added that Australian banks should view early stage fintech startups as R&D investments.

"Realistically, the banks know very well that a lot of the stuff they need to build, if they want to satisfy changing consumer needs, they can't build it themselves," Liolios said. "Technology, business models, and consumer behaviours are changing quickly, but the banks don't have the agility and the infrastructure to actually do things quickly.

"At the same time, regulation is being used as an excuse by the banks to justify doing very little."

Liolios suggested that early stage fintech startups strategically use banks to refine their products and start selling to other companies.

"An early stage startup will never be able to play into the bank's systems -- they're not enterprise-ready," Liolios said.

"But the startups benefit from a bank playing around with the tech. [The banks] can see what works and what doesn't work, and provide feedback to the startup.

"Both sides have to be quite strict and selfish."

The finance industry is not an easy one to navigate, especially for emerging players, given the power held by the big four banks. However, the banks are feeling the fintech threat at the moment, Liolios noted.

For example, Apple Pay's launch in Australia was met with some resistance from a number of banks; CBA, National Australia Bank (NAB), Westpac Bank, and Bendigo and Adelaide Bank have been seeking non-exclusive access to Apple's near-field communication (NFC) chip, while ANZ Bank "pulled a fast one" and began offering Apple Pay.

Apple argued against this access on the grounds that it would " undermine the availability, security, and privacy" its customers expect when using Apple devices to make payments.

While the banks argued that customers are more likely to change credit card providers than phone makers, the ACCC issued a draft determination proposing to deny authorisation earlier on Tuesday.

Yanir Yakutiel, CEO of Sail, told ZDNet that banks like to use excuses like privacy concerns and vested interests to prevent the open access to data sources that could benefit Australian consumers.

"I believe that it's the role of regulators to make it crystal clear that information relating to particular persons or business belongs to them," Yakutiel said. "And information that has been collated by various companies, most notably those protected by anti-competitive frameworks like the banks, should be forced to open the access to the relevant information and to treat it as a public utility."

Recently in the Review of the Four Major Banks: First Report, the House of Representatives Standing Committee on Economics recommended that banks be forced to provide open access to customer and small business data by July 2018 for competing banks, startups, and other financial institutions.

The committee suggested that the Australian Securities and Investments Commission (ASIC) be charged with developing a binding framework to facilitate this sharing of data, making use of APIs, and ensuring that appropriate privacy safeguards are in place to allow such a practice.

"Increased access to financial sector data, as noted by the Productivity Commission, should also intensify competition in the financial sector. This is because markets work best when customers are informed. At present, banks, not consumers, hold the data. This gives banks a significant degree of power," the report [PDF] states.

Liolios said that the financial regulatory frameworks in a lot of markets, including Australia, are quite complex and geared towards large organisations.

"They don't allow entrepreneurs to go through [approval processes] quickly, and that's what you need as an early stage startup, because your runway is limited," said Liolios.

"Smarter regulators like FCA [Financial Conduct Authority] in London or MAS [Monetary Authority of Singapore] recognise that there is a lot of [technology] that consumers will benefit from, so they see it as their responsibility to find a new pathway for startups to get through to the next stage quicker so they can bring new technologies to market."

He did acknowledge that ASIC is starting to make an effort to do the same.

"They recognise that they know very little about [fintech] and that they need to wake up and open up," Liolios said.

ASIC launched its Innovation Hub with tailored content for fintech businesses in March 2015, covering a range of issues in the areas of robo advice, crowdsourced equity funding, payments, marketplace lending, and blockchain business models. It has since received many requests from fintech startups for assistance with regulatory issues.

Cannon-Brookes said regulatory shifts and changes in the environment -- like what we're seeing now in the banking sector -- present compelling opportunities for entrepreneurs. For example, Tyro was able to take advantage of the shift in Australia's Medicare manual claims process towards a system that delivers instant reimbursements via EFTPOS machines at doctors' offices. Tyro's EFTPOS terminal now processes 80 percent of all EasyClaims in the country.

"It wasn't an accident. [Tyro] said, 'Hey, this is coming, we should really jump in with two feet because we could be differentiated in this area'," said Cannon-Brookes. "Sometimes with startups, it's not just about having the equation make sense. You need some shift in the world, a tear in the fabric that you can drive through really hard to get the initial traction and start building a business."

While criticising the banking industry is somewhat of a pastime among entrepreneurs -- or Australians broadly -- Liolios pointed out that not all fintech startups are out there to kill the banks.

"If you look at everything that has come out of the fintech disruption space from the retail consumer side -- be it alternative lending, be it alternative credit scoring, new payment mechanisms -- they've emerged because the banks have neglected these things and ultimately don't care much about it," Liolios said. "These are not big revenue streams for banks."

Many fintech entrepreneurs come from the financial industry and want to help improve it, Liolios noted.

"The banks are really desperate to find technology that helps them with cybersecurity, [operational] efficiency, and identifying new revenue streams. Startups can deliver that."

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