How Are Australia’s Big Four Banks Dealing With Digital Upstarts?

If you can’t compete against them, join them. In just about every market that has launched digital banks, this appears to be the case. The hype around potential challengers unseating established players gives way to a more nuanced reality in which there is some room for cooperation. In Australia, where four large banks have long dominated the marketplace, incumbents are growing their collaboration with fintech in an effort to improve their digital offerings.

National Australia Bank (NAB) has been the most daring of Australia’s big four banks in meeting the neobank challenge. NAB announced that it would buy 86 400 for AU$220 million in January, and has acquired an 18.3% stake in Aussie neobank in its Series B fundraising round. NAB will integrate 86 400 with UBank, its online banking business.

While the agreement may be a win-win for NAB and 86 400, it has elicited concerns from Australia’s competition regulators due to its potential effects on the banking sector. After all, weren’t the neobanks supposed to be a thorn in the side of the major banks? Regulators would want tie-ups between smaller Australian banks and upstart lenders, but it’s the country’s largest banks (with their huge capitalization) that are better positioned for such arrangements.

After NAB bought a majority stake in the Commonwealth Bank of Australia’s credit card business, it indicated an interest in CBA’s Australian retail banking business, which is now for sale. With a 12 per cent market share, Citibank is ranked No. 5 in Australia’s credit card industry. The third-largest credit card company in Australia is the Commonwealth Bank of Australia (CBA), with Westpac as its partner.

In other instances, the big four banks have entered into non-bank fintech collaborations. In October 2020, for example, Westpac and buy now, pay later all-star Afterpay introduced banking as a service platform.

“I’m not sure anyone is claiming that conventional banking will go away or become less important in the future,” says Macgregor Duncan, Westpac’s general manager of corporate and business development. “I’m not sure why it’s necessary. I just believe this presents a new growth opportunity for us and our partners.” The podcast.

At the time, Afterpay stated that it planned to launch transaction and savings accounts, as well as cash flow tools for its 3.3 million customers in Australia by the second quarter of 2021. That prediction was off by a little. On July 20, Afterpay announced that it would release its banking app, Afterpay Money, in October.

Meanwhile, CBA has collaborated with Mastercard to launch a BNPL product. The service, CommBank BNPL, will be accessible to four million of CBA’s retail clients for purchases up to AU$1000. CBA intends to undercut Afterpay by not charging merchants transaction fees on BNPL transactions. Transaction charges are typically 4% of the amount spent.