by Claire Bull

In recent times, we've seen a growing interest from the Australian banks in considering challenger and digital bank ventures to bring to life a separation from their legacy - and build more modern digital centric, customer centric, bank offerings. Historically we saw NAB, a number of years ago, develop their UBank offering, but recent allowances within the regulation framework have freed up the possibility for modern organizational design and commercial design for a bank to exist in Australia.

One of the key things we're realising is that Australia is actually late to the table in allowing this to happen and we will see a lot of inspiration come from models around the world.

We’ve seen a number of Neo banks pop up in both North America and Europe. Particularly, we're seeing the proliferation of models in markets like China and Hong Kong, where the financial services sector, particularly at a consumer level, is taking a very different approach to the development of its ecosystems and hence services existing on top of that. China has particularly been successful around the development of ecosystems by the two major tech giants being Tencent and WeChat, and also Alibaba as they develop ecosystems that are basically mobile only. Embedded technologies without a dependency on hardware.

One of the key case studies that I keep referring back to is something I experienced on a recent trip to China. I was basically trekking up through the mountains just outside of Xian, the walled city of China, known for the terracotta warriors. Here we were, on a massive mountain on a hot summer's day, we were in need of refreshment and found a small cart with a guy that crushes fresh juice out of fruit such as watermelon, pineapple, mango and oranges.  He is a one man street food vendor literally in the middle of nowhere - this guy did not accept cash. He would only accept WeChat pay, and I'm talking about someone who is as far away from the metropolis of the city, as far away from a bank, as far away from even a physical building that you can get. This was a vendor that insisted that he would only be paid on a cashless mobile payment ecosystem.

This example highlights something that has proliferated throughout China, and is driving digital financial inclusion across the country. This kind of ecosystem development is something that particularly the countries that are looking at building new models are going to have to really look to in a very self reflective way. Because a lot of banks today have developed improvements or slight increments on what they already have, and are basically putting a new suit on an old skeleton which hasn't really resonated with the market. Banks remain very low on their ranking for net promoter score and still are struggling to have consumers that love their brands. But WeChat on the other hand is a very popular, very customer centric, people love it as an ecosystem. It's part of people's daily life.

Hong Kong now is making allowances for challenger banks as well. We're seeing in the news that Standard Chartered has made public statements with their intention to develop a challenger bank model for the Hong Kong market. We've seen mobile money in particular develop new operational models in Cambodia, Bangladesh, Pakistan, where we essentially have whole entire financial ecosystems that are developed without the need for the physical infrastructure and legacy thinking in products and infrastructure that we see in the Australian banking sector. If I particularly look at markets that are growing quite substantially; in Cambodia Wing Money - a branch-less, hardware-less payments ecosystem - processes just over 51% of the country's GDP. This includes the salary payments of the garment factories, the disbursement and collection of micro loans with their micro-finance partners and the management and payment of supply chains in the fast moving consumer goods sector. In Bangladesh, Bcash has been quite strong in the domestic remittance space, building again a branch-less mobile only ecosystem within the country. And Wing’ Money’s founding CEO has now moved on to Myanmar to head up Wave money, a venture between Telanor and Yoma bank, again seeing some of the fastest growth rates as they build a post post domestic war ecosystem to rebuild the banking sector for their countries.

It is these offshore experiences that Australia is going to have to look to for inspiration to look beyond the boundaries and beyond their current mindsets to find new models for serving the Australian market, particularly as margin crunch gets more significant - as the push away from high fee income is going to also move - and we still don't know the fallout of the Royal Commission. So I encourage the Australian banks to really consider the experience of particularly the Asian market in looking at models and technology that could be retrofitted back into the Australian market.