Sources close to some of Australia’s largest banks have noticed significant inroads companies like Afterpay are invading their traditional markets.
Credit cards with 25% per annum interest were once the mainstay of our biggest banks, profiting from a buy now pay later user experience. Many of us at some point have received those unsolicited offers to increase our credit limit, enticing us further into more high interest debt.
With the introduction of new FinTech models, such as Afterpay, the big banks have reason to worry.
New FinTech businesses are making even more significant inroads into what were banking money spinners than many anticipated. Between 2019 and 2020, Afterpay announced a revenue increase of 112%, up from $5.2b to $11.1b, with 116% growth in customers and 72% growth in merchants.
Those customers and merchants have traditionally had little option but to use legacy banks for payment systems. The mass migration is a clear industry signal of what the market and consumer is looking for.
It is pertinent that the Commonwealth Bank of Australia (CBA) is now facing yet more proceedings brought by the Australian Securities and Investments Commission (ASIC). The pattern doesn’t seem to change with big banks repeatedly overcharging customers. CBA was again accused of charging an alarming 34% interest rate between 2011 and 2018. In 2020, Shine Lawyers commenced a class action against Westpac for overcharging up to 100,000 Australians.
Zero or low-cost settlement processes within new Web 3.0 technologies, such as Ethereum, Polkadot and Cardano, have the potential to completely eliminate the need for intermediaries such as banks.
Their reach extends to every day payments being made and received in seconds with zero fees, or fees as low and less than a cent. Traditional brokerage fees on share trades could change forever and be a set fee based on network activity, with no regard to the value of the transaction, and potentially saving consumers huge sums in both superannuation and investment fees.
The sometimes 30c transaction fees applied to small and large businesses alike for a swipe or tap and go transaction, not just by the big banks, but payment gateway providers like Stripe, Square or Shopify could cease altogether.
Web 3.0 technologies have the potential to not only eliminate the 30c transaction fee, they also have the potential to eliminate the 1 or 2% fee that is added to the merchant’s transaction fee.
We’ve all seen those ‘Minimum spend of $5’ signs at our local shop. The objective of those signs, often put forward by small, family operated businesses, is to simply avoid carrying out a transaction to only pay a payment gateway provider.
So, if more efficient and drastically cheaper options become available, our expectation of the financial system is likely to change fundamentally.
The push to remove the middleman is gaining momentum. What does this mean for the consumer? Less unnecessary fees, resulting in lower costs and a more disposable income for all of us.
What does that mean for banks? It’s not a compelling proposition unless decisions are made to protect big business and disadvantage the consumer.