Australia's big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) may be losing market share by stealthy companies.
Foreign exchange, mobile payments, lending, funds management and even financial advice is being transformed by small upstart fintech companies. Fintech is an amalgam of 'financial' and 'technology', representing companies using technology to provide financial services.
OzForex Group Ltd (ASX: OFX) is one of the largest ASX-listed fintech companies, with a market cap of nearly $800 million, and probably the best known. The company spotted a gap where Australia's big four banks charged smaller customers extortionate rates to transfer funds overseas and exchange Australian dollars for foreign currency.
The banks keep doing it and are still making a pretty penny from the $7 billion transferred overseas each year, but Ozforex has built itself such a profitable and growing business, it's received an indicative takeover offer from another giant global money exchanger, Western Union.
Ozforex isn't the only competitor in the space of course. CurrencyFair, TorFX, HiFX, transferWise and World First are all competing for a slice of that $7 billion pie, with the big four estimated to control around 90%.
Peer-to-peer lending is still in its infancy, but could eventually see Australians borrowing to buy houses from groups of smaller lenders. That hurts both ways for the banks. Instead of customers leaving their cash in the bank, they could pull it out to lend to others and earn higher rates than the pathetic rates the banks offer on a large portion of savings accounts and term deposits. That hits the banks' source of cheap funding while also taking away some of their lending business.
The big four have also recently raised their mortgage interest rates, to compensate for higher capital requirements. That doesn't just play into the hands of non-traditional lenders, but also its smaller rivals, who can now compete on a more even playing field.
When it comes to financial advice, the big four banks have a very poor record, and the rise of robo-advice, where a large part of the financial advice is automated, could prove to be another thorn in their side.
Apple Pay is also trying to muscle in on mobile payments – allowing consumers to pay for products and services with their smartphones and devices. Apple wants a cut, of course, which could eat into the banks' margins.
Foolish takeaway
The big four have managed to survive previous attempts to muscle in on their turf, and in some cases use it to their advantage. Mortgage brokers took some of the margin away from banks, but allowed the banks to streamline their branches and cut a large chunk of costs out of their branch network. Will they be able to do it again, under attack from many sides?
