Fintech companies grabbing a slice of the big four banks’ market

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?


Forget the banks - Check out our Top Dividend Stock for 2016

Our resident dividend expert names his Top Dividend Share for 2016. Not only are the shares dirt cheap, the company is trading on a 5.6% fully franked dividend yield. Simply click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.