The traditional Australian banks are increasingly being challenged by neobanks. Now the competition has turned into a battle of words over claims made by challenger bank Judo.
The dispute began with Judo releasing a new report. Having commissioned East & Partners to survey 1,751 SMEs with a turnover between AUS$1m and AUS$50m, Judo claimed one out of every four loan requests done by these enterprises was rejected by the big banks.
Judo described this as a “significant market failure,” according to the Sidney Morning Herald. The challenger stated that Australian SMEs are facing a funding gap of $91 billion, up from $83bn in 2018.
It also said it found that 46.3% of SMEs sought new finance last financial year for an average value of AUS$1.1m. Of those, 74.8% successfully obtained an average sum of AUS$800,000 and 2.5% failed for an average sum of $2 million.
Chris Bayliss, CFO at Judo, argued that the results looked odd compared to claims made the Australian Bankers Association, the banking trade association, which is dominated by the country’s big four banks. He stated that the industry incumbents had said the problem is a lack of demand from SMEs for loans instead of a lack of capital.
“Nothing could be further from the truth,” Bayliss told the Sidney Morning Herald, adding that the problem is that “the customers have been conditioned not to even bother applying now.”
Anna Bligh, chief executive of the Australian Banking Association, disputed the findings. “Australia’s banks are ready and willing to lend to small business with our own latest data showing 94% of small business loans are approved, which has remained steady for the last five years,” she told The Sidney Morning Herald. “Banks understand that small businesses might be hesitant in applying for finance for fear of getting knocked back however there is no better time to contact your bank about a loan.”
She was backed by executives from Westpac Banking Corporation and Commonwealth Bank of Australia.
The dispute comes as the traditional banking sector is under pressure from both new challenger banks like Judo and from regulators.
A new wave of challenger banks has swept in across Australia in the past two years. The rise of neobanks Down Under can be attributed to the Australian Prudential Authority creating a new type of licence that made it easier for new financial institutions like banks to either launch or move in from other countries.
At the same time, the financial sector in Australia is dealing with its biggest trust challenge in decades in the aftermath of the conclusion of The Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
This official deep dive into the sector revealed systemic ethical and legal shortcomings in the sector, which had resulted in things like leniency towards preventing money laundering as well as predatory behaviours from banks.
Since the Royal Commission concluded in the February, Australian financial watchdogs have doubled down on their commitment to prevent those bad behaviours from happening again.
Treasurer Josh Frydenberg published a document at the tail-end of August, outlining his roadmap for how the government will implement the recommendations from the commission.
And in September, the Australian committee announced it would create a select committee to examine issues like open banking as policy settings for the financials services industry.
The Australian Securities and Investment Commission alleged that the Commonwealth Bank of Australia had broken the country’s anti-hawking rules by making unsolicited calls to potential clients, trying to sell them life insurance policies. This could cost the bank AUS$1.8m.
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