Federal Budget 2017: Lighting the flame under banking’s platform

Key takeaways

• Innovation measures in the 2017 Federal Budget focus on supporting fintech in Australia.
• Announcements are largely a continuation of last year’s ‘ideas boom’ agenda.
• Banking faces competition, while Bitcoin finally enjoys equal rights.

The government’s budget announcement last year excitedly fanned the flames of the ‘ideas boom’; yesterday’s 2017 Federal Budget announcement felt, by comparison, more about keeping the coals warm.

With a firm focus on pragmatic national issues such as housing, education, healthcare and infrastructure, there was little room for a bold new vision that will drive the nation’s digital economy and keep Australia at the cutting edge of innovation.

The continued pursuit of Australia’s position as “the fintech nation¹” got the lion’s share of any innovation-related publicity – and the major banks will bear the brunt of new legislation.

Banking: competition welcome

The government recognises that there needs to be innovation in financial services and a more customer centric mindset. To that end, it is following something of a double-pronged approach.

On the one hand, the 2017 budget includes a major bank levy that should see Australia’s five largest institutions liable to pay a total of $6.2 billion. The Treasurer has warned them not to pass these costs on to customers, saying: “Banks can jack up fees on customers every day, I don’t recommend it but [if they do] then take your money elsewhere, like to a regional bank.²”

On the other hand, the government is actively opening up opportunities for customers to do just that. In association with the Australian Prudential Regulation Authority (APRA), it is encouraging innovative new entrants in the banking sector by dismantling some of the obstacles they currently face. This includes easing prohibitions on the use of the word ‘bank’ and ameliorating some of the more onerous licensing processes.

These measures are meant to encourage tech startups and other organisations to go after the value pools of the banks by providing a more customer centric and value added experience.

Forcing the banks to jump 

Did banks see this coming? I imagine they did, but regulation, structure and history means they don’t yet have the burning platform to do too much about it. Most of banking’s profitability comes from the mortgage sector and, until now, what has largely been impacted by fintech is the payments space – which is regulated in a different way, and more inviting to outside competition.

Startups are attacking the value pools that they’re able to access without being an APRA-regulated entity. What the 2017 Federal Budget is doing is increasing the number of value pools that are available to be disrupted.

I see a parallel with the retail sector around 2010. In terms of their online presence, Australian retailers didn’t take action until global, borderless commerce started impacting on sales. Similarly, if changes in the financial sector start to impact on core business – mortgages – then they will have no choice but to respond.

Recent developments, such as ANZ bank’s announcement that it is turning to agile ways of working, which signifies a move to becoming a customer centric organisation with a very different structure, away from products and channels, is a sign of banking taking a wholesale approach to transforming its business.

Bitcoin offered equal rights

From 1 July, the double tax on Bitcoin will be abolished. Previously, when you bought bitcoins, GST was payable both on the purchase and on the value of any goods bought using those bitcoins. Removing this ‘double dip’ scenario and aligning the GST treatment of Bitcoin to that of money is a logical step.

It also wasn’t a surprise: a consultation paper on GST and digital currencies was promised last year. However, with negligible impact on the economy this was a curious addition to the budget and seems more in tune with the wider mantra of showing support for fintech innovation.

For a full breakdown of this year’s budget, including in-depth analysis, videos and insights, explore PwC’s 2017 Federal Budget analysis here.

^{1  www.budget.gov.au/2017-18/content/glossies/factsheets/html/FS_innovation.htm
2  www.theguardian.com/australia-news/2017/may/09/australia-federal-budget-2017-summary-at-a-glance-winners-and-losers}

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