February Fintech Roundup: The Open Banking Review and Fintech lending to SMEs. In February we saw the release of two reports that could have a significant impact on financial technology (fintech) in Australia. The first is the final report of the ‘Open Banking Review’ which is currently open for public consultation. The second is a collaborative report from the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), FinTech Australia and the BankDoctor into fintech lending to small and medium-sized enterprises (SMEs).
Today we address the key impacts these reports could have on fintech businesses (fintechs).
Photo by Fabrizio Verrecchia on Unsplash
By Dr Drew Donnelly, Compliance Quarter.
Open Banking Review: Final Report
In February 2018, the final report of the Open Banking Review was released for consultation (https://treasury.gov.au/consultation/c2018-t247313/). The report recommends that all authorised deposit-taking institutions (ADIs) must implement Application Programming Interfaces (APIs) allowing customers to share their transaction data with the third parties that they choose.
There is a range of matters in the report that will impact on fintechs, but the more significant ones are:
- Eligibility for fintechs to become accredited to receive transaction data. This will be crucial for fintechs that trade in financial products in assessing the creditworthiness of customers;
- Fintech involvement in the process of developing APIs for transaction data.
All the recommendations contained in the report are being consulted on and submissions can be made to data@treasury.gov.au by 23 March 2018.
Report on Fintech lending to small and medium-sized enterprises (SMES)
This wide-ranging report (the Report) into the current state-of-play for fintech lending to SMEs, released on February 27, is based on an in-depth survey of fintech lenders (fintechs) to SMEs and deliberations of an industry working group (see https://fintechaustralia.org.au/fintech-business-lenders-move-to-increase-transparency/). The report discusses a range of challenges for the sector with solutions in various stages of development:
- Compliance with unfair contract terms provisions of the Australian Consumer Law (ACL). Analysis of survey results showed that lenders were aware of their obligation to comply with this law and have been taking steps to comply. The fintech lending industry has committed to working with ASIC and the ASBFEO to review contracts in order to ensure compliance across the industry (the Report, p32).
- Glossary of lending terms. This is provided as a schedule to the report with the intention of standardising certain terms across the industry. It has been reported that, as fintechs can use different names for the fees they charge, there has been confusion for SMEs attempting to make comparisons between products (the Report, p41).
- Dispute resolution. It is not currently a requirement for fintech lenders to SMEs to be a member of an external dispute resolution service (unless they are otherwise required to do so, such as when they hold a credit license). This makes it all the more important that fintech lenders have robust internal dispute resolution processes in place (the Report, p41).
- Comparison. Currently, there are inconsistencies in the comparison tools and metrics used to compare different fintech lending products. Industry participants aim to implement a standardised approach for comparing unsecured fintech business loan products by June 2018 (the Report, p42).
- Simple loan contract summaries. It is proposed that transparency and disclosure would be aided by a simple loan contract summary page that summarises key industry-agreed rates, fees and costs. Fintechs have agreed to try and resolve what information should be included as part of a standardised simple loan contract summary for unsecured small business loans (the Report, p42).
- Code of Conduct. The industry working group has committed to developing (after consultation) a Code of Conduct to cover fintech lending for unsecured business loans (the Report, p42). This code will:
- outline best practice principles;
- set out legitimate customer expectations;
- prescribe the comparative measures to be used; and
- be expanded upon incrementally to include the full range of financial products.
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