Sometimes we ask the wrong question and miss an important opportunity.
The recent strident demands for an investigation into collusion by Australian banks against Bitcoin businesses was misdirected.
The Australian Competition and Consumer Commission (“ACCC”) investigation found the banks did not collude when they closed down the accounts of a number of a number of Bitcoin businesses.
In fact, the ACCC found that one bank had decided not to deal with digital currency businesses back in 2011. Another bank made a similar decision in 2015.
They also found that other banks are continuing to deal with Bitcoin businesses on a case by case basis.
Allegations of collusion will always be difficult to prove. Assembling sufficient evidence to back such a serious claim is a hard task. That is the implicit nature of collusion. It is usually something hidden or off to the side.
In this instance, the facts cited by the ACCC don’t lend much support to allegations of collusion.
The banks do have a serious role to play. Any reasonable person accepts we live in a perilous era when preventing money laundering or terrorism financing is important.
AUSTRAC must be watchful and banks have a mandatory obligation to report and prevent any improper activity. Few would not wholeheartedly support those actions.
On the other hand, there is no doubt the banking industry is threatened with massive disruption. Banks clearly recall how the music and television industries were savaged by technological change.
Now digital disruption is knocking on their door, they are wasting no time reacting.
Banks worldwide are moving to stave off this looming threat. Over 40 banks (with more joining almost daily) have banded together to form the R3 Consortium. Their collective aim is to forge a new system for inter-bank transfers using new technology.
A far more important issue should have been considered by the regulators. How will the important and legitimate rights of smaller fintech businesses be protected?
The four goliaths of Australian banking wield enormous power. Collectively the banking industry represents around 30% of the ASX.
Over in the other corner, there is a motley band of ambitious Fintech ventures in desperate need of funding. It has to be one of the most imbalanced struggles in modern commerce.
Entities that count their profits in billions are up against teams with great ideas, a good grasp of technology and a few coins rattling in their pockets.
If Australia is to be an innovative nation, this imbalance must be addressed.
In a few short years there will be winners and losers. A handful of concepts will dominate. It is possible a Google-like business will emerge victorious and revolutionise the way money is transferred, stored, loaned or invested.
Perhaps that business will emerge from a bank-funded innovation lab. It may even be a more renegade outfit.
There is a slight chance it could even be an Australian idea. But, there a chance that great initiatives could be crushed. With or without collusion, the Australian banks can too easily eradicate competition.
There is a case for government intervention. It is absolutely crucial that Fintech businesses have a right to compete. They must be given a right to innovate and, however unsettling it may be to the status quo, an inalienable right to disrupt.
When challenged, the music industry fell back on copyright law to protect its fortress. We all know how that ended up. It is now abundantly clear that they should have accepted the inevitable and swiftly changed their business models. They fought to defend the indefensible for way too long.
There are huge lessons here for the banking industry.
It is quite possibly in the bank’s own best interests that they be restrained from any ‘inadvertent’ or indiscriminate retaliation when business threats emerge in the near future.
The power of a bank to arbitrarily close the accounts of competing businesses must be limited. There is a clear case for a swift and effective review process when closures occur.
A bank account is central to any Fintech business. It is their oxygen. There must be swift and effective ways to resolve issues. They can’t survive weeks or months. They need a way to have an account closure independently and immediately considered and adjudicated. When warranted, the account must be promptly reactivated.
The time for government action is now.
While I have candidly stated my views, this is not some anti-banking establishment rant. I am not suggesting anything untoward has happened or may happen in the near future.
Instead, it is a call for both the banking industry and government to ride the inevitable wave of digital disruption that is about to wash through the finance and banking sectors. It is also a call to remember the music industry’s Alamo. We need brave and daring business leadership and wise regulation.
Australian technology must be given the opportunity to take root and succeed. If the right environment is not permitted or created we will all soon be using foreign technologies to manage our banking and investments with the rewards flowing offshore.
Rapid and drastic changes will increasingly confront the financial system. Technology will deliver new tools and concepts. There really is no other option, but to move swiftly and wisely. We are on the brink of an era of great peril and great potential. There will be some massive winners and many more devastated losers. Rich rewards may flow to those who are agile, strategic and who invest wisely and swim with the tide.