Invest
Big four banks to be squaring up against new threats
Low interest rates and increasing competition mean that Australia’s traditional banking sector is facing mounting pressures, a CEO has outlined.
Big four banks to be squaring up against new threats
Low interest rates and increasing competition mean that Australia’s traditional banking sector is facing mounting pressures, a CEO has outlined.
Speaking at the Nikko AM “the ripple effect of change breakfast”, founder and CEO of Ark Investment Management Catherine Wood has outlined why banks are under pressure to maintain their balances.
“The banks anywhere in the world have a big problem: it’s called inverted yield curves – their net interest margins are getting crushed and that’s a prime mover of revenues,” Ms Wood explained.
According to the CEO, this technology boom has similar characteristics to the technology boom of the 1920s, where yield curves inverted 60 per cent of the time despite strong economic growth.
“It just so happens that is the last period that was characterised by multiple innovation platforms involving at the same time which were deflationary in nature,” she argued.
She said such “good” deflation “was technologically enabled deflation”.
Another factor placing pressure on the banks’ already thin margins is the growth of fintechs both in Australia and the United States, she pointed out.
Considering “fintech companies are not just nipping at their heels”, Ms Wood said they are going straight for the banks’ business.
Ms Wood stipulated that companies such as investment juggernaut Goldman Sachs with Marcus will also pose a new threat to traditional banks.
“They are offering 3.0 to 3.3 per cent for online deposits, sometimes taking a loss as they are trying to attract assets,” Ms Wood said.
Finally, the CEO cited the introduction of companies such as Square and PayPal’s Venmo and the development of digital wallets will effectively become “banks” in consumers’ pockets.
The cost of Square’s customer acquisition is $20 per user, while a bank’s cost is $300 to $1,500 per credit card, Ms Wood outlined, conceding that “there’s no way traditional banks can compete with Square”.
Ms Wood outlined the progress being made by the online banks in the United States.
“If you look at digital accounts, JP Morgan is number one, PayPal is number two, with Square being number six.”
Square is growing more than 100 per cent while Venmo is growing at 50 per cent per year.
Ms Wood predicted that “they are going to far surpass all the banks”.
“We think what is going to happen to banks is what is going to happen to the retail sector, thanks to Amazon and other online players.
“We think unit growth globally is being understated because the statistics were derived during the industrial age, [and] we are now in the digital age.”
About the author
About the author
Shares
The heroic nature of health stocks in 2020
Putting money into health stocks is not only an investment in financial return, it’s also an investment into social impact, a portfolio manager has said. ...Read more
Shares
Emerging markets: 5 pandemic-proof sectors set for growth
As the world continues its migration online due to COVID-19, emerging markets will reap the benefits and open up new avenues of investment for savvy investors, according to an investment management fi...Read more
Shares
JobKeeper sees CEO bonuses rise
The Morrison government’s JobKeeper scheme has been used for corporate welfare and to line the back pockets of CEOs, an opposition minister has shown. ...Read more
Shares
Will BNPL shares continue to rally?
The COVID-19 pandemic has seen a change in customers’ approaches to online retail, creating a tailwind for the “buy now, pay later” sector. ...Read more
Shares
More users than Apple and Netflix: How investors can cash in on a growing trend
With COVID-19 seeing an already active 2.7 billion users spending more time playing video games, the opportunity to invest in the sector has never been greater, an industry expert has advised. ...Read more
Shares
Top 4 tech stocks right now
Tech has been a beacon of light in the US markets of late – so what are the stocks that are doing the heavy lifting? ...Read more
Shares
Qantas profits nosedive 91%: Here’s what it means for Aussies
Qantas’ profits have fallen 91 per cent as COVID-19-induced border closures hammer the airline’s bottom line. ...Read more
Shares
How much is the wagyu and shiraz case costing taxpayers?
ASIC has disclosed the preliminary legal bill for its responsible lending case against Westpac. ...Read more
Shares
The heroic nature of health stocks in 2020
Putting money into health stocks is not only an investment in financial return, it’s also an investment into social impact, a portfolio manager has said. ...Read more
Shares
Emerging markets: 5 pandemic-proof sectors set for growth
As the world continues its migration online due to COVID-19, emerging markets will reap the benefits and open up new avenues of investment for savvy investors, according to an investment management fi...Read more
Shares
JobKeeper sees CEO bonuses rise
The Morrison government’s JobKeeper scheme has been used for corporate welfare and to line the back pockets of CEOs, an opposition minister has shown. ...Read more
Shares
Will BNPL shares continue to rally?
The COVID-19 pandemic has seen a change in customers’ approaches to online retail, creating a tailwind for the “buy now, pay later” sector. ...Read more
Shares
More users than Apple and Netflix: How investors can cash in on a growing trend
With COVID-19 seeing an already active 2.7 billion users spending more time playing video games, the opportunity to invest in the sector has never been greater, an industry expert has advised. ...Read more
Shares
Top 4 tech stocks right now
Tech has been a beacon of light in the US markets of late – so what are the stocks that are doing the heavy lifting? ...Read more
Shares
Qantas profits nosedive 91%: Here’s what it means for Aussies
Qantas’ profits have fallen 91 per cent as COVID-19-induced border closures hammer the airline’s bottom line. ...Read more
Shares
How much is the wagyu and shiraz case costing taxpayers?
ASIC has disclosed the preliminary legal bill for its responsible lending case against Westpac. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
