The bank threat that killed off competition in Australia’s $800b property monopoly

Australia’s major banks were warned they risked breaching the intellectual property rights of Australia’s $800 billion electronic property settlements giant PEXA, a move that proved decisive in delaying the launch of its rival Sympli.

The banks were sent a letter by PEXA in December last year as they prepared to cooperate with requests from the conveyancing sector’s regulator, the Australian Registrars’ National Electronic Conveyancing Council (ARNECC), to introduce competition in the property settlements market.

PEXA has a virtual monopoly on settling property transactions and mortgages in Australia with more than 88 per cent of the market.Credit: Louie Douvis

ARNECC had requested specific information on functions provided by the $2.5 billion PEXA - the only provider of econveyancing transactions - which now account for 88 per cent of property transfers in Australia and 99 per cent of mortgages refinanced.

PEXA’s letter referred to a meeting between the regulator and the banks representative body - the Australian Banking Association (ABA) - where the banks had stressed the need to ensure there was no loss of functionality or increased risk of transaction failure.

“We appreciate you have and should continue to advise the regulator on the outcomes you are seeking in an interoperable regime and the gaps in functionality of which you are concerned,” PEXA’s commercial officer Les Vance said in the letter.

“However, PEXA has intellectual property rights over those important functions that we have developed in consultation with our lending institution customers over the past decade. It is not reasonable that you are being asked to outline the functionality of those systems to the regulator, especially as this could lead to disclosure of our company’s intellectual property.”

ASX-listed PEXA asked the banks to refer the regulator back to them on these queries.

The following month, the banks cancelled a meeting with PEXA rival, Sympli - which was meant to discuss interoperability issues - due to the uncertainty over whether they were legally allowed to discuss information which PEXA was claiming as its own IP.

Interoperability would allow the parties involved in settling a property transaction – lawyers, conveyancers and banks – to use any service provider, instead of having to use PEXA, which was originally a venture between Australia’s largest banks and various state governments.

In June, ARNECC effectively abandoned plans to introduce competition in the near-term after state government ministers said some of the intended reforms needed federal intervention. Electronic conveyancing is expected to generate fees totalling $430 million by 2025.

A NSW Productivity Commission report said that most of the $89 million in annual productivity benefits generated from Australia’s paper-based conveyancing system going electronic has been captured by PEXA making “above normal profits”.

PEXA had warned the regulator in July last year that it was now a public company and its assets were “no longer available for government bodies to disburse” without compensation.

“It is incorrect to make a blanket assumption that exchange of these additional data would not infringe PEXA IP rights,” the ASX-listed group said.

In response to queries about the IP threat, PEXA said: “We have consistently raised concerns with the industry regulator ARNECC and governments regarding the unintended consequences of the proposed approach to introducing interoperability.”

“PEXA remains committed to working constructively with regulators, industry participants, and governments to foster an ecosystem that benefits Australian home and property owners.”

Banks contacted for this story declined to comment or referred queries to the ABA which said: “Banks support interoperability in principle, however, we have ongoing concerns with the current scope and governance of the project, which - if unresolved - will compromise its success.”

“We have expressed these concerns and continue to seek a government-led resolution.”

The federal government has declined to get involved in the matter. Federal Assistant Minister for Competition Andrew Leigh said the states have the power to legislate a timetable for reform that will introduce competition and back it with penalties if deadlines are not met.

The ACCC has also declined to get involved, saying ARNECC is the relevant regulator.

Meanwhile, analysts have embraced the reality that PEXA will remain a monopoly for the forseeable future.

“We reduce our market share loss assumption from 5 per cent to 0 per cent as we now assume econveyancing will remain a monopoly,” Macquarie Equities analysts said.

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