Westpac boss Brian Hartzer bemoans $300m compliance tab

The Westpac chief said a $300m compliance bill was money he would rather have spent on innovation and services.

Westpac boss Brian Hartzer is in the agnostic camp when it comes to the increasingly insistent claim by global regulators that post-­crisis reforms are working.

Financial Stability Board chairman and Bank of England governor Mark Carney is pounding the message that the financial sector is better able to absorb shocks instead of amplifying them, as it did in the GFC.

Carney was at it again in his Aug­ust 30 letter to G20 leaders, pointing to the minimal fallout from the Brexit vote in June and the slower outlook for global growth that emerged at the beginning of the year.

It’s all part of a battle for ideological supremacy with the sceptics, who argue that the avalanche of new rules hadn’t achieved much apart from risk-migration to other, less transparent parts of the financial system.

Speaking in Melbourne last week, Westpac chief executive Hartzer said the bank’s tab for regulatory compliance last year came to well over $300 million — money he would have preferred to spend on innovation and service improvements.

As to Carney’s claims, Hartzer was in partial agreement. “But I wouldn’t say that’s the whole explanation,” he told Four Pillars.

“Certainly the new regulations have reduced the size of the big proprietary trading positions that the international banks used to run, but I’d also say Brexit was well-telegraphed; we knew it was an issue.

“Banks have spent the last eight years since the GFC trying to figure out how to better manage risk. Clearly we were all prepared for any eventuality.”

Judo taking hold

Joseph Healy’s start-up SME lender has settled on a name, Judo Capital, and is expected to open its doors before the end of the year.

Healy, who led National Australia Bank’s business bank until Andrew Thorburn became group chief executive in 2014, was unavailable for comment.

However, it appears that Judo will initially rely on market funding until it gets a banking license.

The experience of British lenders Aldermore and Shawbrook, founded in 2009 and 2011, shows that global capital is prepared to back credible challengers in the SME segment, with Judo said to have the luxury of choice when it comes to potential debt and equity partners.

The company name Judo was registered with ASIC in the middle of last month.

While there’s a website up and running, it’s limited to information about Judo and its six founders.

Apart from Healy, a former NAB colleague David Hornery is the co-chief executive.

The other founders include 25-year NAB business banking veteran Tim Alexander, Standard Chartered executive general manager Chris Bayliss, NAB’s ex-head of Asia banking Kate Keenan, and former Woolworths group ser­vices manager and head of the NAB online bank Ubank, Alex Twigg.

If Judo follows the Aldermore model, it will serve customers online, by telephone and face-to-face through a network of regional offices. Its website says it will operate a flat structure that’s “streamlined, efficient and responsive” so that customer proposals will be turned around in five days.

Each application, it says, will be assessed on its merits, rather than relying on “complex, slow-moving processes often based on automated credit scoring systems”.

The target market is businesses with an annual turnover of up to $20 million.

Healy made it clear to this column in May that the then-­unnamed Judo would not be a fintech company: technology would be an enabler but would not define the company. Its point of difference — in an era where SME dissatisfaction with the service levels offered by incumbent banks is extreme — will be the old relationship model.

The latest survey results from independent banking industry analysts East & Partners confirm that deteriorating advocacy is the most pressing concern for Australian business banking divisions.

On a lowest to highest scale of 10 to 100, advocacy across the micro, SME, corporate and institutional segments was an alarmingly low 17.3, with micro businesses and SMEs showing “distinctly antagonistic” relationships with their business banks, ­according to East.

Those segments scored 11.6 and 14.8, respectively, on the same scale.

The Judo website pumps up the nascent lender’s point of difference, saying all businesses are unique and need to be treated ­individually.

“That means not having rigid views of industry ‘sectors’, or being weighed down by slow-moving legacy systems and red-tape,” it says.

If you’re wondering “why Judo?”, it’s all about the art of ­competing with and beating larger ­opponents.

Collaborate, not collide

When you’ve sat through 72 start-up pitches at the Finovate Fall 2016 conference, you’re reasonably well-positioned to make a call on the collaborate/collide debate.

The start-ups pitched over two days in Manhattan to an audience of 1600 investors, bankers, payment companies and potential customers. The conclusion of one observer who witnessed the entire process was that the start-ups had one thing in common — they weren’t trying to collide and take the place of legacy institutions; ­instead, they were looking to ­collaborate.

The swing from competition to collaboration has been accelerating since 2014, according to data collected by the Massachusetts of Technology.

It’s part of a recognition that incumbents have strengths as well as weaknesses, as do start-ups.

Fintechs are nimble, technologically astute and can deliver a better customer experience at a lower cost, but they don’t have the capital, distribution networks and large customer bases of the banks.

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