More than 100 fintechs de-banked

The ‘de-banking’ of Australian fintechs, especially those connected with cryptocurrency, is crippling innovation in financial services, a Senate committee has heard.

The chief executive of FinTech Australia, Rebecca Schot-Guppy, told the Senate Select Committee on Australia as a Technology and Financial Centre that there was no clarity around the approach taken by banks, very little explanation given to the businesses affected and confusion around the regulatory position.

Schot-Guppy said at least 150 of FinTech Australia’s members have been de-banked at some stage. This is near half of the association’s members.

She said fintechs involved in payments, foreign exchange and digital currency exchange were registered as reporting entities with Austrac but that carried no weight with banks.

Some of this cohort (such as the more resilient remittances operators) have rowed against the clubby, risk-averse manners of big banks for at least seven years now.

Schot-Guppy, an influential voice for the industry, sought support from the government for changes based on values almost as much as commercial trade-offs.

FinTech Australia proposes that Austrac overhauls its rules so that registration and ongoing compliance and reporting would provide a level of assurance for banking service providers.

And she called for the introduction of a set of rules where banks would be required to give reasons for de-banking and provide an appeal process.

The chair of the committee, Senator Andrew Bragg, accepted that widespread de-banking was a problem for innovative financial services businesses but he said the government was not going to mandate the services a bank should provide.

When he suggested that more rigorous regulation of businesses such as digital currency exchanges might solve the problem, industry representatives at the hearing were not keen, with one saying regulation would stifle innovation and competition.

Earlier this year Westpac wrote to the committee, saying it withdrew banking services from eight fintechs over the past year.

Westpac group executive, financial crime, compliance and conduct, Les Vance, said reasons why the bank might not be able to provide banking services included “management of financial crime-related risks, dealing with companies that become deregistered, fraud and certain convictions”.

He said when the bank examined the risks involved in customer relationships it considered laws governing money laundering and terrorism financing, bribery and corruption, the facilitation of tax evasion, and economic and trade sanctions.

He said Westpac does not consider the fintech sector to be “higher risk or out of appetite per se” but there could be “segments” of the fintech sector that operate in higher risk areas or have higher risk appetites.

A representative of digital payments company Nium said the company operates in a number of jurisdictions and Australia is the only country where it has been de-banked.

A representative of digital currency exchange Bitcoin Babe said the business had been de-banked on 90 occasions, with some banks giving 24 hours’ notice before closing accounts. The company’s customers have been contacted by banks and asked about their dealings with it.

A representative of digital currency exchange Australian Merchants said the company’s Austrac registration was accepted by its counterparties but not by banks – a situation that needs to be sorted out. The company has been de-banked four times.