Yesterday, we got our first glimpse of performance from one of the Big Four.
NAB reported its half-year results to 30 March, and they were impressive.
A 17% increase in cash profit to $4.07 billion would normally delight investors. But because it fell short of the $4.2 billion expectation, it will be remembered as a failure instead.
As a result, NAB shares were dumped on the market. The stock fell 6.41% yesterday despite its relatively strong profitability!
It just goes to show not even the Big Four are safe from volatility.
Also, keep an eye on ANZ and Macquarie shares today after the release of their latest earnings. Because as robust as their profits may be, it seems investors are looking beyond just the bottom line…
After all, we’re in the midst of a lending war. Or, at least, nearing the end of one.
Because as the RBA has continued its aggressive rate hike cycle, the Big Four have been jostling to retain their home loan market share against each other — a key factor in the weaker-than-expected results of NAB, in my view.
But beyond this, I wonder if the banks are prepared for even further competition that’s coming…
Forgotten fintechs
Remember Afterpay?
Remember Zip?
Remember the ‘buy now, pay later’ bubble of 2021?
Fintech was a huge trend on the ASX not that long ago. A trend that made many investors a whole lot of money with their astounding growth.
But now that trend is all but dead in the water. BNPL doesn’t draw headlines quite like it used to. In fact, fintech as a whole has been one of the biggest losers in our current, higher interest rate era.
Which makes perfect sense, when you think about it. It stands to reason that the Big Four were always going to be better equipped to withstand the cost pressures of current monetary policy better than the upstarts.
Not that that has stopped many of those upstarts from trying.
Just last month, two of the latest entrants into the market — Intelliflo and Nuvei — made their Australian debut. The former is a British-based business that provides ‘hybrid financial advice’, essentially offering clients a largely digital experience, but with the option to talk to a real person too.
In contrast, Nuvei is more akin to your typical fintech payment processor. They focus on e-commerce acquiring, processing, and risk management, for their merchant customers. Something that is certainly not new to Australians, but still ripe for disruption for the right offering.
Oh, and then there’s Alex.Bank as well. As the newest authorised deposit-taking institution (ADI) in Aus, it’s the latest in a long line of neobank hopefuls.
There is certainly no shortage of new competitors looking to cut away market share from the Big Four. And the reason I think you should care is because once the tide turns on interest rates, the fintech sector could be the biggest beneficiary…
Making inroads
What I really want to stress today, however, is that fintech isn’t just about small speculative companies.
Following the Afterpay acquisition by Block Inc, there are now far bigger names in the payments sector. Another example, for instance, is Stripe.
Despite operating in Australia for close to a decade, Stripe hasn’t really dished up the kind of disruption some had hoped. It certainly has carved out its own niche, just not in the way many expected.
As of last month, though, Stripe has stepped up its ambitions launching its new android-based tap to pay product suite; a system that can be used by businesses on their own phone or point of sale terminal.
In other words, all a business needs to accept mobile payments now is an app on their own phone. Something that is not only a priority for Stripe, but also Block who released its own android tap to pay product last month as well!
So while all of this may sound fairly rudimentary — or maybe even uneventful compared to what the Big Four are fighting over — it is worth paying attention to. History has shown us that cutting away market share from the big banks is not easy, and it won’t be quick, but it is possible.
As this new generation of fintech providers continue to mature amidst this volatile market, don’t be surprised if they dish up some serious disruption soon. Because again, like I said, once the tide turns, this sector could truly flourish once more.
If that happens, then weaker profits will be the least of the big banks’ worries.
Regards,
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Ryan Clarkson-Ledward,
Editor, Money Morning
