- Australia's trust in neobank lenders sits at just 10%, below its faith in traditional banks, according to a new report.
- In a new whitepaper, open banking firms Frollo and EML suggest neobanks and other fintechs can woo consumers by building trust where traditional banks are not.
- The report comes as regulators and consumer advocates increase their focus on the sector, which embraced open banking systems last year.
- Visit Business Insider Australia's homepage for more stories.
Just two years after a royal commission exposed a multi-billion dollar rot at the heart of Australia's banking system, consumers still put twice as much trust in traditional financial services than they do in fintechs - a gap the rising sector hopes to diminish.
In a new report, open banking platform Frollo and EML Payments say Australian consumers' trust in the banks sits at 23%, overshadowing faith in the neobank lending sector, which sits at just 10%.
The finding, drawn from a recent survey of 325 consumers, suggests the unfamiliarity and novelty of Australia's newest fintech players sows more doubt than the red-hot condemnation and hundreds of millions of dollars in fines leveled against established banks.
The report posits that users may trust fintechs and non-bank lenders to offer responsible loans, but believe the big banks are more likely to keep their money and personal information under lock and key.
"Australians have a low opinion of financial service providers. The relationship is a rocky one, built more on necessity than trust," the report states.
"Neo-lenders need to quickly scale to succeed in this highly competitive world, so they need to leverage their relationship trust and quickly prove trust in their prudential and security safety abilities," it adds.
The finding questions the prevailing narrative that Australians are flocking to buy now, pay later services like Afterpay and Humm because of their innate distrust in the banks.
While the report cites studies showing lost trust is a key contributor to consumers swapping companies, it also promotes the functionality of open banking, claiming the new innovations in Australia's fintech industry are winning customers where traditional banks cannot.
Australian consumers overwhelmingly view responsible lending and personal financial management features as important, the report states, suggesting those facilities can be readily provided by fintechs.
"From passing on interest rate cuts to responsible lending and flexible repayments, consumers are looking for financial partners they can trust to put them, not shareholders, first," the report states.
Some 55% of consumers aged between 18 and 34 view the ability to access instant loan decisions as highly important, promising another growth opportunity for Australia's neobanks.
What the report does not consider is the collapse of Australia's neobank darlings or their absorption by the institutions they promise to challenge.
Nor does the report broach the potential for fintechs to launch credit products which consumer advocates have routinely hailed as excessive or potentially damaging to vulnerable borrowers.
The fintech chiefs nevertheless believe open banking technology will eventually woo consumers away from the devil they know.
"As more financial services providers use Open Banking, consumer familiarity, confidence, and trust in using this service will only help the industry," Pete Young, general manager of Latitude, said in the report.
"We all benefit from a shared and re-usable standard."