This was published 7 years ago
How start-ups with $3m in capital could get their banking P-plates
Start-up businesses with $3 million in capital could qualify for a "restricted" banking licence under a proposal from the industry regulator designed to put more competitive heat on the big four.
As the federal government looks to shake up the concentrated banking industry, a discussion paper from the Australian Prudential Regulation Authority proposes a revamp of the tough approval process for a banking licence.
APRA's proposed "restricted" banking licence is similar to banking P-plates.Credit: Vicky Hughson
Under the plan, APRA would be able to grant start-ups a "restricted" licence to become an authorised deposit-taking institution (ADI) - giving these firms a much faster pathway to becoming a bank.
The restricted licence would be similar to banking P-plates, or training wheels - these businesses would be able to operate only within very tight constraints.
The change comes as a growing number of technology-based businesses are eyeing the $30 billion a year the major Australian banks make in combined profits.Credit: Paul Rovere
To obtain a restricted licence, the business would need at least $3 million in capital, directors and senior managers would need to meet APRA's "fit and proper" test, and the business would need to show it had reliable record-keeping systems.
The paper says such businesses would not be able to take total deposits of more than $2 million, or individual deposits of more than $250,000. Deposits up to $250,000 are guaranteed by the government for all ADIs.
These caps would in effect prevent start-ups from operating as retail banks of any meaningful scale, but it is hoped the move will give businesses a chance to obtain a licence while they are still developing the capabilities needed to get a fully fledged licence from APRA.
"APRA's proposed changes to its licensing approach are intended to deliver benefits to the community through facilitating increased innovation and competition in the banking industry, while still maintaining a resilient, sound and stable financial system," APRA chairman Wayne Byres said.
The change comes as a growing number of technology-based businesses are eyeing the $30 billion a year the major Australian banks make in combined profits.
Restricted banking licences would be available for only two years, and if it became clear the business was not on track to develop its "capabilities and resources", APRA would force them out of the industry.
The plan comes as the government is aiming to ramp up the competitive pressure on Commonwealth Bank, Westpac, National Australia Bank and ANZ Bank, which between them control about 80 per cent of the market for household deposits and loans.
Separate draft legislation released by the government last month proposed to make it easier for ADIs to call themselves "banks". Currently, ADIs need $50 million in capital to call themselves banks, but the the government says it will scrap this limit.
Treasurer Scott Morrison said the changes were similar to those being introduced overseas, and they would lower the barriers to entry in the banking industry.
"A more competitive and innovative financial sector means more choice, lower prices and better service for Australian customers," Mr Morrison said.