Issue 107

Banking as a service

Delivered on 06 April 2021 by Justin Pyvis. About a 3 min read.

Westpac, one of Australia's 'big four' banking giants, has started renting out its licence to "allow banking outsiders to provide banking services in competition with Westpac and other banks". Not to be confused with SaaS (software as a service), BaaS – 'banking as a service' – is all the rage in Australia, as it's one of the few financial frontiers where competition is permitted.

However, that's a generous use of the word 'competition', as:

The emerging wholesale fintech strategy is a big strategic bet by Westpac that it will be able to win deposits – and ultimately mortgage referrals – from start-ups seeking to embed financial services into their applications. Westpac has decided getting exposure to the trend is worth the risk of giving up customer engagement to the technology players.

The emergence of 'buy now, pay later' providers such as Afterpay, which capitalised on regulatory arbitrage to carve out a niche not currently served by the incumbents, caught the banks by surprise. One reason is because Australian banks, due to their large size and heavily regulated existence, tend to gravitate towards bureaucratic, centralised and risk-averse decision-making, which can inhibit productivity-enhancing innovation.

By renting out their banking licence while handling the more bureaucratic functions internally (such as appeasing regulators), banks may be able to have their cake and eat it too. More risk-tolerant firms can try – some might fail, but that's the idea – to innovate on customer-facing banking services inside their own apps, with no risk to the solvency of the bank or Australian financial system. Interestingly, Australia's largest bank – CBA – "is investing heavily in its own technology to enhance personalisation of its app and engagement with its own customers". It'll be interesting to see how that works out.

Note that none of this is particularly revolutionary but any consumer-welfare improvement in banking, no matter how small, is welcome.

Facebook hacked... in 2019

The personal data of 533 million Facebook users from 106 countries – including the Zuck himself – was published, for free, "in a low level hacking forum on Saturday":

It includes their phone numbers, Facebook IDs, full names, locations, birthdates, bios, and – in some cases – email addresses.
While a couple of years old, the leaked data could provide valuable information to cybercriminals who use people’s personal information to impersonate them or scam them into handing over login credentials, according to Alon Gal, CTO of cybercrime intelligence firm Hudson Rock, who first discovered the entire trough of leaked data online on Saturday.

You should assume that if you use Facebook, nothing you give it is ever private. If it hasn't been stolen from Facebook's servers, Facebook has probably sold it far and wide enough that it may as well have been.

If you're concerned, type your Facebook email address into to find out if you were part of the hack.

Welcome to the People's Republic of Australia

The Morrison government is really starting to flex its totalitarian tendencies. Not content with forcing the likes of Google and Facebook to pay a convoluted cross-subsidy to their legacy media mates disguised as a 'link tax', they're now "considering forcing users of social media platforms like Twitter, Facebook and Instagram — as well as online dating platforms like Tinder — to upload 100 points of identification in order to use them":

In a nutshell, it would remove the anonymity for those who use such platforms to bully, harass or intimidate other users.

But it would also mean social media giants — many of which have suffered serious privacy breaches in the past — are holding even more precious information about its users.

Thankfully, this one will not pass the pub test. The government got away with the fake link tax because it stuck with the crony capitalist playbook, keeping the benefits visible and concentrated with the costs opaque and disperse. However, requiring 100 points of identification to use social media has no benefits other than the usual 'think of the children' fallacy, with very real and visible costs to every social media user – i.e. most Australians.

Talk about misreading the crowd – the social media backlash was swift, with #SovietScott trending on Twitter shortly after the news broke. Attention ScoMo: more vaccines and less undermining people's privacy, please!

Issue 107: Banking as a service was compiled by Justin Pyvis and delivered on 06 April 2021.