Westpac’s longstanding aversion to the Australian remittance sector has been widened to include other licensed cross-border payments providers and start-up banks.
Banking Day has confirmed through several industry sources that the country’s second largest deposit-taker this month blocked newly-licensed bank International Bank of Australia from opening deposit accounts at Westpac.
It is understood that IBoA, which has an established banking relationship with ANZ, had been looking to diversify its domestic banking arrangements as part of a liquidity management program.
However, Westpac’s institutional banking arm last week rejected IBoA’s application.
While Westpac indicated that it might be open to onboarding IBoA as a customer in the future, the decision is controversial because IBoA is authorised by the Australian Prudential Regulation Authority to conduct banking business in Australia under a restricted licence issued in November.
“Thanks again for IBOA’s interest in banking with us,” a Westpac relationship manager told IBoA in a letter leaked to Banking Day.
“As discussed, we won’t be able to onboard IBOA as a banking client at this stage.
“We are keen to keep in touch, and hope to touch base in 6-12 months’ time.”
IBoA is preparing to roll out an international banking platform to facilitate cross-border lending, payments, and currency transactions.
The bank is hoping to leverage the distribution footprint of its fintech parent – Novatti Group Limited – to build a customer base throughout Asia.
While the rejection of IBoA’s application exposes Westpac to claims of trying to suppress new competition, it might also reflect a consensus within Westpac that the bank is not yet sufficiently equipped to fulfil AML/CTF compliance for institutional clients with business models skewed to cross-border transactions.
If neither of these explanations underpin Westpac’s decision, then the bank would be setting a disruptive precedent in the Australian banking system, particularly given IBoA’s legal authority to operate as a bank.
The financial system relies on inter-bank reciprocity to support liquidity and efficiency.
Most Australian banks, including Westpac, deposit cash at other banks.
Westpac’s dismal record in complying with anti-money laundering and counter-terrorism laws is well documented.
In 2020 the bank paid a record fine of A$1.3 billion after it acknowledged having committed 23 million breaches of anti-money laundering laws.
The breaches included Westpac failing to notify AUSTRAC of 19 million money transfers into and out of Australia that were worth more than $11 billion.
Moreover, as Westpac’s internal AML controls collapsed between 2013 and 2018, it moved swiftly to de-bank almost 200 local money remittance firms on the basis that they were not complying with Australian laws.
That decision cleared a path for Westpac and other major banks to reclaim market share in the international money transfer market.
It is likely that IBoA will be looking to challenge the major banks in this market segment when it launches its international platform.
Banking Day sought comment from Westpac and IBoA for this story.