Chairmen of two of the country's biggest banks have sounded a warning over the future threat from global technology giants trying to muscle into Australia's highly profitable banking industry.
As banks try to fend off a mounting push for a high-powered inquiry, National Australia Bank chairman Ken Henry and Westpac chairman Lindsay Maxsted highlighted the pressure on banks' strategies from the likes of Google or Apple.
"The competitive challenge in our industry is not so much that one of us is going to cut the other's throat. It's not that. It's that we are going to be challenged beyond our ability to cope by the big IT platform providers, the Googles and the Apples and so on," Dr Henry said at a business lunch in Sydney.
He said the competitive threat - which he saw as emerging over roughly the next decade - was forcing NAB to ask itself what the technology giants may be able to offer customers, and how the bank could beat this by using new types of technology.
The comments highlight the longer-term disruption banks could face, a threat the industry believes should get more attention in the policy debate, which is being dominated by calls for a royal commission.
Mr Maxsted also said the next wave of competition would come from outside the industry, and he said Westpac was already preparing for the threat in its hiring decisions, and investments in financial technology, or fintech.
"We have some ideas about the way we think the world is evolving for the banks, but Ken is right, the threats and the competition will be huge and they won't just be from the players that we know today," Mr Maxsted said.
The threat could result in bigger differences in the strategies adopted by the major Australian banks, he said. Currently, all of the big four are skewed towards domestic retail and business banking.
The warnings come as banks argue the public debate about the industry has put too much emphasis on issues of past misconduct, rather than the disruption facing a sector that is critical for the economy.
Dr Henry also said there was a "very poor" public understanding about mortgage interest rates. The financial regulator's restrictions on riskier lending were the reason banks had increased their mortgage rates for property investors and customers with interest-only loans, he said, and regulators should explain this.
"We do need to have regulators out there explaining why they are taking the regulatory action they are taking, and they also could do us all a favour ... by explaining that they do expect these things to have an impact on borrowing rates."
Chairman of the government banking inquiry David Coleman last month put it to bank chief executives they were profiteering from the rate hikes - which did cause banks' profit margins to widen.
NAB and Westpac have taken opposite approaches to the corporate watchdog's allegations of interest-rate rigging, with NAB last month settling with the Australian Securities and Investments Commission, while Westpac has been fighting the case in court.
Mr Maxtsed said it would have been "unacceptable" for the bank to admit any guilt as ASIC has demanded, noting that the employees still worked at the bank. "We don't think we're guilty," he said.
In contrast, Dr Henry said NAB had decided to make "limited admissions" of wrongdoing so that it could "move on."
"We took the view that it's better to put these issues behind us," Dr Henry said.
Despite the industry's warnings about risks of a royal commission, however, Dr Henry and Mr Maxsted said global funding markets had not penalised Australia's banks by demanding they pay more for wholesale credit.
Velocity Trade banking analyst Brett Le Mesurier said the prospect of a royal commission into banks was not something high on investors' list of potential worries.
'"There's not a lot of talk about it. If it does happen the market will obviously tune in, and they will be hoping it does not come up with anything more," he said.
