Novatti Group Limited (ASX: NOV) CEO Peter Cook was featured by Financial Review, commenting on how the circumstances of the Silicon Valley Bank collapse are different to the heightened regulation in Australia, while also highlighting the ongoing need for Australian businesses to get access to innovative banking services.
“The growth of digital economy businesses is at risk if start-ups can’t get banking services and all of the growth and subsequent efficiencies, productivity and job growth that go alongside that,” said Cook.
On the same day, Cook was invited by ABC Radio National to discuss the impact SVB might have on small business banking in Australia. The interview can be listened to here and a transcript is available below.
RN Drive with Andy Park, 23 March 2023
AP: There’s ongoing rumblings about how exposed Australian banks are to the frailties of the startup world. The national prudential regulator has reportedly put banks on notice over their levels of exposure to tech companies and crypto-focused ventures. But is the tech world, certainly Australian startups, being unfairly maligned here?
AP: Peter Cook is the CEO of the ASX-listed payments services company, Novatti. Welcome to you, Peter. What does your company do?
PC: Good afternoon, Andy. Novatti Group Limited is a payments services company. We provide payments such as issuing debit cards and prepaid cards, we take merchant payments where people are paying with credit cards, and we do a lot of payments where our businesses facilitate Australian businesses to send money overseas or get money paid to them from overseas.
AP: So what is the state of play for startups in Australia in the wake of the SVB collapse and the takeover of Credit Suisse? What’s the flow on effect been?
PC: I think that in the first case, the biggest concern for a number of Australian software companies. Say companies trying to do new carbon technologies and their backers had got them to take accounts in America with Silicon Valley Bank. So for instance, if a venture capital company had subscribed $5 million for that company, then it might sit in that bank in the US. And of course when that company then went to make payments to pay its staff in the US, then the account was initially frozen.
PC: I think in Australia it’s generally quite different. It is not straightforward for a lot of companies to get bank accounts in Australia. And there’s the difficulties to do with proving who you are and whether the bank wants to bank you. But we’ve got much higher levels of prudential regulations, so I think some of the liquidity issues that hit Silicon Valley Bank aren’t the same as here.
AP: This idea that banks need to increase their reporting on startup ventures as was reported in the Australian Financial Review today, is it a good one in your mind or maybe an unnecessary one?
PC: I think Australian banks report very extensively to the regulator. If the regulator wants specific reporting on startup ventures, then the banks can do that. But I would think that the amount of money that startup companies have in Australian banks is a decimal point compared to what the banks are really holding for whether it be mining businesses, agriculture, industrial businesses, or consumers.
AP: So you’re saying that sometimes that an increase in regulation doesn’t necessarily lead to sort of better outcomes?
PC: I think it is great in Australia that we are very highly regulated in a banking sense. So, that’s a positive. And Australia has a great record of banks not going under, for instance, in the GFC. But we need the regulation to be pragmatic. What we don’t need is for companies to not be able to grow and help transform our economy. I mean, think about this, lots of farmers are using software to improve the productivity of their business or say, improve their carbon footprint. So if the software company that’s helping the farm or that mining business or whatever it is, can’t get bank accounts, can’t pay its staff, can’t receive payments or make payments, then how can it help the rest of the economy?
AP: So as we look forward, are digital economy businesses are at risk here particularly because they perhaps may not be able to get access to a line of credit, especially when it comes to expansion, particularly stateside?
PC: I think lines of credit are another thing about lending and being suitable for a loan or venture funding and that will go to their business models. I think that there’s two issues here. One is getting banking services and whether the banks have to report on that in terms of startup companies being eligible for loans in particular, that will go to their business model and I guess how they pitch and who their backers are.
AP: If you just joined me here on RN Drive, it’s 13 past 4. You’re hearing from the CEO of payment services company Novatti. I’m curious about whether or not the SVB lesson, if you like, is being learned more broadly. Do you feel like prudential regulators sort of have to pay a bit more attention, more broadly, in other countries that you might deal in as well?
PC: Andy, I think in a lot of countries, regulators will really look at what happened in the US. So, to my understanding from the study I’ve done, you had a pretty basic mistake at Silicon Valley Bank of mismatched deposits versus the bonds that the bank had taken. I would think in Australia that could not easily occur, our prudential regulation is much tighter. And I would think, globally, in any countries that have that weakness, the regulators would be very-very quickly jumping on it.
AP: Peter Cook, CEO of Novatti. Appreciate your time this afternoon.
PC: Thanks, Andy.