Inside Money: Why technology hasn't made finance cheaper yet

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With over 200 submissions already to sift through, the Australian Financial Services Inquiry panel members have a few months of heavy reading ahead of them.

Fortunately, I can screen and skim - who gets past the executive summary anyway? For example, I bypassed Shann Turnbull's submissions parts 1 to 4 (although part 4 'How should regulators control cell phone money?' looked sort of interesting).

I did speed-read the official thoughts of both the Reserve Bank of Australia (RBA) and the Australian Treasury. Both of them note the relatively expensive nature of Australia's much-lauded compulsory superannuation system, which is "characterised by high operating costs and limited product innovation", according to the RBA.

"... consideration should be given to ways that competitive pressure may be placed on the fees charged by superannuation funds to end users," the Treasury agrees.

And one of those ways of improving the efficiency of the super system (and maybe member engagement) should be via technology - both the RBA and Treasury float some ideas.

However, another submission, authored Ron Bird and Jack Gray of the Paul Woolley Centre at the University of Technology Sydney, points out that, to date, technology has failed miserably to reduce the costs of finance to end consumers.

"A number of researchers have examined the putative benefits of financialisation. Philippon (2013) finds that despite technological advances, which one would expect to translate into lower costs for financial services, unit costs have actually increased over the last three decades and are higher now than they were in 1900," the Gray/Bird submission says.

Elsewhere, the document quotes former Federal Reserve chairman, Paul Volker, claiming "that the ATM was the only financial innovation to have improved society".

In its submission, Macquarie Bank supplies part of the reason why tech advances have done little to cut costs in the money business.

"The cost of maintaining technology infrastructure is large," Macquarie says. "With growing demand for 24/7 services, online and mobile banking, and enhanced security and risk management, Macquarie spends millions of dollars each year in upgrading and refreshing technology systems. This is of course not unique to Macquarie, with Australian banks estimated to have spent over $19 billion on technology in the last five years."

Macquarie also highlights the rapid pace of money-tech changes including moves by an international conglomeration of mega-corporates (such as Mastercard, Bank of America, Microsoft and Google) to establish something called 'Fast Identity Online' - or FIDO.

FIDO, Macquarie says, is "developing specifications that define an open, scalable and interoperable set of mechanisms that supplant reliance on passwords to securely authenticate users of online services".

Try the FIDO website for further clarification but I wouldn't expect too much of that.

"The FIDO Alliance is moving fast, with a user-empowerment story, and effective public relations campaigns to drive a paradigm shift across consumer space," the site says.

"[FIDO is] an organization optimized for bootstrapping both sides of the value proposition for transforming the nature of online authentication."