Australia’s transition to an innovative, technologically savvy economy and how corporate leaders are coping with the forces of disruption will be a major issue debated at The Australian Financial Review Business Summit this week.
Treasurer Scott Morrison wrote in the Financial Review last week, in a scene-setter for his summit session, that the fintech sector could become an important source of economic growth.
Fintech is “lubricating” the diversification of the economy, he said:
“The catalytic impacts of fintech and its potential to unleash a new era of competition, innovation and job-creating productivity in our economy is inestimable at this point, and very worthy of encouragement.”
As the federal election approaches, fintech entrepreneurs are now waiting to see how much of the rhetoric from Morrison and Prime Minister Malcolm Turnbull about fintech’s potential will be supported by action that disturbs the cozy banking oligopoly.
Some of the leading fintech companies in Australia – Tyro, SocietyOne and Timelio – will explain their thinking to the summit about the direction of fintech policy during a session I will chair on Wednesday.
The flailing government’s attempt to move beyond fintech speak to tangible policies might be a microcosm of its challenges to create a thriving information technology economy.
This is not to say the government’s rhetoric has not been broadly welcomed. Words of encouragement to the start-up ecosystem are an essential ingredient in the technology policy reform mix. There were regrettably absent during Tony Abbott’s reign.
Australia needs to be shaken from its lingering complacency. Prime ministerial pow-wows can help bolster the confidence levels of workers to try new things. When political leaders give speeches pointing to an emerging area of economic activity as being important to the future of the nation – as Morrison and Turnbull have done with fintech – it will surely encourage more budding entrepreneurs to leave well-paying jobs in comfortable incumbents, and to take the sorts of risks necessary for Australia to create the new companies that will redefine the future of banking.
The British government has shown the way here: Prime Minister David Cameron and the Chancellor of the Exchequer George Osborne have consistently talked up the country’s tech entrepreneurs and financial services prowess.
But the thriving fintech system in London has been built not only on rhetoric but tangible policy action. (Laws in the UK have gone so far as to require incumbent banks to refer to customers they reject for finance to fintech start-ups willing to price risk the big banks can’t be bothered with.)
Unfortunately, the one piece of fintech-specific legislation delivered by the Turnbull government – its equity crowdfunding laws – has been a big disappointment to the industry.
A new industry association, Fintech Australia, says the crowdfunding laws have a litany of problems. These include a lack of clarity about whether a platform might need a market licence and strict limits on asset and turnover, which the industry says will reduce the ability to diversify their investment portfolio and concentrate risk. The laws exclude Pty Ltd companies which are most in need of finance, and cooling-off periods could open up the market to manipulation, Fintech Australia says.
INDUSTRY BECOMING MORE DEMANDING
Over the past few months, Australia’s fintech start-up industry has become more organised and more demanding. Morrison has established a fintech advisory group, whose members are talking to him about prying open several laws they say favour incumbents and hinder banking competition.
It was two years ago on Saturday that the comprehensive credit reporting laws were introduced, but only National Australia Bank has indicated it will contribute public data (around the end of the year); the timetable for the other banks is not known. The additional data will help alternative credit providers, including fintech start-ups, better price loans to offer customers a better deal.
Jurisdictions other than the UK are chasing fintech hard. Singapore, Hong Kong, New York and Tel Aviv are fighting a war for human capital. Given the size of the Australian financial services sector, Fintech Australia is telling the government that if it doesn’t engage with fintech, Australia could lose jobs, GDP and tax revenue to the global fintech companies or established tech giants such as Google and Facebook, whose disruption of the media industry stripped 50 per cent of digital media revenue from incumbents slow to respond to the digital realities.
Australia needs to grow some fintech champions. Big foreign players, including OnDeck, Ratesetter, SpotCap, Capify, ThinCats, Transferwise, are putting big marketing dollars into Australia in an attempt to capture market share. In his Financial Review article, Morrison referred to ways the government could help local start-ups stand up to the competition. Regulatory processes could be streamlined, he said, while the government could start hiring more fintechs by putting its procurement power to work.
One of the members of Wednesday’s fintech summit panel will be Jost Stollmann, the CEO of Tyro Payments, which last year won a banking licence and raised $100 million from prominent investors including Atlassian’s Mike Cannon-Brookes (who is also speaking at the summit this week in Melbourne). Tyro got a big leg up when former treasurer Joe Hockey decided not to seek tenders for the job for handling electronic claims for Medicare and offered it to anyone who could meet its accreditation requirements.
Another idea presented by Fintech Australia to Treasury in a submission last month was the creation of a “regulatory sandbox” to allow start-ups to test products or business models in a flexible regulatory environment before obtaining a financial services licence. The industry says this will make it easier to raise funding and lead to more innovative products coming to market.
HODGEPODGE OF REGULATION
Fintech regulation in Australia remains ambiguous – a hodgepodge of exceptions, regulatory overlap and fitting square pegs into round holes, say various entrepreneurs who have gone through the process.
But Stollmann says there is an opportunity for Australia to “make regulation a competitive weapon”. The country is admired for its strict regulatory standards. If local regulators can work out the right model for oversight of fintech start-ups, this could assist exporting services to Asia.
The fintech attack on the local banking oligopoly comes as big banks are lining up to explore partnerships with fintech start-ups and embrace the warm vibe of the new ecosystem.
The reality is banks have been left no choice but to engage with fintech. They were slow to cotton on to the importance of customer-centric design and customer-centrism. ANZ Banking Group’s recent appointment of Maile Carnegie, who was head of Google in Australia, illustrates the length the big banks are going to, to redefine themselves as gadget-savvy technology companies that appeal to millennials.
Despite the mantra of collaboration, banks continue to fret about being disintermediated by fintech and losing their brand power. No one is really sure how millennials will consume financial services in the future. But it’s possible the banking “stack” will be disaggregated. This could be a world where customers engage different fintech companies through mobiles for different parts of banking – a smartphone would have different apps from start-ups offering foreign exchange, budget management, personal loans, investment advice, etc – and big banks are treated like a utility company.
Are banks moving fast enough to defend their turf? It would appear not. According to a report released last week by Accenture, Bridging the Technology Gap in Financial Services Boardroom, only 6 per cent of board members of the 100 largest banks in the world have professional technology experience. In Australia, it is 8.1 per cent.
Accenture says this is not enough technology expertise to deal with the arrival of fintech.
