Reform data or banks are doomed
Jost Stollmann (right) with Treasurer Scot Morrison in the lead up to the 2016 election
Tyro Payments executive director Jost Stollmann arrived in this country with his family by accident in 2004 and it is our good fortune that he did.
Mr Stollmann is a genuine entrepreneur, hugely-credentialed and hugely experienced. He has built multiple businesses in multiple industries. He has demonstrated over and over an ability to spot the front-end of disruptive change, and build strategies to take advantage of that change.
That’s kind of fascinating for people in this industry. But what makes Stollmann quite unique among entrepreneur peers is his background includes a stint in politics – at the highest level – having served as a Shadow Minister for Economy and Technology in Germany as a key member of the team that got hero Gerhard Schroeder elected in a landslide.
It gives him a more measured, Big Picture perspective of the wave of disruptive change that is challenging the banking and finance sector. And having built several careers in Europe before moving to Australia in 2004, Mr Stollmann brings an outsider’s perspective to the Australia FinTech scene.
In this podcast interview with InnovationAus.com, Mr Stollmann covers plenty of ground. We start with the colourful story of his arrival in Australia.
After running his yacht aground in Fiji, he brought the vessel to Australia to be surveyed and rated (to ensure it remained structurally sound) in order to continue a two-year circumnavigation of the planet with his family.
It was during this six week sojourn that he and his wife Fiona fell in love with Sydney, deciding to make it their home.
He talks through the early years of Tyro, and the circumstances that allowed it to become the banking upstart that it is.
But Mr Stollmann also addresses the shortcomings in the Australian regulatory system that is stifling innovation in the sector. It is counter-intuitive that a banker talks up the need for regulation.
It’s not like he advocates more regulation for regulation’s sake, but rather that Australia needs better regulation more attuned to the technology forces that are reshaping financial systems across the world.
In fact, he has become the most articulate spokesman in the country for the re-regulation of the banking system. He’s not talking in terms of deregulation – the default terminology of bankers – but rather in terms of reform.
The regulatory system has to be better, or FinTechs and scale-ups will suffer.
“I am always [disputing] that regulation is always bad for entrepreneurs and for businesses,” he says. “I think that's crap.”
He talks of using “smart and enabling regulation” as a better way to describe what’s needed and points to Tyro as a proof point.
At stake is not just Australia’s tiny FinTech sector. Mr Stollmann maintains that regulatory reform, and the RegTech opportunities that come with it, is an existential issue for the local financial services sector, including the big four banks.
The big issue is the switching inertia in the current environment. That is the difficulty in Australia that a customer has in moving from one financial institution to another. And the blockage here is largely in the difficulty in accessing customer data.
And that is the big push right now. To press hard for the implementation of an open data regime in the banking sector.
“There are windows of opportunity when industries get disrupted and digitally transformed,” he says. There is a window to take advantage of the changes. We saw this in the advertising and media industries. We can see that retail and eCommerce is now in full swing.
And in the “more complex, more mission critical, more regulated” markets like banking, health and energy, they are now “ripe for disruption.”
“So we [must] create the right environment now where the best and brightest can reinvent banking, and create innovation and scale-up,” Mr Stollmann said.
“[The disruption] will happen regardless, but it will be by big foreign companies [if we don’t do it] and we will be doomed. And by the way, that includes the four majors,” he said.
When it comes to disruption in the banking sector, Mr Stollmann says there are three plays.
First, the banks can continue as a protected species defending their turf as a closed garden, stifling innovation – and yet will somehow reinvent themselves nonetheless. This seems improbable, he says
Secondly, of the thousands of FinTechs around the world (and hundreds in Australia) some will manage to scale-up and unseat the incumbents. This is a maybe, although with many focused on UX and falling short of core banking, it’s a long shot.
And thirdly, the massive data aggregators like Alibaba affiliate ANT Financial Services (formerly AliPay) will eat the Australian banking sector alive. Mr Stollmann describes companies like ANT as Citibank, PayPal and eTrade combined.
“The data aggregators are going to take over if the banking and FinTech industries don’t find ways to satisfy modern consumers and modern business requirements with convenient and efficient banking,” he said.
“It’s that simple. Customers will walk.”
“And so the big banks [in Australia] have an interest in there being a thriving FinTech sector in this country.”
Which brings us back to RegTech. There are three things that FinTechs need to survive. Open data reform, open API’s, and the ability for customers to instruct banks to share their Know Your Customer (KYC) credentials with a different provider of their choosing.
Mr Stollmann likens the last of these preconditions to the number portability reforms in the telecommunications industry. By enabling customers to easily take their phone number with them when they change telephone companies, the industry unleashed a wave of innovation and improved customer service.
Mr Stollmann is adamant the same will happen in the banking sector with the low-hanging fruit reform of KYC credential portability.
“Once the customer has the ability to just walk, suddenly that unleashes resources, investment, innovation and competition,” he said.
There is a great story here. It is worth listening through the final half of this interview, as Mr Stollmann applies some of the lessons he learned in politics about innovation and economic reform and the critical issue of “bringing people with you.”
It’s not straight-forward. But it’s fascinating.