This week’s significant announcement Backing Australian Fintech by the Treasurer builds on the down-payment made last year by the Prime Minister and Ministers Christopher Pyne and Wyatt Roy in the National Innovation and Science Agenda.
Backing Australian FinTech is more than talk. It includes policy proposals that will further drive the growth of innovation and entrepreneurship in the Fintech sector.
Having met with the Treasurer several times over the past few months and having accompanied him to China during the recent G20 meetings, I was quietly impressed in the speed with which he has absorbed the key issues and mobilised to position Australia to take advantage of what fintech has to offer. I am equally impressed by the support I have received from Ed Husic.
Despite this bi-partisanship, we remain a long way from becoming the leading hub in Asia.
Why does this matter?
Like most industries Fintech is a global game.
As others have observed, the role of government isn’t about picking winners (sounds fair enough) – it is about enabling opportunities and outcomes that provide jobs and growth to maintain and improve Australia’s standard of living.
For this reason alone, it is fundamentally important that we improve the way in which financial services are provided to all sectors of our economy.
If we don’t move faster to get on the front of the wave, we will be wiped out in a way that is much more devastating than what Google and Facebook have done to publishing and advertising, Uber has done to transport, Alibaba and Amazon have done to retail, and what Airbnb has done to accommodation.
Because FinTech is about reinventing financial services – the impact will affect everyone.
According to the Commonwealth Treasury, Australia’s financial services sector is in itself the largest contributor to the national economy, contributing around $140 billion (10 per cent) to GDP over the last year. It has been a major driver of economic growth and, with 450,000 people employed here, will continue to be a core sector of Australia’s economy into the future.
There is a great deal at stake and an incredible opportunity here.
Once we look into some examples of what FinTech actually means. Alternative lending or finance is basically all about new platforms that are built “digital-first” from the ground up that are using new credit scoring techniques to lend to both individuals or businesses at lower interest rates. Because they have really low cost structures they are also able to provide higher savings rates to lenders.
In this model everyone wins. Equity Crowd funding, for example, is fundamentally about helping investors connect with startups and businesses that are looking for capital to help grow their businesses in exchange for a stake in these businesses.
Because these platforms are digital they use scale economics and have the potential to connect thousands of investors with thousands of businesses. Again everybody wins.
In just these two examples FinTech is taking both inefficiencies out of the financial system and at the same type providing a tangible benefit to individuals and businesses in any sector in the economy. These are just two of a multitude of examples of what is captured by fintech today.
Now some might ask, what about the jobs being replaced in banks by these new FinTech players?
Let’s think about it this another way. Would you pay more for a TV or car because the manufacturer and distributor had really old and complex systems that meant it cost them more and longer to produce? No, right?
Wouldn’t it be better if these talented people that were doing frustratingly repetitive work were unleashed to utilised their other many talents in areas were arguably more satisfying and actually created value?
Whilst some jobs will no longer be need in one area, it frees up scarce resources to work and create in another. Our ability to do that effectively and efficiently will be very important for those people and provide valuable insight as to how well we are supporting the transition of our economy.
So what do we need to do?
Once you peel away some of the noise from some established players it is actually quite simple. You see, before I returned to Australia I had spent over seven years working with Nokia, where four of those years were in the Middle East, and a further three years working for Barclays in London’s Canary Wharf. Most of that time was spent running internal startup teams and supporting external startups.
But it is a part of helping to shape that experience in the UK at a time of severe national crisis that I would like to draw on that makes the most relevance to where Australia is today – political resolve.
The Global Financial Crisis hit the UK violently and relentlessly for several years, and it what crisis provided Prime Minister David Cameron and Chancellor of the Exchequer George Osbourne to implement a series of austerity measures simultaneously with sweeping reforms all aimed at invigorating and mobilising the UK’s startup sector.
This, and a few other factors, were key ingredients in generating London’s current success as a leading FinTech hub.
What we need to do is have leadership from the top along with the political resolve to implement these changes before we arrive at our crisis moment and, we need to do it quickly (in 2016):
- Regulatory Sandbox – Enable FinTech companies to prototype and commercialise before having to go formal licencing processes which in many cases are costly and time consuming.
- Regulation and legislation as an enabler – Implement ways in which legislation and therefore regulation can act as an enabler of innovation in early stage companies rather than act as a roadblock for new innovations like Equity Crowd Funding, Alternative Finance, Comprehensive Credit Reporting and Crypto Currencies like Bitcoin
- Starting and ending with Innovation – implementing the New Payments Platform (NPP) as an open innovation payments ecosystem where startups can “plug in” to leverage the platform and create whole new experiences for customers.
- Investment incentives – Incentivise individual and institutional holders of wealth to invest in early stage technology companies
- Asia Bridge – Help create the right bridges in to Asia to encourage exports, attract the best startup talent, entrepreneurs, innovators and investors.
- Access to data – Focus on legislative reform to provide access to credit data to level the playing field. After all, don’t customers – we as individuals – own our own credit data?
- Ignite Cyber – Support and ignite the development of our own domestic cybersecurity innovation industry
- Startup ready – Ensuring that government is “startup ready” and becomes a customer for startups through tailored fast track procurement processes
If we hesitate, or pat ourselves on the back for the progress we’ve made so far, we will lose the advantage to nations or any number of other regional hubs that is competing fiercely for FinTech dominance.
This is why FinTech matters.