Australia must disrupt its banking regulations or face waking up one day to find a FinTech innovator such as Chinese giant Alibaba becoming the bedrock of our financial system, rather than the Big Four banks.
So says Jost Stollmann, a German expat with decades of experience in technology entrepreneurship, government and FinTech innovation.
“One day we might not be talking about the Big Four but AT&T Financial Services and Alibaba owning banking services in Australia,” says Mr Stollmann.
Mr Stollmann sees Australia at a tipping point, not only with FinTech regulation but also with its overall innovation thrust.
In a strengths, weaknesses, opportunity and threat analysis, Australia has great lifestyle and institutional stability strengths but too much complacency and lack of drive, according to Mr Stollmann, who sits on the Federal Government’s FinTech expert advisory group.
Australia needs its leaders to furnish a compelling innovation-centric narrative, followed up by regulatory disruption, particularly in the financial services sector, he says.
Mr Stollmann had close experience with the politics of innovation reform in Germany in the late nineties.
“In 1998 Germany was drowning in despair and tears,” he says.
At the time, Mr Stollmann, was Shadow Minister of Economy and Technology and helping drive the campaign of Social Democratic Party leader Gerhard Schroder.
“In our campaign it was very important to shift the narrative to a country of ideas and opportunity and to one of taking everybody along on the journey.”
“It’s a very difficult task to marry a sense of urgency with the confidence that it could be done and the trust of the electorate to be taken along.”
The pair must have done something right because Mr Schroder won the Chancellorship in a landslide.
Mr Stollmann did not follow Schroder into government, leaving the SPD after a power squabble with the party’s left wing. Instead, he and his Greek-born wife Fiona built a 130-foot ocean-going yacht, packed up their five children and began a two year circumnavigation of the world.
He arrived in Australia literally by accident when his yacht hit an uncharted reef in Fiji in 2003.
While the yacht was being repaired in Australia, his wife Fiona fell in love with Sydney and the couple transplanted themselves and their five children here.
Mr Stollmann is no stranger to what we now call FinTech. In 2006, he launched the digital bank, Tyro Payments in Australia, offering mobile cloud-based banking to SMEs.
Tyro now employs more than 350 staff and processes more than $8.6 billion in EFTPOS transactions among 17,000 customers. Previous to Tyro and back in Germany Mr Stollmann cranked up German system and network integrator CompuNet in 1984 and led it to being a US$1 billion outfit. He then led the expansion of GE Capital IT Solutions across Europe.
Looking at the Australian Government’s foray into innovation consciousness, Mr Stollmann says the local startup and tech entrepreneurial community was ‘electrified’ with Prime Minister Malcolm Turnbull’s early work such as the Innovation Statement and various startup friendly reforms, but he appears to have missed out on taking the rest of the electorate along for the ride.
“The reality was the other part which is making sure the electorate in general saw opportunity and trusted to be taken along, hasn’t worked yet
“That is something that Malcolm will have to address. I hope we have a second round as his government progresses.”
On the banking regulation front, Mr Stollmann says we must look to what is going on in Europe right now.
“Look at the European Commission and the Payment Systems Directive 2 (PSD2) which will enable the European consumer or business to instruct their bank to share their data with other providers and it will allow them to instruct their bank to accept transactions on their money.”
“There is also a consortium now that works on sharing the Know Your Customer (KYC) data. This open data, open API, shared KYC data are ingredients for something I call open banking which enables a revolution.”
The Council of the European Union has passed PSD2 and member states have until November 2017 to incorporate the directive into their national laws and regulations. The new law has already bumped up European FinTech valuations.
Mr Stollman says that as Australia has no shared system of KYC data and new entrants can’t overcome the switching inertia of customers. FinTech startups here can’t scale quickly if they can’t get at KYC data.
While there is discussion of financial regulatory reform here in terms of opening up KYC data, Mr Stollmann says we must radically speed up the process to take advantage of a global opportunity.
“The problem is the different speeds. We are doing the right thing, there is momentum, we are talking about it. But look at the speeds of reform.”
“There is a huge opportunity in Australia. Huge opportunities arise because there is a huge problem you can solve in a dramatically different way. That’s how I define disruption.
“I see that the 2 million small businesses in Australia are under-served and over-charged by banks.
“If one could remove the frictions in their daily banking so they had more time to grow their daily business, if one could provide them cash-flow based lending so they could grow their business we would take the lead position as the financial technology hub in the Asia Pacific.”
Mr Stollmann will be speaking on the ‘Building Preparedness to Capitalise on and Reap the Benefits of Emerging Technologies’ panel at Disruptive Innovation Week 2017 conference in Sydney this week.