Regulation is not such a dirty word

Graeme Philipson

Is Australia’s fintech startup community too regulated? Or is regulation a good thing? It depends on who you listen to.

Jack Zhang, CEO of Melbourne fintech startup Airwallex, has spoken out against over-regulation of the industry, saying that lengthy application processes and other red tape are stifling Australia’s global competitiveness.

He lays the blame with the Australian Securities and Investments Commission (ASIC), which he says needs more resources, and which should be streamlining the regulatory environment faced by startups.

“ASIC has an extremely important role to play in maintaining the security and credibility of Australia’s finance sector,” says Mr Zhang.

“An approach which minimises regulatory barriers to entry and encourages collaboration, while taking a more active role in monitoring, would enable greater innovation and growth within the sector.”

But Don Sharp, who was co-founder of financial advice business Bridges Financial Services and a former chairman of fund manager Investors Mutual Limited, has a different view. He says that regulation can actually drive technology. He even has a name for it – ‘RegTech’.

“Technology driven by government regulation can provide a greater opportunity for IT start-ups than pursuing and growing new markets that rely on a so-called ‘digital disruption’ framework,” he says.

“New IT that is purpose-designed to meet imposed regulatory hurdles has greater disruptive potential and chances of success than organic innovation.

“The greatest innovations over several decades have not come from within the industry – they have been imposed by government,” he says. “As such, RegTech has greater currency in our market than most of the fintech plays we see coming to market.”

As examples of ‘disruptive regulation’ he cites Australia’s upcoming New Payments Platform, an initiative of the Reserve Bank to influence real-time payments in the banking sector

The Australian Taxation Office has also slated changes in 2017 to the payment of Australian wages, called the Single Touch Payroll (STP) initiative.

“STP also has the potential for profound impact on the superannuation sector, as the way wages are paid from July 2017 becomes more efficient and transparent, with flow-on effects for the payment of Superannuation Guarantee payments.”

Mr Sharp holds global patents for payments technology software, Payment Adviser. Regulation has been good to him. “My advice for FinTech entrepreneurs is to build for known regulatory events, and remain flexible enough to accommodate the inevitable rollercoaster of ongoing regulatory change.

“But I also implore policy makers to cast their gaze at longer horizons, avoiding the short-term fix mentality that has largely characterised the oversight of the financial services industry.”

The is no doubt of fintech’s promise. A report from market analyst group Frost & Sullivan forecasts that the Australian fintech sector will almost double in size annually, reaching $4.2 billion by 2020. At least of $1 billion of this will be new added value to the Australian economy, says Frost & Sullivan

In 2015, it estimated the size of the Australian fintech sector at $247.2 million. Most investments were concentrated in innovation hubs in Sydney such as Stone & Chalk.

Airwallex is a prime example of a successful Australian fintech startup. It recently secured US$3 million in pre-Series A investment round funding from Shanghai-based venture capital group Gobi Partners.

By integrating with local payment gateways such as WeChat Pay, AliPay, and Union Pay, it aims to simplify international payments, enabling them to be made and received as easily as local payments, and transacted at the mid-market rate with no hidden fees.

But Mr Zhang say regulatory compliance remains Airwallex’s biggest challenge. “We’ve invested heavily in recruiting a strong in-house legal and compliance team that are working 24/7 to secure the relevant licenses for our growth across Asia Pacific, the UK and the US.

“Unfortunately, it’s a slow and complex process. We’ve already secured the relevant licenses to operate in China, and our development team has the Airwallex platform ready to launch as soon as we get the Australian Financial Services Licence (AFSL).

“What would be better and more effective would be to have a dedicated government agency to fast-track the application process. There seems to be insufficient manpower to review, process and distribute licenses quickly and efficiently. Addressing the time efficiency issue is more important than creating a sandbox environment.”

Also helpful, says Mr Zhang, is government support. This need not be financial. He says Airwallex received support from and the endorsement of the Victorian government, which helped attract the interest of investors.

“John Price and the team at the Innovation Hub at ASIC have been extremely helpful throughout the process showing investors that Victoria is a good place for fintech start-ups,” he says.

Backed by this government support, Mr Zhang said Airwallex will now focus on developing the market potential for its product, driven by the growth in international e-commerce, travel and the import/export trade.

The investment funds it has attracted will be used to further develop its proprietary technology stack and roll out key features over the next few months, including a multi-currency digital wallet and APIs for e-commerce platforms.

Do you know more? Contact James Riley via Email.

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