KPMG has recently conducted an Australian Fintech report (August 2017) – “Scaling The Fintech Opportunity For Sydney and Australia” is a continuation from the 2014 study – Unlocking the Potential: The Fintech opportunity for Sydney, The purpose of the 2014 report is to determine whether digital and Fintech innovations have been successfully adopted in the Australian financial services industry to improve Australia’s standing in a global and regional context.
The report identified 5 key enabling conditions to drive Australian Fintech growth and development namely:
- Availability of early stage funding and strong pipeline of investors/VC funds
- Depth and a concentration of financial services and technology talent
- Government, Business and regulatory support
- Clear leadership position in financial services
- A culture that embraces the entrepreneurial mindset
The report then made 6 recommendations:
- State Government to continue to support the development of a comprehensive Fintech vision and strategy
- Establishing a not-for-profit Fintech hub in the heart of the city
- Promote Sydney as Fintech Hub in ASPAC region by establishing series of events
- Form an independent Fintech focussed industry association
- Review current regulatory, tax and business incentives for the start-up community
- Engage university sector to leverage research institutes such as Centre for International Finance and Regulation (CIFR)
2017 Australian Fintech Study Summary Findings
Significant Growth Of Australian Fintech
Significant growth was experienced with the Fintech ecosystem growing from <100 people in 2014 to 579 in 2016 and employing >10,000 people.
Today Fintech has an investment of over $US24.6 billion growing from only $US100 million in 2008. $US675 million invested across 25 deals in 2016 alone.
NSW leads the way in Fintech companies. It has 61.3% of Fintechs based in NSW compared to nearest rival Victoria that has 21.9%.
Sydney also dominates VC investments in Fintechs capturing $US171 millions in the 2012 to 2016 period. This compares to Melbourne’s $US22 million.
Alternative Finance Development in Australia
Australia is the lead in the APAC in the areas such as balance sheet business lending and invoice trading. Alternative finance grew 320% in 2015 compared to 2014.
Fintech’s Positive Effect On Our Largest Financial Institutions
Australia’s major financial institutions all embraced Fintech and accelerated their investment into innovation. CBA partnered with OnDeck which has been recognised as the “Best Fintech” at the inaugural Australian Fintech Awards 2016. Through its investment arm Reinventure, Westpac has committed A$100million to new disruptive ventures and has invested in 16 Australian.
Some Financial Institutions have even formed their own Fintech like NAB establishing Quickbiz Loan and Medipass, and Macquarie Bank forming Kubio which is a platform to provide a cloud-based business loan origination platform for Brokers.
Spurred ongoing innovations with key industry players like the ASX is adopting blockchain technology to potentially replace CHESS (the Clearing House Electronic Subregister System).
The New Payment System (NPP) which is a national, open access infrastructure for fast payments in Australia is being developed with 13 key industry players (including Reserve Bank of Australia). It is a secure and efficient platform which can be used to make fast, versatile and data-rich payments to meet the evolving needs of a 24/7 digital economy.
Australian Fintech Future Opportunities & Challenges
1. Innovation
Innovate around customer expectations and needs as customers are increasingly demanding more, keeping up with expectations and retaining relevance.
2. Digital Adoption
Continued growth in customer digital adoption provides an opportunity for firms to create more services and improve customer engagement through mobile devices, AI and robotic process automation (RPA) and with increased digital adoption, cyber security will become of paramount importance to increase consumer awareness and confidence in digital products.
3. Industry Collaboration
Further industry collaboration including leveraging partnerships with start-ups and collaboration across industries as Fintech can reduce the costs of services and improve the quality of the customer experience. Rather than developing technology in-house, incumbents (with their implicit established advantage of holding customer trust) could partner with start-ups to create synergies
4. Large Superannuation Pool
Greater focus on Superannuation sectors as source of capital to Fintech start-ups. Due to it being a relatively untapped market, there is an opportunity to engage with customers to create individualised experiences and to provide cost effective advice.
5. Asian Market
High level of unbank population in Asia and its need for financial inclusion creates opportunities in micro lending, pension schemes and non-bank financing. Australia should aim to increase its competitiveness in order to capitalise on this Asian market.
6. Threat From International Tech Giants
International tech giants such as Alipay, Google, Apple, Amazon and disruptive start-ups such as Uber, AriBnB can threaten Fintechs development due to the former lower barriers to entry and infrastructure costs. Their repositories of consumer and retailer data are deep and they have strong and exportable technological capabilities.
7. Regulatory Challenges
Australis’s high levels of regulations continue to stifle innovation. These high levels of regulation in Australia are in place to reduce failure rates of institutions. However, the negative effects of trying to avoid systemic risks by burdening banks with substantial capital requirements and strict regulations are particularly manifested in a Fintech context.
8. Uneven Playing Field
The industry structure in Australia is dominated by a relatively small number of established financial institutions, it is often difficult for start-ups to access funds and data to enter the industry. The long and complex reporting requirements also adversely affect Fintechs as they do not normally have the resources and range of expertise to satisfy or understand requirements. In order to create a level playing field for competition, new policies should be reframed. For instance, data could be more accessible for start-ups and incumbents compensated.
9. Talent Attraction
Australia’s lack of business brand is not able to draw international talent to come. This is proving to be an increasing challenge for Fintech start-ups, companies and established institutions
Recommendations To Further Enhance and Scale Australian Fintech Ecosystem
1. Alignment
The NSW goverment to articulate a strong commitment to support and champion the growth of the Fintech sector, providing a focal point for the alignment of effort between the public and private sectors.
2. Promotion
To actively promote Australia and Sydney as a leading global financial services centre, with a specific focus on Fintech and digital innovation and provide continued promotion of and support for Fintech hubs, such as Stone & Chalk and Tyro.
3. Capability Development
Drive public and private sector collaboration efforts and investment to develop ‘priority’ areas of capability in Payments, Regtech and Blockchain and build meaningful international pathways for Australia’s Fintech sector.
4. Skills And Experience
Develop Fintech skills and experiences (e.g. entrepreneurial, technology, etc.) in the local workforce and attract international talent to enhance the quality of ventures and support their ability to scale, as well as gain greater levels of capital (locally and globally).
5. Policy And Regulatory Settings
Facilitate active cross-industry engagement to support the Commonwealth Government to expedite policy frameworks and engage policy makers and the regulatory community to improve the effectiveness of existing grants, incentives and regulatory settings.
6. Education
Create more effective mechanisms to educate consumers and businesses on digital financial services, helping to raise the awareness and understanding of new Fintech and/or digital financial products and services and engage the university sector and leverage the capabilities of research institutes.
Reference
Scaleing The Fintech Opportunity: For Sydney &Australia. KPMG, August 2017, link
