- Survey of financial institutions shows that globally, innovative competitors pose a tangible threat to established organisations.
- A speedy response is vital, particularly in the Australian context, argues John Shipman.
- ‘Partnering’ may mean looking to collaborate with global or less mature players.
Australia’s financial services industry has a rare window of opportunity to leverage innovation – but it needs to act fast.
PwC’s latest fintech survey, Redrawing the Lines, found a rising level of concern about the impact of innovative competitors.
Almost nine out of ten respondents – drawn from financial services organisations across 71 countries – believe they are at risk of losing revenue to standalone fintech companies within the next five years.
What is impressive is that financial services players know they need to respond to the threat. Some 77% say they are embracing the disruptive nature of fintech in the next three to five years.
That sentiment is being reflected here on the ground in Australia, but there is a difference between recognising a threat and taking speedy action to meet it.
A protected environment – for now
At a global level, Australia ranks behind the likes of the US, Europe and China as a priority location for disruptive companies looking to scale. That creates potential lag in their inevitable expansion here.
Australia’s financial services industry, therefore, has a rare window of opportunity to leverage innovative new technology before major players based in the US and China seriously target our market.
In this environment, speed-to-market is becoming vital.
What does speed mean? Firstly, we need to keep an active eye on other successful regions with flourishing fintech locations, such as Singapore and Shanghai, in order to understand the opportunities and pace of competition.
But our finance industry also needs to engage in greater partnering and integration. Partnering has become a widespread response around the world to the fintech threat. Our survey found that 82% of incumbents globally plan to increase partnerships with fintech innovators over the next three to five years.
Scaling fintech partnership efforts
Given Australia’s isolation, local companies have a well-developed partnering culture. But the financial services challenge will require partnering on a bigger scale than previously witnessed.
In the past, ‘partnering’ in Australian meant striking deals with major IT players. But now it means partnering with less mature, and often offshore, players. That will require the local finance sector to develop new skill sets and to train dedicated staff in new capabilities.
It can be done. PwC Australia’s digital asset services, for example, has adopted a global mindset and collaborated with international players, including enterprise blockchain solutions provider Bloq, blockchain integration, reporting, compliance and analytics provider Libra, and digital identity provider Netki.
That collaboration has allowed the platform to deliver new digital revenue streams to clients by utilising next-generation technologies out of Australia, the US, and Europe. It provides solutions in areas such as digital wallets, international payments, POS/merchant services, rewards programs, and crypto investment and trading.
All aboard the blockchain train
The need for Australia’s financial services players to integrate and partner also applies to blockchain. There is a way to go before blockchain is ‘enterprise hardened’, and it is still settling in, in terms of who are going to be the winners and losers in the core product and protocol space.
But blockchain is definitely moving out of the lab. Our fintech report found that 77% of respondents plan to include blockchain as part of a production system or process by 2020.
Australia’s financial services players also need to be moving quickly – and partnering – in blockchain as well.
Stimulating local innovation in financial services
There are good signs that our financial services industry is priming itself for a quick response to the fintech threat. There’s a positive trend in large organisations, including in Australia, towards innovation, including a greater tolerance of failure.
Our central bank, the Reserve Bank of Australia (RBA) and financial regulator, the Australian Prudential Regulation Authority (APRA), along with the Turnbull Government, are also attempting to trigger disruption and innovation. Though we need to be mindful that required regulation on digital identity and data sovereignty, for example, can slow progress.
The big four players that dominate Australia’s banking sector have the ability to make significant global investments in new technology vendors in order to move quickly.
If local finance industry players can provide a swift response to the fintech threat, particularly by partnering with less mature companies, they can not only protect their existing market positions but also contribute to local innovation, which will have a significant flow-on to Australia’s economy.