- Government releases official statement in support of Australian fintech.
- Opportunities provided by financial innovations will extend beyond the industry, it says – and Australia could become a leading global player in this space.
- Almost a third of financial services industry is in a joint partnership with fintech companies.
Last month, the government released a statement announcing that it is Backing Australian FinTech. This is a timely intervention in the financial technology boom, not just because it falls in the slipstream of Turnbull’s Innovation Statement.
There’s not a single financial transaction, insurance policy or monetary asset being bought, sold, monitored or managed that doesn’t rely on technology. The focus of financial innovations past was to manage large volumes of data and automate transactions – but our new world is very different.
Fintech is delivering whole new opportunities to the banking, insurance and asset and wealth management industries. Treasurer Scott Morrison said in the statement that fintech has the potential to transform not only our financial system but our entire economy. Indeed, the government recognizes that, on the other side of the mining boom, making a priority of innovation in the sector that makes the largest contribution to our economy is a wise move for Australia’s long-term health.
The rapid growth
Our recent global PwC report Blurred Lines revealed that funding of fintech startups tripled to over US$12 billion between 2013 and 2014. Estimates for 2015 put the annual figure as US$20 billion.
This burgeoning investment is giving rise to a reshaped financial services ecosystem that comprises an exotic and varied landscape. What’s interesting is that fintech isn’t advancing through all sectors at the same pace – they’re adopting different technologies and at different rates. For example, exchanges and funds transfer institutions are piloting blockchain technology, whereas banking has made advanced use of mobile apps. Asset and wealth management companies are embracing robo-advice systems to manage investment portfolios with minimal human intervention whereas insurance companies appear to be slower on the fintech uptake overall.
A space for old
It isn’t just the startups that are enjoying investment. Established financial services are exploring the range of opportunities, too, and PwC’s report found that about 60% of the financial services say that their organisation has put fintech at the heart of its corporate strategy.
Strategically, there is a need to balance cost reduction, operational efficiency and expansion with the pursuit of product-related growth. The largest opportunity presented by fintech is cost reduction, but differentiation, customer retention and additional revenue all ranked very highly as well.
Many of the companies working in this area – both incumbents and new entrants – are channeling their energy into taking the vast swathes of data they collect to the next level. With the rapid evolution of machine learning techniques, for example, there’s massive opportunity for companies that can successfully leverage data analytics for accurate forecasting and decision-making.
One of the realities banks are working towards is the concept of a single digital identity for users. With greater churn between different institutions for savings, mortgages, insurance and other financial services products, the ability to quickly identify and on-board a new customer offers a major market advantage.
The government has recognised that a more open approach to data is part of fintech’s future, calling in its statement for more effective use of data and suggesting that credit-related scoring should be shared between banks – although Canberra has stopped short of mandating this.
Lightening the load
While there are significant opportunities presented by new technologies, the need to maintain legacy reporting systems that satisfy regulatory requirements remains. The government has set up a Fintech Advisory Group, whose role is to identify areas of future reform. It has also proposed a ‘regulatory sandbox’ – an environment that it deems crucial to future innovation, one which provides regulatory flexibility for start-ups.
One of the factors for success, therefore, is for engagement between traditional financial services providers and the more nimble new entrants (what Morrisson has termed ‘fintegration’) that can swiftly bring new solutions to some part of their value chain.
Already, we’re seeing the finance industry create development incubators, innovation hubs and accelerators. They are running and sponsoring hackathons and actively engaging with third parties that can deliver them an edge in the market. Collaboration seems an inevitability and the most widespread form, revealed our report, is a joint partnership (32%). Yet almost as many of the survey respondents (25%) say they don’t deal with fintech companies at all – suggesting a portion of the industry that underestimates the potential benefits or, indeed, threats on the horizon.
In the same way ATMs changed the customer experience in the 1980s and the web challenged our perception of customer experience in the 2000s, the next wave of fintech innovation will impact almost every financial interaction we have. This isn’t just about ‘disruption’ – it’s about finding ways to not only support new entrants but to enable existing organisations to create lasting change.
The government is backing the bet that Australia has the potential to become a leading player in the global fintech market. These fresh approaches are the ones that will enable the traditional industry to balance running its existing business with opening the door to innovations that will take us to the next level.