Financial Technology Reinvents Australia’s Financial System

Desfran - Financial Technology Reinvents Australia Financial System

The financial services sector is the largest contributor to Australia’s economy, having grossed over $140 billion last year and providing employment  to nearly half a million people.. As it continues to be the core sector of Australia’s economic growth, technological revolution, such as financial technology (FinTech), is also shaking up the financial services industry. There is a boost in the number of digital payments, while marketplace lending  and crowdfunding platforms are fast becoming the alternative source of raising funds for businesses. 

(Source: Global FinTech Adoption Index 2019)

Based on the latest Global FinTech Adoption Index, more than half of the respondents have listed the ever-availability of the service and the ease in setting up the service as their top reasons in adopting FinTech. 

The rise of FinTech is broadening access to a larger number of companies and venture capitalists for their capital-raising activities. 

(Source: Global FinTech Adoption Index 2019)

Due to the general lack of awareness of FinTech in the Australian community,  investment in the FinTech sector followed a subdued trend in the first half of 2019, reaching just 58%. This is shy of the global average of 64% and falling behind countries like South Africa, Sweden and the Netherlands. However, this could change dramatically because of its significant developments coupled with the government’s interventions, which could help spur growth in the FinTech sector.

The FinTech Era in Australia 

Over the past few years, the FinTech sector continued to grow in Australia. From 13% in 2015 to 58% in 2019,  the increase in investments in insurance technology and customers’ preference for e-payment methods saw  Australia introducing the New Payments Platform (NPP) in February 2018, a payment infrastructure  designed to enable Australian consumers, businesses and government agencies to make real-time, data-rich payments between financial institutions. Concomitantly the Australian Prudential Regulation Authority (APRA) granted an authorised deposit-taking licence in May 2018, which was designed to facilitate new businesses entering the banking sector. The Australian Securities Exchange (ASX) is also progressing its plan to adopt a blockchain-based technology for its settlement and clearing process to replace its current financial system.

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In general, licensing obligations apply to entities that provide financial services in Australia or engage in consumer credit activities. FinTech businesses may also need to comply with the Anti-Money Laundering and Counter-Terrorism Financing (AML/ CTF) Act and Australian Consumer Law.

Regulators in Australia have also been receptive to the emerging trend of FinTech and technology-focused businesses. They created specific class orders establishing a FinTech licensing exemption and released Regulatory Guide 257, which details Australian Securities and Investments Commission (ASIC) ’s framework for FinTech businesses seeking to test products and services before they can obtain an Australian financial services licence.

The government’s strategy for Fintech in Australia has been labelled a “watch and learn” as the framework from regulations to industry structure has been “borrowed” from elsewhere. A benefit from this would be that previous mistakes would be noted and avoided.   

Although FinTech in Asia Pacific has been gaining popularity in recent years, FinTech IPO on the other hand has been generally non-existent. However, the recent success of Prospa, one of Australia’s leading FinTech companies may soon see other FinTech companies follow suit in considering IPOs. The following are five trends to watch as Australia enters a brand new decade. 

5 Trends to Watch for in Australia

Open banking

The passing of the Consumer Data Right (CDR) Bill in November 2017 will see a step ahead in the banking sector as the introduction of the bill allows consumers to gain greater access and control over their data and the ability to safely transfer their banking data to trusted parties. This will allow more intense competition for service providers while consumers will benefit from more innovative products and services.

Regulatory Technology

Australia and China are zoning in on regulatory technology, with the Australian Securities and Investments Commission (ASIC) funding studies to investigate how natural language processing could help detect misconduct and improve regulations in the financial industry, and the China Securities Regulatory Commission pushing for the adoption of regulatory technology to help strengthen controls over fintech usage.

Blockchain

The Australian Digital Currency Association recently launched “The Blockies Award” that seeks to celebrate and recognise both pioneers and up-and-coming players in the blockchain industry. As financial organisations are looking into using blockchain solutions to make them more efficient, an increase in interest in micro financing from Chinese investors would result in this area seeing a significant increase in investments and partnerships over time.

Cryptocurrency

Cryptocurrencies are thrust back into the spotlight ever since Facebook’s announcement of its intention to launch Libra – their own cryptocurrency. With the introduction of new laws by the Australian Transaction Reports and Analysis Centre (AUSTRAC), an anti-money laundering and counter-terrorism financing (AML/CTF) regulator in April 2019, digital currency exchange (DCE) providers operating in Australia can look forward to increased opportunities to the sharing of financial intelligence and information relating to the use of digital currencieswith its industry and government partners, protecting their operations from money laundering and terrorism financing and in turn, increasing public and consumer confidence in the sector.

Digital banking

Digital banking is fast gaining traction around the world as the promise of reaching the untapped markets seems too attractive to ignore and non-banking firms seek to leverage their technology and user databases to offering services to retail and small businesses usually dominated by traditional banking firms. “The adoption of open banking globally is emerging as a driver of fintech investment, along with the opportunities presented by technologies like AI, machine learning and data analytics,” says Ian Pollari, National Sector Lead, Banking and Global Co-Leader of KPMG FinTech Practice.

In 2019, four digital bank licences were awarded to Australian neobanks Judo, Volt, 86 400 and Xinja, promising higher interest rates and a more personalised user experience. As digital banking is still in its infancy, more digital banks can be expected. UK-based Revolut has announced a beta version of its app in Australia while overseas digital banks focused on international expansion have been eyeing on entering the Australian financial markets.

Seek Consultation from DesFran Today

Investing in FinTech offers tremendous growth opportunities for startups. In fact, a number of startups have seen their market valuations increase exponentially since adopting FinTech for their business. However, every  business model has its unique set of challenges ranging from regulatory to fundraising and competitive issues. It is therefore critical to anticipate such challenges and consult corporate advisory solution providers like Desfran.

At Desfran, we have a team of professionals with the experience to address existing or potential regulatory hurdles for your business globally. We are committed to understanding the trends and regulatory changes that impact your business and help you achieve  business goals. Contact Desfran today for a complimentary consultation.

Desfran Consulting

References

Australia: Fintech 2019, ICLG.com

New Zealand: Fintech 2019, ICLG.com

Fintech this time it’s different, Institutional.anz.com

Guide on AFSL and Valuation Services, Charteredaccountantsanz.com [PDF]

Global FinTech Adoption Index 2019, assets.ey.com[PDF]

The Pulse of Fintech 2019,KPMG, assets.kpmg [PDF]

Australian fintechs represented in Fintech 100, home.kpmg/au

The Globalisation Of Fintech – The Australian Example (Part II), www.forbes.com

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