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Adam Penny, Managing Director and Head of Financial Institutions Australia; Aadesh Thakkar, Director, Financial Institutions Group; and Kevin Wilson, Vice President, Australia Head of Technology Origination, Australia explain the role fintech is playing in Australia’s transition to a multi-engine economy.
A renewed commitment to innovation is a key component of Australia’s shift to a multi-engine economy, and financial technology – or “fintech”– is playing a major role in that process.
Backed by seed and venture capital, equipped with top talent and built on highly scalable technologies, fintech companies will become a significant growth engine for Australia’s financial services industry. Given that Australian financial services contributed $140 billion to Australia’s GDP last year, the scale of the opportunity is immense.
Fintech innovation will both complement and dislodge incumbents to drive industry efficiencies, and will also help established players meet new customer demands.
In today’s highly interconnected, technology-driven world, customers are demanding real-time information and financial services via mobile devices and online – from transactional capabilities to analytics and wealth management. Australia’s financial service providers, big and small, are having to adapt to new competitive threats or lose clients and market share. Fintech solutions bridge the large gap that often exists between evolving customer expectations and legacy financial services and systems.
Over the past few years, the number of fintech players has exploded globally. For Australia, improved access to early stage capital and the recent establishment of fintech hubs such as Stone & Chalk and the Tyro Fintech Hub have helped turbocharge the sector’s development. Given their prospects, fintech firms are starting to attract top talent. Over time, the expectation is that such successes will make it easier to attract finance for Australian innovation, a long-standing model in Silicon Valley.
The ecosystem for fintech in Australia has evolved rapidly in the last few years. Investors benefit from various established protections and start-ups are offered a highly consolidated market with various areas ripe for innovation. Government and regulators are consulting with the industry on a number of priorities to facilitate the growth of fintech in Australia, including a “regulatory sandbox” to enable fintech businesses to test their early ideas with clients.
Established institutions are conscious of this opportunity and actively focusing on innovation initiatives such as establishing dedicated venture capital funds or teams focused on fintech investment. Another example of this focus is the recent appointment of experienced senior technology executives to boards and leadership roles.
Fintech opportunities exist across the organizational spectrum, from back office cost reductions to front office initiatives targeting customer needs and the user experience.
On the other side of the equation, fintech firms pose a number of threats to established financial institutions. Fintech innovators are often single-minded disruptors, seeking to target traditional revenue streams such as payments, foreign exchange and lending through mobile and online enabled ecosystems, as well as emerging technologies like blockchain and artificial intelligence.
As with any revolution, the transition to a fintech-driven financial services industry in Australia will not be without its challenges for established financial institutions: Legacy policies, heightened regulation, investor pressures and fear of the unknown all present significant obstacles to change.
Given the rapid rate of technological innovation, falling technology costs and changing consumer behavior, fintech will inevitably underpin Australian financial services going forward. Whether fintech players will truly dislodge, complement or simply compete with larger incumbents is yet to be seen. Despite divergent strategies, there is a general acceptance of the need for institutions to stay close to external innovation, as well as to foster an organic innovation culture internally, creating a nimble and flexible industry environment in the years ahead.
Australia’s emerging fintech sector is increasingly capturing the attention of international investors who are attracted by the size and scale of the opportunity in an industry ripe for change.
- Australia’s fintech industry is being turbocharged by the creation of financial technology innovation hubs, improved access to early stage capital, and an evolving legal and regulatory framework.
- Fintech provides Australian start-ups with an opportunity to disrupt incumbents and is also an enabler for established players to improve efficiencies and adapt to changing customer demands.
- Seizing on Australia’s fintech opportunities will put investors at the forefront of a more nimble and flexible financial services sector.