Can your fintech startup disrupt Australia's big four?

Joel Svensson

Next week could mark the beginning of a brighter future for fintech startups, with the government expected to release policy changes that will encourage innovation and limit red tape in the sector.

Earlier this week, Scott Morrison told Australian financial regulators to prepare for a new, streamlined system – one designed to boost our position as a leading fintech market in the Asia-Pacific region.

“It’s an exciting industry,” he told the Australian Business Review Summit on Tuesday. “If you want to get involved in it, you better get a t-shirt and lose the tie.”

Morrison said he had run the fintech numbers at a meeting of key regulators on Friday and was working to develop policies that would slash the time entrepreneurs spend filling in forms.

At the centre of these is a new “regulatory sandbox” scheme which would allow startups to test their products on live customers in a controlled environment while avoiding lengthy regulatory license applications.

But, after the government introduced disappointing equity crowdfunding laws to the sector late last year, no one is holding their breath quite yet. So what does Morrison’s plan mean in real terms for your startup?

More competition

“It’s an exciting industry. If you want to get involved in it, you better get a t-shirt and lose the tie.”

Whether you’re already in the space or looking to launch into fintech, here’s one key piece of news: the playing field is about to get a lot more even.

In an opinion piece last week for the Financial Review, Morrison wrote of the “catalytic impacts of fintech and its potential to unleash a new era of competition” in our economy as “very worthy of encouragement”.

Just this week a new global survey by PWC revealed that the world’s top banks are bracing to lose up to a quarter of their income to fintech players in the coming years.

This new wave of “disruption” could spell the end of the big four banks’ local monopoly, according to Atlassian co-founder, Mike Cannon-Brookes.

“I would love it if the term ‘big four’wasn’t around in a bunch of years’ time, maybe it would be the ‘big 10’ or the ‘medium 10’,” he told the Australian Business Review summit. “It would certainly be a much better world for every small business owner and citizen, to have a much more competitive banking system.”

"...the world’s top banks are bracing to lose up to a quarter of their income to fintech players in the coming years."

Less time on bureaucracy

Another big plus for startups will be a reduction in cumbersome regulation and paperwork. Included among the Treasurer’s new policies are “provisions on transparency, regulatory decision-making and streamlining of financial service licence application requirements”.

His new fintech advisory group, established just last month, is already talking about peeling back laws that favour the big banks at the expense of small ventures. In a meeting on Monday, the group told Morrison that much of the limited capital of fintech startups was going into complying with regulation.

“We need to ensure that the regulators are working collaboratively with the sector itself,” Morrison said. “We can ensure that the regulation means that over a normal startup period of six to nine months those startups will get to try four ideas rather than trying one idea and spending the rest of the time filling out paperwork.”Testing products will become a whole lot easier

And crucial to that new spirit of trial and error will be the regulatory sandbox, proposed by industry body, FinTech Australia, in a detailed report to the Treasury last month.

In the sandbox, startups will be able to test their ideas with a limited number of users and transactions without having to acquire an ASIC license. This means that early-stage startups won’t have to spend precious funding getting their products to market only to find they’re not viable. While they will still need to comply with rules around marketing, privacy, anti-money laundering etc., they won’t need to obtain a license until they grow to a particular size.

But the big banks may be planning to move on this opportunity too, arguing they should be given the same access to the sandbox when working on product innovation.

"We can ensure that the regulation means that over a normal startup period of six to nine months those startups will get to try four ideas rather than trying one idea and spending the rest of the time filling out paperwork."

New forms of funding will be explored

Morrison has also flirted with increasing avenues for crowdfunding, peer-to-peer lending, mobile payments and digital currencies. In Fintech Australia’s report to the Treasury, it called for better access to non-Australian-dollar settlement infrastructure as well as the removal of the GST from Bitcoin transactions. December’s crowdfunding laws could also be broadened while cooling-off periods on investment may be removed.

And it will all tie in with Turnbull’s wider innovation policies, many of which are designed to reform Australia’s historically risk-averse investment culture. “We want… a national culture of innovation, of risk-taking,” the PM said in December.

And starting next week, it looks like we might be close to getting it.

Joel Svensson

Joel Svensson is a Melbourne-based freelance writer specialising in politics and business.

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Pictured: Australian fintech startup MoneyPlace focuses on new ways of borrowing and investing. Image: MoneyPlace official Facebook page

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