Australia’s financial system could be turned upside down in a federal government-blessed process heavily involving the nation's tech community.
Treasurer Scott Morrison set the seal on the coming transformation in a presentation in Sydney on 17 June to about 200 young representatives of new business ventures using high level data management, predictive technology and artificial intelligence to mount a head-on attack on existing financial arrangements.
Australia’s four comfortable, highly profitable major banks could be facing an imminent death of a thousand cuts from these startups. Scores of agile, innovative specialist companies, many run by recent defectors from the established banks, are applying the latest IT technology to sharpen the business performance of a raft of financial applications, and win customers away from the Big Four.
This threat has been gathering momentum over the last three years, here and abroad, under the prosaic generic title of ‘fintech’ -- short for financial technology.
The newly honed IT tools include fuzzy logic, open-source risk architecture for financial trading, artificial intelligence to track internal culture and behaviour, data aggregation, data analytics, data mining and data visualisation, distributed ledgers, machine learning, scenario analysis and forecasting, monitoring payments transactions and identification of clients and behaviour profile algorithms scanning trading activity for potential miscreants.
Morrison gave a strong endorsement of emerging fintech companies to backstop a drive to make Australia a leading centre for new financial approaches and technologies in the Asia Pacific.
He was at the Tyro FinTech Hub in Clarence St, Sydney; a Tyro spinoff set up in February 2015 to support fintech startups with co-working space, mentoring, banking access and a program to co-develop open APIs.
“What I’ve seen in fintech is how those businesses will transform our economy, particularly small business,” the Treasurer said. He told the gathering how he had taken the opportunity on his recent visit to the G20 meeting in Beijing to call in on fintech proponents there and in Hong Kong on the way through.
On proposals to extract tightly held financial data from the established banks for wider use, without making them more vulnerable to hacking and malware, he said: “We do understand it is one of the key building blocks for fintech. There are technological techniques which make it possible to provide protections while making use of data.”
Earlier this year Morrison announced, after months of lobbying, the formation of a Fintech Advisory Group, selected from industry representatives, that would have the ear of Government.
On the same day, the industry released “Priorities for reform of the Australian financial services industry.” It also formally launched a new industry body, Fintech Australia, underway since the October, including hubs, venture capital funds and accelerators.
Accelerators provide corporate partners to help startups build their businesses, validate the proposed business model (proof of concept) and organise the starting pilot project.
Areas covered in FinTech Australia include crowd funding, digital currency, lending, payments, insurance, financial markets and robo-advice (financial advice derived from expertly programmed software).
Most frequently mentioned fintech exponents in the media are the digital currency bitcoin and its supporting decentralised transactions database, blockchain. But the explosion of fintech newcomers over the last three years means there are a lot of unfamiliar names, some self-descriptive, some fresh and inventive, some bizarre.
Australia has Acorns Grow Australia, Banjo Loans, CheckVault, Clover, Coinjar, CrowdFundUp, Equitise, Financial Ask, Huffle Home Loans, MoneyPlace, Moula, On-Market BookBuilds, Reinventure, SelfWealth, Stone & Chalk and Timelio.
Alumni of London accelerator Startupbootcamp include Cybertonica, Insly, Tradle and WoraPay. Other UK examples are Funding Circle (business loans), Nutmeg (online investment) and Transferwise (foreign exchange).
One participant to watch is former German politician Jost Stollmann, who settled his family in Australia some years back after a round-the-world trip on a yacht ended with a crash on a reef off Fiji.Read more: Cuscal invests in fintech startup
When his Australian payments operation, Tyro Payments, acquired its banking licence it was the first such event in more than 18 years.
He and the head of the offshoot Tyro FinTech Hub, Andrew Corbett-Jones, see the Tyro concerns partnering newer fintech businesses in providing a payments and banking platform for expansion of Australia’s digital economy.
It would be possible to end up with a quite comprehensive financial hybrid with an array of separate, specialist digital providers partnering with the Tyro banking platform to provide a competitive range of foreign exchange, credit payments, investment services, housing loans and other banking services.
It’s not as though the banks don’t have avenues of information about the new financial sector. Craig Dunn, the Stone & Chalk chairman heading the government’s Fintech Advisory Group is also a director of Westpac. The Reinventure Group, co-founded by Advisory Group member Simon Cant, has Westpac as its largest investor.
Another selection, Kelly Bayer Rosmarin, is group executive institutional banking and markets for the Commonwealth Bank.
The key question then is how forcefully and how extensively the four major banks react to the accelerating challenge they are facing in their own backyards from the onrush of proliferating financial IT technology.