Financial technology is disrupting major banks and financial institutions – and the next generation of start-ups to be launched onto the world stage could come from Sydney.
“The industry needs to demonstrate to investors that there are strong start-ups that can offer high-risk but good returns.”
Sydney’s newest fintech hub, Stone & Chalk, is a hive of activity.
Around 200 entrepreneurs and their budding financial technology start-ups, any of which could revolutionize banking and finance, have just set up shop in the heart of Sydney's CBD after months of planning.
“We'd absolutely like to see some of these businesses go global and become household names in Australia,” says KPMG head of innovation services James Mabbott, who helped set up Stone & Chalk. “They could become role models that other entrepreneurs coming through could look at and go, ‘Wow that company developed here in Australia and confirmed the talent does exist’.”
The not-for-profit organisation, which has been supported by the private sector and the NSW Government, has attracted a wide array of companies operating in peer-to-peer lending, crowd funding, wealth advice, payments, insurance, crypto currencies and capital markets.
They are disrupting major incumbents around the world thanks to the combination of low-cost technology, cloud computing and the widespread adoption of mobile devices. Global fintech financing activity skyrocketed to $US12 billion in 2014 from just $US3 billion the previous year, according to KPMG.
However, the bulk of fintech activity has, so far, been centered in Silicon Valley, New York and London. Australian venture capital funding accounted for just 0.02 per cent of GDP according to 2013 OECD data.
“It's going to take a greater level of competition for funding – it will be interesting if overseas investors start looking to invest in the local market,” says industry consultant Ian Dunbar. “But most importantly, the industry needs to demonstrate to investors that there are strong start-ups that can offer high-risk but good returns. And we don't have enough of those big, profitable flagship ventures yet.”
Dunbar recently launched online fintech network Afiniation, which aims to foster the sector by bringing together innovators, entrepreneurs and investors. It aims to showcase fintech startups and ultimately add to the number of local success stories which include wealth management platform Bravura Solutions and foreign exchange provider OzForex.
AdviceConnect is another local fintech company which is flourishing since it was launched in 2008. It helps major super funds and companies to interact with customers through online and mobile financial calculators, illustrators and advice tools.
“Our ability to embrace the cloud and then deliver solutions on a pay-as-you-grow basis has been our most disruptive factor,” says chief executive Mike Giles.
The company is currently building on its success with the launch of Ignition Wealth, an advice service which recommends low-cost investment portfolios based on a detailed online questionnaire.
“We're wanting to empower investors with tools,” Giles says. “Previously all the tools were built for financial advisers – we're moving into a world where the focus is on giving investors great tools and they’re only referred to an adviser when required as adviser time is expensive.”
AdviceConnect recently moved into Sydney tech hub Tank Stream Labs, which houses more than 30 businesses including a number of fintech players such as personal finance company Pocketbook and online payments company Braintree.
“Tech businesses can tend to be a little quiet with everyone plugged in and head down,” Giles says. “This creates a better mix and more interesting environment with developers mixing with other developers.”
Tech hubs such as Tank Stream and Stone & Chalk not only provide a home for start-ups to interact, but also house venture capital investors which fund the most promising companies.
However, the local industry still faces challenges. The government recently closed the Innovation Investment Fund co-investment scheme, which previously matched venture capital funding in early stage companies. By April 2013, the scheme had committed an extra $644 million in capital to the industry.
Giles would also like to see current tax concessions improved to further boost fintech investment. On a total tax and tax on research and development (R&D) basis, Sydney was recently ranked 44th among 51 international cities, according to KPMG.
“The R&D tax concession is great – we get a bit of a break on it – but our investors don't really get a break. If you really want to amp up investment we have to incentive it.”
Smaller companies are currently eligible for a 45 per cent refundable tax offset (which is set to be cut to 43.5 per cent as part of the 2014-15 Federal Budget) for investment in innovation, including some software.
Source: KPMG report "Unlocking the potential: The fintech opportunity for Sydney
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