Digital disruption in financial services is changing the world.
The opportunities that spring from this disruption, in a region with an Asian middle class increasingly empowered by choice, are there for our taking.
Last weekend I travelled to Beijing to lead our representation at the Strategic Economic Dialogue with the Chinese Government, and meet with major Chinese firms who are investing in Australia.
Among the encouraging signs of China’s pursuit of sustainable economic growth, the prudency in which it is addressing debt and its continued openness to trade and investment, is the pace of digital change within their economy.
While Silicon Valley, London or Singapore battle for bragging rights as to who is the world’s FinTech leader, China is powering ahead.
Digital disruption has been kind to the Chinese consumer, presenting them with a range of mobile payment platforms, mobile lending, and peer-to-peer credit which enables more than 400 million Chinese - or 65 per cent of all its mobile users - to use their phone as their wallet; the highest rate in the world.
The Turnbull Government has been methodically setting about positioning Australia to springboard and join China at the forefront in this emerging and exciting space.
A recent KPMG report highlighted this opportunity for Australia to be the leading FinTech hub in Asia-Pacific - leading the world in payment innovations, RegTech and blockchain.
We have the right fundamentals through our unquestionably strong financial system and we have a vibrant and rapidly growing FinTech sector, which saw $US656 million invested in deals in 2016, a 90 per cent increase on the previous year.
In the latest Global Financial Centres Index, Sydney was named as a Global Leader in Fintech, ranked eighth out of 108 financial centres around the world, with Melbourne climbing eight places to 13th.
And a report from KPMG and the Cambridge Centre for Alternative Finance released this week revealed Australia is the second largest Asia-Pacific alternative lending market after China, with Australia contributing over 30 per cent of the total alternative finance market in the region.
Our work to take a lead on FinTech began with the Prime Minister’s $1.1 billion National Innovation and Science Agenda in late 2015, backed up by my hardworking FinTech advisory group led by Craig Dunne.
This work included giving FinTech startups a leg-up, while ensuing the regulatory settings do not act as a handbrake on their ambition.
To this end we provided tax incentives for early-stage investors in innovative companies, allowing a 20 per cent non-refundable carry forward tax offset on investments, capped at $200,000 per year. And as an added kicker, a 10-year exemption on capital gains tax for investments in innovative companies that are held for at least 12 months.
These changes were specifically drafted to include FinTech innovators.
This is direct support for the innovators who will change the digital commerce landscape.
Furthermore, in the budget this year I announced we would enhance the ASIC regulatory sandbox which should be a game changer for FinTechs who decide to jump in.
This will allow more businesses to test a wider range of financial and credit services without expensive licences, over an extended 24-month period, and evaluate the commercial viability of these new concepts.
FinTech will also be accelerated by working to create a more competitive banking system.
On this front we have initiated our Open Banking inquiry that will report by the end of the year. We are putting in place comprehensive credit reporting on either a voluntary or, if necessary, a mandatory basis. We are opening up the path for challenger banks and lifting the prohibition on the use of the word ‘bank’ for lenders who don’t meet the $50 million capital requirement to be a bank.
Central to all of these reforms is also dealing with open data reforms, recommended by the Productivity Commission, including consumer data rights and digital identities, which are key building blocks for FinTech to realise its potential.
All of these measures work to remove the prohibitive obstacle for new entrants into the Australian banking market, giving consumers more choice and subsequently, cheaper loans and products.
Last week, we made further progress in implementing this agenda, introducing legislation to extend our crowd-sourced equity funding framework to proprietary companies and removing the double taxation of digital currency.
We understand that different forms of finance and currency are particularly important for early-stage innovators that may have difficulty accessing funding from traditional lenders. Under this bill, companies wanting to access equity crowdfunding will no longer have to convert to a public company entity. This means more small businesses will have access to more sources of funding. It is estimated over US$34 billion has been raised through crowd sourced equity funding worldwide, so it is important more Australian businesses can gain access to this funding too.
The contrast with Labor, who in Government stripped away incentives on employee share ownership arrangements, could not be more stark. Labor just don’t get it.
At the invitation of the IMF, as part of the annual IMF /World Bank meetings in Washington, I will also be participating in a special forum on Fintech and Financial Services. As always, I will be letting the rest of the world know about our own ‘Premier League’ FinTech sector and just how much progress Australia is making to be in the leadership group of nations on this issue. We have a very good story to tell.
When you encourage and foster innovation in FinTech, you increase the power of you, the customer, in the market, not just for financial services but so much more. From energy and telecommunications to childcare and disability services.
A stronger customer will mean a stronger, more efficient, more productive and more competitive market.
This “customer at the centre’ principle is what drives the Turnbull Government’s FinTech agenda.