Global fintech and funding innovation ecosystem

The Globalisation Of Fintech – The Australian Example (Part 1)

Forbes | Sarah Kocianski | Aug 2, 2019

Australian fintech trends - The Globalisation Of Fintech - The Australian Example (Part 1)I have been watching the development of the Australian fintech ecosystem with interest for a long time. When I lived there 10-ish years ago, the banking system felt so behind that of the UK it was exasperating and there were practically no alternatives to the major high street banks.  Fast forward to today, and I’m pleased to report the situation has improved. That’s in large part thanks to a national strategy of “watch and learn”, whereby the Australian industry (including government and regulator) has observed fintech ecosystems develop in other jurisdictions and cherry picked the most successful elements to implement at home.

The new banks have arrived

As I’ve covered before, a new licensing structure brought in last year has resulted in a wave of banks launching in Australia in a pattern very similar to that seen in the UK. While none have banking products in the hands of customers, yet, brand new banks Volt, 86 400 and Judo are all in possession of banking licenses and a fourth, Xinja, is operating under a “restricted” license as it builds out its technology.  Volt, Xinja and 86 400 are looking to the retail market with full service, digital-only banks and bold branding, while Judo is going after the SME space.

So far, so similar to the UK model. That said, one area where the Australian startups do differ to their UK counterparts, at least for the moment, is that they are mostly using large technology providers for their core systems. Volt is working with Temenos, Xinja with SAP, Judo with Unifii and 86 400 chose local provider Data Action. It remains to be seen whether they will follow UK challengers and build in-house systems as they become more  established.

See:  Fintech Industry Reports and Trends

Other brands in Australia are following a model more commonly seen in the US, whereby they work in collaboration with an established bank to avoid the need to get a banking license independently. Douugh is one (more on them later), while Up Bank is another.

Up is working with Bendigo and Adelaide Banking Group which allowed it to beat the independent startups to launch 8 months ago. Not only was it first to market, it also doesn’t need to pour resources into keeping a license, allowing it to focus on developing its technology-first product suite. To date it has 100,000 users and a supportive community who wear Up t-shirts and are vocal on social media — a familiar concept to users of Revolut and Monzo.

The future of the Australian banking market

The neobanking community in Australia is a tight knit one, with founders regularly working together on common industry problems and even looking to form an industry association for neobanks in time, according to Steve Weston, co-founder and CEO at Volt. There is undoubtedly room in the market for all of the above players to make names for themselves, but they will need to quickly differentiate themselves from one another in order to stand out

That’s especially true when you look at the size of the Australian market. The country has a total population of 25 million, in contrast to the UK’s 66 million, so even assuming that people will be multibanked, the Australian neobanks will face a harder battle for market share than their UK counterparts.

They also face a further hurdle when it comes to customer acquisition given the incumbent banks in Australia, particularly the biggest 4, have been in positions of strength and profitability for a long time. That means they’ve had time and resources to dedicate to ensuring they are technologically up to speed, putting them well ahead of their global counterparts in terms of digital services, says Dom Pym, co-founder of Up.

See:  EY Global FinTech Adoption Index finds over half (64%) of global consumers use FinTech

All of that means that while the Australian neobank industry is borrowing a lot from elsewhere and seeing growth in the process, there is still no certainty that the eventual outcomes will be the same as in other jurisdictions. They face a fight for a piece of a smaller pie, against stronger competitors.

The payments industry is evolving

Fintech ecosystems elsewhere have followed a pattern of disruption that starts with payments and then moves onto banking, and this has been followed to a certain extent in Australia.

The New Payments Platform (NPP) which went live in 2018 is modelled in part on the UK’s Faster Payments network and is owned by major FIs. Like other instant payment networks around the world, it enables instant account-to-account (A2A) payments. It has also gone one step further than most of its global counterparts, and allows customers to link bank details to an email address or phone number making for easier P2P payments. Another example of the “watch and learn” strategy at play.

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