Predicting (or at least hypothesising upon) the Future of FinTech in 2019 at NextMoney last week were three brave souls from the Melbourne FinTech community: Alan Tsen, GM of Stone & Chalk and Chair of FinTech Australia; Christina Hobbs, CEO of Verve Super; and Paul Naphtali, Managing Partner at Rampersand. Referencing the latest CB Insights report on VC funding for Fintech, various regulatory developments in Australia (especially Open Banking), as well as the outcomes of the recent Royal Commission on Financial Services, the panel offered some useful insights on the local state of FinTech.For all the positive developments in the past 2-3 years (Open Banking, New Payments Platform, Comprehensive Credit Reporting, Equity Crowdfunding, ASIC’s Regulatory Sandbox, Restricted ADIs etc.) the fact is that innovation by Australian FinTechs is hampered by:
1) fallout from the Royal Commission (although this should actually present an opportunity for FinTech);
2) the proposed extensions to the Sandbox provisions (which are stuck at the Federal level); and
3) lack of regularity clarity on the new class of digital assets made possible by Blockchain and cryptocurrencies (cf Treasury Consultation on ICOs).
Overall, the panel agreed that the channels of distribution have been locked up in an oligopolistic market and economic structure, especially among B2B services. But things are changing in B2C, with the rise of P2P payment platforms, market places, mobile and digital solutions, and challenger brands (e.g., neo-banks).
However, there are under-serviced segments especially among the SME sector, and products and services for part-time employees, contractors and freelancers. For example, meeting the superannuation and insurance needs of the “gig economy”? (Maybe something will come out of the recent Productivity Commission review on Superannuation.)
A number of areas have already benefited from FinTech innovation and disruption – lending (origination, funding, distribution), robo-advice (at scale but not yet offering truly tailored solutions), and P2P payments (and which largely happened outside of the NPP).
When it comes to disrupting and innovating wealth management and financial advice, there is still a distribution challenge. Whatever your views are on the Royal Commission findings and recommendations, there is clearly a problem with the status quo. But is the appropriate response to “smash the banks” or to enable them?
One view is that we are going through a period of un-bundling of financial services. Personally, I think customers want ease of use and interoperability, not only standalone products that are best in breed. For example, if I have established sufficient identification to open and maintain a bank account with one ADI, shouldn’t I be able to use that same status to open a deposit, savings or transaction account with another ADI, without having to resubmit 100 points of ID? And even use that same ID status with an equivalent ADI overseas?
There is often a tension between incumbents and startups. Whether it’s procurement processes, long-term sales cycles, stringent payment policies (notwithstanding the BCA’s Supplier Payment Code) or simple risk aversion, it is very difficult for new FinTech companies to secure commercial supply contracts with enterprise clients. Even though a Blockchain platform like Ripples is working with major financial institutions, most times the latter don’t readily engage with FinTech startups.
Then there is the problem with “tech for tech’s sake”. For example, don’t offer “smart” solutions that actually make it harder or more complex. And don’t build great tech products that offer lousy UX/UI.
A key issue is defining “trust” – whether at the sector level (on the back of the Royal Commission); or at the individual level (the current environment of personal privacy, data protection, identity theft): or at the product level (e.g., decentralised and “trustless” platforms). As one panelist commented, despite the news, “headlines don’t change behaviours”. We love to bash our banks, but we rarely switch providers (mainly because it is far more difficult than it actually needs to be…) And the backlash against social media companies has not resulted in any major movement to unfriend them (witness the response to campaigns like QuitFacebookDay…).
So what are some of the predictions for the next few years (if not the next few months)?
- Within 5 years, the 5th pillar will be a challenger bank.
- A period of un-bundling followed by re-bundling
- A trend for “Financial Wellness” (especially financial education and literacy, not just wealth management and accumulation)
- A switch in personal asset allocation/accumulation from mortgages to superannuation – (i.e., new brands like Verve want to be your lifetime financial partner, so that “we invest together”)
- Superannuation funds will obtain banking licenses (or maybe one of the FAANGs will?)
- Personal Statements of Advice vs ASIC’s MoneySmart – who’s going to be paying for financial planning, advice, products and distributions?
- Capitalizing on the lack of trust among incumbents and centralised platforms
- More diversity and inclusivity in access to products and services
- Payments FinTechs that will disrupt lending (if they can solve the problem of
- The growth of RegTech – a model of agile governance supported by great UX
- The equivalent of open banking for Personal Financial Management services
- Banks as data fiduciaries
Next week: An open letter to American Express
Having spent two days last week at the ‘Emergence’ conference in Sydney, a terrific gathering of startups,. some of which were Fintech in one way or another, financiers, investors, and various service providers, I came to the conclusion there is a significant and seemingly huge and unstated additional barrier to success: Innovators are too much in love with their tech to see the benefit from the point of view of a user.
I watched many presentations, and with very few exceptions, and then only partial, those presenting failed to articulate why someone should buy their products.https://wp.me/p5fjXq-2gw
it does not matter how smart the technology, innovative the use of emerging business models, or who is amongst your founders, unless you can clearly, unambiguously articulate the benefit, you will be compromising the chances of success before you start.