The period leading up to June 30 saw the usual raft of end of financial year updates, special offers and reminders from equipment suppliers, business service providers, accountants, tax specialists and even the ATO itself.
Crypto is certainly getting a lot of attention in Australia at the moment.
Third, the CPA published an op ed on the need for more clarity in crypto asset accounting. Not just in Australia, but across the world of International Financial Reporting Standards.
None of this should be surprising, as governments, regulators, tax authorities, professional bodies and institutional investors are still struggling to comprehend this new asset class, and the technology that underpins it.
Do crypto and digital assets represent currency, commodity, real estate, software license, network membership, utility access, payment mechanism, store of value, financial security, or unique property rights? Depending on the design, use case and origination of a token and its economic properties, the answer could be “yes” in each case – albeit not all at the same time.
In my consulting work with Brave New Coin, I get to speak to clients on a daily basis about their own crypto activities – be they exchanges, asset managers, accountants, tax authorities, regulators or investors. A lot of the discussion involves education – helping them to make sense of the technology and its potential. Some of the time they are simply asking our advice about how to address a particular issue, or they need a recommendation for a custodian or broker. A few share the regulatory challenges they face, and seek our perspective in how to navigate them. Others need more technical help, in building software solutions, or with on-chain analysis and wallet tracking (even though “free” block explorers already do a pretty good job in that regard). While many simply need a source of market data and indices for price discovery and NAV calculations, or a process to capture and track the crypto equivalents of corporate actions.
If anyone wonders how we are doing to make the reporting of crypto holdings as simple as equities or fixed income assets, my own experiences suggest we have a way to go. Legacy accounting and portfolio tools struggle with crypto: for example, can they calculate to 8 decimal places? how do they deal with an air drop? and how do they distinguish between Ether and Ethan Minerals (both use ETH as their ticker symbols), or Cardano and Adacel Technologies (both use ADA). And if I am an accountant, auditor, financial planner or adviser, how can I make sure I understand my clients’ portfolio of crypto investments, if I don’t have the appropriate tools?
Next week: Goya – allegories and reportage for the modern age
The Australian tech sector, especially at the startup end of the industry, is having to grapple with what is fast becoming a major structural and operational challenge: how to hire, remunerate and retain staff. With closed international borders cutting off the supply of overseas students and graduates, and a lack of sufficient home-grown skills, it’s a problem that established businesses and startup ventures alike are having to address. Just last week, the AFR reported that some wages in the tech sector have gone up 30% in the past 12 months. Perhaps this issue was on the minds of the four founders who presented at the recent Startup Victoria FinTech Pitch Night.
The judges for this on-line event, sponsored by LaunchVic, were: Nicole Small, Investment Director at Rampersand; Kim Hansen, Co-founder and CEO of Cake Equity; Caitlin Zotti, Operations Manager at Pin Payments; and “the people’s judge,” Eike Zeller, Community Lead at Stone & Chalk Melbourne. Compered by Josh Sharma, Head of Labs & Startups at LUNA, the evening also featured a virtual fireside chat between Rebecca Schot-Guppy, CEO of FinTech Australia, Dom Pym, Co-Founder of Up, and Julia Bearzatto, Head of Technology for Financial Services at MYOB.
The four startups in order of presentation were (links in the names):
Claiming to be the “first non-custodial cryptocurrency exchange“, part of Elbaite’s mission is to prevent theft or misappropriation of crypto assets held in exchange wallets. What makes Elbaite different from other decentralized exchanges (DEXs) and peer-to-peer platforms is that they escrow the fiat involved in any transaction. While they may not be charging the fees of centralized exchanges (CEXs), they are charging a 1% on crypto purchases (although there is 0% commission on sales). Elbaite is hoping to target institutional clients who may not be as comfortable trading on “traditional” crypto exchanges – although in my experience, many institutional clients actually need third-party custody services as part of their governance and compliance obligations. The judges felt that this is a crowded space (there are more than 250 crypto exchanges globally, plus numerous fiat on/off ramps, brokers, OTC desks and P2P platforms).
Speaking of custody and escrow, who would have guessed that stolen house purchase deposits are such a major issue, unless the team at Sequrr had told us? Despite the use of Real Estate Trust Accounts within the industry, apparently there is not much to stop the account holders from walking off with the deposits. Which rather begs the question why the industry does not already use something like multi-signature digital wallets, which mean that the funds can only be moved once all parties to the transaction agree. Even though this is a tech solution using a 3-way verification model (innovation patent pending), the different real estate laws in each State means that it’s not that simple to roll out nationally. However, the team also see opportunities for other professional and commercial sectors: solicitors, builders, aged care. (Note to the founders: I know that invented brand names were once flavour of the month for tech startups, but I question the wisdom of adopting a word that reads like a spelling error, and sounds like someone coughing up phlegm – especially if you want to be taken seriously by banks and solicitors. Just a thought.)
Another issue of trust exists between employers and employees when it comes to reward and recognition schemes. There’s always a risk that whatever structure and incentives companies use, someone will try to game the system (or collude with colleagues) especially if the stakes are high; or, if the rewards are simply handed out for turning up and doing your job, their currency becomes debased. Then there’s the (ill-advised) link between rewards and recognition on the one hand, and performance reviews (plus bonuses and salary adjustments) on the other. It’s a balancing act which Nextround are addressing by making it easier (and less expensive) to reward and recognise all of your staff, not just the usual top 5-15%. They do this by offering managers and team leaders access to rewards of a smaller (yet still meaningful) value, which can be easily redeemed by the recipients, for hospitality rewards, events and experiences. The commercial model relies on an annual corporate subscription fee, and taking a cut of the reward vouchers. Nextround consults with employers on their preferred merchants and suppliers, who don’t necessarily see the vouchers as eroding their margins – rather, it’s another sales channel. This is not a hospitality app (e.g., loyalty program), more of a procurement app. And although there are numerous competitors for reward and recognition schemes, the “smarts” are in the way managers and HR teams can budget and allocate accordingly, without the need for onerous expense form claims because the transactions can all be tracked from the point of redemption back to the point of issuance. The resulting data will also generate a further revenue stream from the valuable analytics, although would I want my employer to know how I used my vouchers (assuming they are not tied to a specific reward)? My other reservation is that if the rewards really are as small as a cup of coffee, or even a round of drinks at the pub, isn’t it a bit like tipping?
Letting people make their own financial decisions is also a form of trust. Most of us would feel we can be trusted to spend our own money how we like. But this assumption may be challenged when it comes to people with a disability. SpendAble is developing payment, saving and investment solutions for people who face physical, societal and intellectual barriers to managing the financial affairs. Starting with a budget-based spending app, SpendAble helps users to allocate, identify and track their purchases more easily, and with much of the payment friction removed. The team will also develop specific applications such as voice-controlled functions for the visually impaired. Largely reliant upon the NDIS for funding and end users to cover transaction costs, SpendAble will plug into existing banking platforms – which might be a better way to underwrite the app? However, some of the online chat on the night suggested that SpendAble could provide well-needed general financial education to school kids as part of its offering, as well as helping to address financial inclusion.
Such was the enthusiasm for SpendAble that they took out the Peoples’ Choice as well as the Judges’ Award.
Blockchain Australia, the national industry body, recently organised the first National Australian Blockchain Week – a mix of on-line and in-person events, hosted in Sydney and Melbourne. Overall, it was an impressive line up of speakers and topics, featuring key local figures and presenting some intriguing announcements from politicians, regulators and practitioners alike.
The recurring themes were: Regulation, Tax and Innovation.
Despite past pronouncements about adopting a light-touch regulatory regime when it comes to Blockchain technology, the absence of definite regulation risks stifling innovation and/or driving projects overseas to more receptive jurisdictions. (Irony of the week #1: contrast this with the early and positive regulatory engagement with Digital Currency Exchanges (DCE) and other market participants in Australia, not to mention previous progress in removing the absurd GST treatment on the purchase and sale of cryptocurrencies).
Now, the industry is (once again) asking policy makers: to clarify the law as it relates to decentralised protocols, digital assets and utility tokens; to streamline the confusing and over-complex tax system as it applies to DeFi: and to define a specific regulatory boundary (rather like the UK’s FCA perimeter) within which crypto assets need to be regulated. Sadly, the latter is extremely hard to acheive thanks to the very broad definition of “financial product” within the Australian Corporations Act.
Throughout the four days, there were several highlights: Senator Bragg’s keynote speech on driving the policy agenda to bring clarity to regulators and markets alike; a progress report on the National Blockchain Roadmap; tax and legal updates from Joni Pirovich and Michael Bacina; a showcase of local Blockchain start-up projects (more on that next week); and a couple of enterprise presentations on the ASX’s DLT replacement for CHESS and the Blockchain-based insurance project between the R3 consortium and Grow Super. But apart from a couple of other Blockchain-in-business sessions, there was a noticeable absence of corporates, major banks, traditional financial services and institutional investors.
There was a lot of commentary around the fact that many Blockchain businesses and crypto projects still find it challenging to access regular banking facilities in Australia (Irony of the week #2: Westpac’s windfall from the recent Coinbase IPO). There was also a lot of discussion about the need for investor education before crypto and digital assets can go “mainstream” – which I find surprising when plenty of people seem to be finding their way without any help from traditional financial advisors, and yet no-one is required to educate themselves before their money is put into compulsory superannuation or real estate assets. Even where crypto assets are being included in retail investor products, the allocation is very modest and is being transacted offshore (see Raiz’s 5% allocation via the US-based Gemini Trust). Why not use one of the several established and well-run exchanges, crypto funds and OTC providers here in Australia?
Regarding the potential offshore brain drain, much was made of the work that Singapore is doing to attract Blockchain and crypto businesses. But I think the focus on Singapore risks overstating the situation there, and overlooks what is actually happening (and could happen) in Australia. For example, while Singapore may have more favourable tax arrangements for new Blockchain projects, I understand that ordinary retail investors don’t have access to crypto funds (not even ETPs). The Singaporean issuance of digital assets via tokenisation has to be done via an SPV structure. And while many ICOs have been issued from Singapore, they could not be marketed to local investors. At least Australia has a robust DCE sector, e.g. Independent Reserve, BTC Markets, and Bit Trade (now part of Kraken); early on we saw some very successful retail products such as CoinJar; and the local industry continues to nurture innovative decentralisation projects – we just need to sort out those “policy settings”, and give more encouragement to local entrpreneuers and innovation. (Irony of the week #3 – when former ALP politician and self-styled crypto OG, Sam Dastyari, was asked if the private equity fund he works for was investing in Blockchain or crypto, there was a deafening silence…)
Finally, one of the main benefits of Blockchain Week has been to entice people out of hibernation, and to attend in-person events after months of lock-downs and restricted movement. It felt good to be back.
So instead, here is my personal quick take on recent developments in the local FinTech scene:
A tale of 2 neobanks
Maybe Australia isn’t ready for challenger banks, despite the early interest and apparent market demand. Xinja* has decided to give back its banking license, having spent a ton of money on obtaining it in the first place. It couldn’t sustain savings and deposit accounts (even in a low-interest rate environment) without sufficient regulatory capital, the funding for which has failed to materialise; and without deposits, Xinja couldn’t offer loans. There is talk of launching a US share-trading app instead (à la Robinhood) but given the recent shenanigans with Wall Street Bets, Reddit, hedge funds and GameStop day traders I don’t suppose the regulatory path to market will be that easy. Xinja looks like it’s done.
Meanwhile, NAB has just announced that it is acquiring the shares in 86 400 that it does not already own, in order to merge it with NAB’s digital brand, Ubank. Which further suggests neobanks can’t survive on their own in the Australian market, with the dominant and regulatory protected cartel of the Big 4. (My good friend Alan Tsen has described this latest transaction as a turducken….)
Other challenger brands in Australia are having to take different approaches: Up is piggybacking off Bendigo and Adelaide Bank’s ADI license; Volt describes itself as a BaaS provider (“banking as a service”); Judo is focused on business banking; and the UK’s Revolut is bringing a mix of credit cards, payment solutions and forex services (including crypto), rather than transaction banking. Meanwhile, another BaaS from the UK, Railsbank is currently recruiting locally for a GM to leads its Australian roll-out.
Finally, despite some concerns about the BNPL sector (“buy now, pay later”), Afterpay is partnering with Westpac‘s BaaS platform to offer banking services to its customers.
Whither the Big 4?
Speaking of which, what are the Big 4 doing in the broader sphere of FinTech?
Despite (or because of?) buying a neobank, NAB has apparently closed down the Labs part of NAB Ventures, the often-mentioned, but largely silent startup incubator. CBA has created X15, a similar FinTech ventures platform with the ambitious goal of launching 25 businesses in 5 years (I seem to recall NAB Ventures once had a similar mandate?). Westpac‘s own FinTech fund, Reinventure is expected to do well out of the forthcoming Coinbase IPO; so much so that Reinventure is planning to decouple from Westpac, and launch a new fund focused on DeFi opportunities. ANZ has been putting out some commentary on its ANZi platform for FinTech innovation and partnerships – but its remit is limited to trade finance, home ownership and open data, and it is being very coy as to what specific bets they are making. Ho hum.
Did somebody mention crypto?
In case you hadn’t realised, we are experiencing something of a bull market in crypto.
Coinspot just announced they have 1,000,000 customers. Raiz Invest has launched its retail savings portfolio product with a 5% allocation to Bitcoin. Other funds like Every Capital are planning similar retail offerings. Luno is advertising on Melbourne’s tram shelters. And the Australian division of eToro is talking up DeFi. Game on!
Next week: Transition – post-pandemic career moves
* Declaration of interest – the author participated in the Xinja equity crowd-sale a few years ago