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Financial technology (fintech) has found its way into the government budgets of developed countries across the world, including Australia. But how has this spurred an industry that could reduce Australia’s traditional economic dependencies?
Of all the inevitable surprises in the 2016-2017 budget handed down by the Australian government in May, few anticipated the declaration that the country’s treasury would partner with its chief scientific organisation to explore potential uses for blockchain.
The announcement will partner treasury with analytics wonks at CSIRO subsidiary Data61 to study and pilot-test uses for blockchain’s distributed-ledger technology.
It underscores the growing profile of fintech innovation as a source of growth to soften the impact of a slowdown in the global resources sector that has long supported its economy.
“Australia’s fintech industry is gaining prominence,” the government’s budget promotions note.
“There are nine Australian companies listed amongst the leading global fintech innovators in 2015. We will build on this by promoting Australia internationally as a fintech destination – ensuring we seize the opportunity to boost Australian jobs.”
This type of broad proclamation is nothing new for ambitious governments, but its appearance in a budget marked by austerity is a sign that the nine-month-old government of Malcolm Turnbull seems to understand the tech sector in a way his predecessors could not.
TruePillars disrupts SME lending
This commitment has, in turn, revitalised the activities of an Australian fintech sector that is increasingly reaching into the nearby Asia-Pacific (Apac) market, with innovative financial products underscored by a broad range of cutting-edge technologies.
For example, April 2016 saw the launch of Australian fintech innovator TruePillars. The firm is capitalising on renewed interest in fintech to disrupt small-business lending that is dominated by Australia’s big four banks, which generally require collateral and can take three to nine months to approve loan requests.
TruePillars spent 19 months designing and developing an online portal that links borrowers. The borrowers are vetted by conventional risk-management processes before being anonymously offered to online investors, with the investors then bidding to offer an interest rate on the money they can provide.
Read more about fintech in Australia
- Australia’s federal budget has a surprisingly low financial commitment to fintech, despite the country’s clear appetite for developing the sector.
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Investors’ bids are pooled and the online platform automatically mixes and matches funding sources to provide borrowing companies with as low an interest rate as possible on their requested funds.
Investors’ stakes in each company are tracked and repayments distributed according to each investor’s relative proportion of the loan.
“Investors are bidding an interest rate and the underlying technology gets the best combination of bids from the borrower’s point of view,” explained co-founder John Baini, a career banker who sees TruePillars as a way of shaking up the banks’ comfortable monopoly on business lending.
Such services would be impossible to even contemplate without a robust trading environment that manages what “could literally be 1,000 different investors making up the one loan,” said Baini.
“The calculations that have to be done are significant. It could normally take months for a bank to turn around an application for funding, so speed is definitely a value proposition here.”
Octet exploits credit card interest-free features
Another Australian fintech contender, Octet, is also looking to small to medium-sized enterprises (SMEs) with a trade-finance platform that simplifies SME payments by exploiting credit card providers’ 55-day interest-free features. This means they can offer unsecured business-to-business (B2B) finance at 0% interest for up to 60 days.
The company is targeting cost-sensitive SMEs to conduct trans-border settlements with minimal foreign exchange transaction fees, combined with a rewards programme and no arbitrary limits.
The service is managed through an online portal and has been architected with a range of application programming interfaces (APIs) to facilitate foreign-exchange and other functions.
Octet is being marketed to businesses as a service bundle that, according to CEO Brett Isenberg, lets Australian SMEs easily make payments to suppliers in China and other countries without having to use personal credit cards or draw heavily on bank-provided lines of credit.
“One of the biggest problems for SMEs wasn’t to do with lack of funds, but not being able to access and use what they have in their pockets,” said Isenberg.
“An alarming number of businesses were sitting on corporate cards with meaningful size limits that, in some cases, were sitting dormant.
“Credit cards are generally an undervalued media in the B2B space – 55 days interest free is meaningful – and we realised there was a big play open to us as almost being a B2B PayPal. We would enable businesses to register with us, register their credit cards with our tokenised value and trade with suppliers in China.”
Fintech to ‘revolutionise’ Australian business
Because of the high level of prudential control over Australia’s banking industry, the ability of alternative lenders to offer platforms such as those offered by Octet has been restricted in the past.
But with the government’s growing awareness of facilitating technologies – and its newly reinforced commitment to tapping into innovative technologies such as blockchain – its fintech commitment is expected to pay off in the near future.
“Fintech is all about stimulating technological innovation so financial markets and systems can become more efficient and consumer-focussed,” treasurer Scott Morrison wrote about government’s fintech commitment.
He sees the commitment as a driver to “promote disruption” that will make it “play a central role in aiding the positive transformation of our economy”.
“Competition policy and micro-economic reform will be driven by the innovations in fintech, especially in payments systems. Fintech is going to revolutionise how consumers and businesses, as the drivers of economic activity, interact. This is going to have big implications for demand in the future,” he said.