Changing Australian fintech space sparks innovation concerns
As Australia's fintech industry moves forward, changes in the industry have raised concerns over stifling the innovation that helped create it.
At the end of 2015 the future of Australia's fintech was looking up. Prime Minister Malcolm Turnbull had announced his new ministry and spoke about moving towards the "Internet of things". Westpac, NAB and Commbank were experimenting with blockchain. Fintech hubs such as Stone and Chalk and Tyro were in operation to support burgeoning startups.
So, just beyond the start of 2016, where are we now?
While the big banks are often said to be lagging when it comes to adopting disruptive technology, we've seen an increase of financial innovation, especially from the Big Four. NAB's announcement that its personal banking origination platform would be rolled out nationally be the end of 2016 pointed to a commitment to innovation for its customer base.
Today, Westpac debuted to its directors what the bank has been doing with blockchain as well as developing robot technology for testing. Commbank and NAB have also reportedly been experimenting with blockchain technology.
KPMG put the Big Four banks on notice in November 2015 after they posted record earning yet still rose interest rates outside of a Reserve Bank lifting cycle. In the midst of disruptive startups and fintech companies, the question has to be asked: is innovation best left with the banks?
Innovation in other areas is also causing concern in fintech spaces. The experimentation with blockchain by the "Big Four" saw a discussion around privatisation and the suppression of innovation.
At a panel discussion at StartupWeek Sydney in October 2015, co-founder of Reinventure Simon Cant said that if banks opted for private blockchain networks it would threaten innovation.
"If the banks all make their own private networks, they will struggle. Because it won't be open source and it won't have the mass adoption."
This was when the government also released a proposal which is looking to restrict startup investment to "sophisticated" investors, while also introducing a tax offset. The proposal in question stems from a treasury paper seeking to introduce additional eligibility criteria for those wanting to invest in startups. The criteria include investors needing to have net assets of at least $2.5 million and annual income of $250,000.
As part of the government's support of innovation, the tax incentive will provide a 20% non-refundable tax offset based on the amount invested in the qualifying startup. The government's definition of a startup includes it being incorporated in the last three years, having expenditure of less than $1,000,000 and assessable income of less than $200,000 in the prior income year. It also needs to "carry on a business that is defined to be eligible...(to be) targeted to small, innovative companies".
Tax incentives for investing in small startups sounds like a move forward, but cutting out any investors earning below $250,000, or "mum and dad investors", may prove a big step back for regulation when Australia is just trying to get started.
So where does this leave Australia's innovation?
Blockchain continues to make headlines, with its possible applications being touted by governments, industries and companies worldwide. Meanwhile, in Australia, the fintech revolution continues. In both, the key driver is innovation, yet regulation is also needed let this develop. While blockchain in itself is an intricate system that allows bitcoin to work, so too do we need a way for innovation to work in fintech in Australia.
For now, it may be an open dialogue between all stakeholders – startups, government, investors and consumers – to ensure innovation isn't lost any stage.