How is fintech innovation influencing the future of banking?
The introduction of digital banks, also known as ‘neo-banks’, has allowed many Australians to lead a more convenient lifestyle whereby individuals are now able to sort out their finances through virtual platforms at any time and any place they want. This emerging product offering created by fintech firms has entered both the consumer and commercial Australian markets during a time where major traditional banks were under tight scrutiny from the banking Royal Commission. The implementation of open banking and the shift to comprehensive credit reporting – as further detailed in this article, have also rendered market conditions more favourable for neo-banks to enter the market.
To-date, the Australian fintech industry is made up of 512 domestic companies and 67 start-ups from overseas. Consistent with this, the EY Fintech Census revealed that the median revenue growth rate of fintech firms in 2018 reached 125% and that more than 25% of fintech firms grew by more than 300%. In 2018 alone, a number of companies entered the Australian fintech market – namely Prospa, Assembly Payments, Airwallex and Brightewhich altogether raised a significant inflow of capital with many “platforms finalising rounds in excess of $25 million”. These fintech deals are illustrated below:
The above signals that consumers are becoming more digitally savvy in Australia and that the demand exists for technology-driven financial products. ANZ bank similarly reported that there has been a monumental shift in mobile-use through digital payment resulting in a 100% increase in the number of people making mobile device payments in comparison to 2017.
How has the fintech landscape changed over the year?
In 2018, Australia experienced an increase in fintech-related activities – especially with the government proactively establishing fintech agreements with other countries and launching initiatives that will encourage fintech firms to invest in Australia. An example is the Australian Prudential Regulatory Authority (APRA) allowing neo-banks to enter the market and accessing a restricted authorised deposit-taking institution (RADI) licence that will permit them to offer banking services and compete with traditional banks. In line with the government’s aim to encourage innovation and new entrants in the banking sector, Volt Bank became Australia’s first neo-bank to receive a RADI in May 2018. Xinja followed suit and became the second Australian neo-bank to receive a RADI on 18 December 2018. Legislatively, a RADI allows neo-banks to act like a bank – albeit some restrictions such as a required minimum of $3 million in capital or 20% of adjusted assets. Neo-banks are typically given a two-year period to raise the requirement level of capital for a full banking licence. Relevantly, Volt is currently working to obtain a full banking licence as soon as possible and has already implemented an API-driven architecture that will enable the firm to be better equipped when the open banking regulations are introduced later in the year.
What do fintech companies have to say about neo-banking?
"Xinja launched into the App store and the Australian government signalled a pathway to open banking with its acceptance of the review recommendations. This is great news for people in general, giving them more control over their own data and allowing banks, fintechs and other companies to integrate seamlessly to provide value and services to customers we can't completely imagine yet”.
"Equity crowdfunding was also made legal in Australia. This means ordinary retail investors get access to early-stage investment for the first time. It means fintechs and other start-ups get access to much-needed capital, and of course Xinja ran the first crowdfund equity raise – and the most successful one to date – bringing a whole lot of new people into our orbit, people who are telling us what they want from their bank, and who are helping us build it".
Beau Bertoli, joint CEO of Prospa, a fintech firm providing small business loans online, also commented on the future of fintech in Australia:
"Transparency will be a major focus for 2019. Australians are now looking beyond the traditional banks and lenders for finance, and trust will be a key consideration here… Prospa worked with the fintech industry to develop the Code of Lending Practice. These principles and guidelines on transparency and disclosure were created for alternative lenders but can definitely be extended more broadly. It's been great to collaborate in this way and there's more to focus on in 2019”.
What is in the pipeline for the fintech industry in 2019?
With new companies entering the fintech market, Sydney remains Australia’s financial center and has established itself as the country’s top fintech hub and home to 60% of Australia’s fintech companies. This could be due to the support that the city provides to fintech firms by way of a wide range of accelerators and incubators such as Springboard and Stone & Chalk, the largest fintech hub in Asia. In addition, start-ups can also partner with The University of Sydney and recruit graduates to join their team. We expect more neo-banks to join the fintech industry in Australia and further set out below a few neo-banks that have already confirmed to be joining us:
- Douugh – a smart artificial intelligence (AI)-driven banking app that will launch in Australia following their entry into the United States market. Douugh’s virtual platform will provide the user with their own AI financial assistant named Sophie – which has been designed with a mission to ‘democratise the banking world in 2019’. Ahead of the launch, Douugh has partnered with Mastercard to roll out a smart bank account. Through the app, Douugh will be able to assist consumers to better understand their financial position and help them achieve their financial goals. Douugh will leverage the banking licence of an existing bank rather than go through regulators to apply for its own licence.
- Revolut – a neo-bank based in the UK with a customer base of over three million within three years. Revolut already has a waiting list of 20,000 Australians applying for an account as well as its signature metal Mastercard allowing international transfers and global spending.
- iSignthis – a payment and identity technology firm that is on track to receive a neo-banking licence from APRA towards the end of Q1 this year. According to Fintech Futures, “the licence will allow the company to bank with the Reserve Bank of Australia (RBA), and place customer funds at the RBA repo window to earn interest”.
Are you looking for an opportunity to work in fintech?
At Progressive Recruitment, we see the emergence of fintech firms as a new trend that will revolutionise the way that traditional banking has worked for past decades. If you would like to enquire about current opportunities that our fintech clients have on offer or if you are a fintech company looking to hire your next talent, please feel free to contact us at +61 02 9285 1000 for a confidential discussion.