The ability of new technology to capture and process data, in real time, is changing how all business is done, how products and services are conceived in the new economy, and the way consumers participate in this process.
Financial technology — or FinTech — is lubricating this transformation. The catalytic impacts of FinTech and it’s potential to unleash a new era of competition, innovation and job creating productivity in our economy is inestimable at this point, and very worthy of encouragement.
FinTech is not just about digitising money, it’s about monetising data. It’s about how we can create and capture the value‑add from data, previously limited by the technology we had available. It is the second‑round value surge that is now starting to flow from an increasingly digitised economy.
Financial services providers now talk about attributes, or insights into consumers, not just in the tens of thousands but in the hundreds of thousands and millions.
Businesses and authorities now have structured access to almost unlimited data, especially with the advent of social media that sophisticated algorithms can quickly interrogate and transform into new services and products.
This is not old‑style data mining but deep learning that permits previously unimagined insights and information that in turn allows more individualised products and services, and more efficient markets and systems.
FinTech solutions hold enormous potential benefits to all business, especially new and existing small businesses. Small and medium sized enterprises (SMEs) are crucial for economic growth and jobs but some can face difficulty in securing the financing they need to survive and prosper.
FinTech can offer solutions that are efficient and effective at lower scale which will benefit small businesses and provide them with increased access to more diverse funding options. Innovative FinTech products can be better tailored to the needs of small businesses. These include marketplace (peer‑to‑peer) lending, merchant and e‑commerce finance, invoice finance, online supply chain finance and online trade finance.
Innovative finance solutions can significantly assist small businesses by providing them with better cash flow, improved working capital management and more stable or secure funding. For example, Alibaba monitors and evaluates online transactions to identify commercial opportunities and then offers loans to small business through Alipay.
In addition to financing and access to capital, FinTech can help all businesses through improved payments systems, customer relationship management and invoicing and collections. FinTech solutions include e‑invoice management portals and supply chain finance solutions.
FinTech is allowing people to conduct transactions through their mobile phone or tablets, improving efficiency and the customer experience. Data aggregators can synchronise financial data from various sources and integrate bank accounts from different financial institutions — reducing compliance costs for business.
By reducing information asymmetry in the marketplace, FinTech is not only improving the ability to match investors, lenders and borrowers; but providing a more level playing field that allows retail investors to have greater participation in the market. FinTech intermediaries help bring additional liquidity to the market.
Innovative financial services such as robo‑advice have the potential to extend financial advice beyond high net worth individuals and more sophisticated investors, to a wider cross‑section of the community. This will help more Australians get the financial advice they need to make more informed decisions and help address issues such as under and non‑insurance, as well as missed opportunities and ill‑informed decision‑making.
It is this positive disruption that a successfully transitioning economy, like Australia’s, can and must benefit from and why the Government is taking such a keen interest as part of our innovation agenda.
Just as the internet has empowered people around the globe through access to information, FinTech is reducing information asymmetry in the marketplace and thereby helping to mitigate risk and promote more efficient allocation of scarce resources.
In China, Tencent’s ‘WeChat’ now allows users to apply for uncollateralised loans of up to US$30,000 and get a decision in under a minute, while individuals can transfer money to each other.
Pioneers in the industry — those who are forging the frontier of this new sector — are clear about the enormous potential of new technologies in financial services to better manage risk in the financial system.
More digitised transactions support greater audit capability, transparency in payments systems and security in transactions by reducing risks you are also reducing the need for regulation. In this world, de‑risking and de‑regulating an environment actually go hand in hand.
The frictionless operation of FinTech innovations such as Blockchain and digital currencies are generating new value streams not just in financial services but across the economy.
During a FinTech roundtable organised by the Government in Shanghai in February 2016, Lufax, the second largest peer‑to‑peer lender in China, spoke about real‑time personalised insurance options such as car insurance that could account for the places you might be driving through or to on a particular day, including weather and traffic conditions. During another FinTech roundtable in Shanghai, Chinese internet services giant Baidu, explained their ‘Internet Plus’ strategy was not about becoming a FinTech operator, but to enable them to act as an aggregator. They are focused on bringing together the partners needed to realise a new product or service to fill the gaps and to satisfy consumer demands by leveraging their digital distribution networks, data and insights.
The Government recognises Australia’s FinTech sector can play a vital role in aiding the positive transition that is occurring in our national economy.
Competition policy and microeconomic reform will also be accelerated by innovations in FinTech, especially in payments systems, and the ASX has already announced that it is seeking to introduce Blockchain technology for its clearing and settlements process.
The transparent and real‑time operation of FinTech innovations, such as Blockchain and digital currencies, are generating new value streams — not just in financial services but across the economy. However, the disintermediation of the market will be accompanied by greater ‘Fintegration’ — or collaboration in financial services — between disruptors and others. FinTech herbivores and carnivores cover those wanting to disrupt and those wanting to co‑exist in the financial sector.
FinTech can also help drive improvements in traditional financial services and promote disruption through innovative new products and services, which can offer benefits to consumers and other sectors of the economy. That’s why we’re working with the FinTech industry to prepare our financial system and economy for the future, and why it is such an important part of our plan to manage our transitioning economy.