I have just flown home from London after a UK Trade & Investment event over two weeks with 150 amazing speakers, three cities and 25 venues.
The 24-hour flight is a pert reminder of Australia’s geographic distance from the centres of finance. For more than 200 years, this physical distance has shaped Australian businesses for better and for worse.
The distance gave Australian businesses the airspace to grow in the local market, but it also denied many Australian companies the environment to dominate on a global scale.
Financial technologies disrupt by unbundling and disaggregating financial services.
This decentralisation of power challenges the fundamental drivers that led to London becoming one of the world’s greatest financial centres. This is not to suggest that fintech will not cluster.
Only that there is a new game in town where the outcome is not necessarily pre-determined, and Australia is not necessarily starting from a competitive disadvantage.
London is doing everything within its power to avoid relinquishing its relevance as a financial centre in a world where technology will trump proximity.
If the launch of Level 39 in March 2013 sounded the opening bell, then London has gone from a standing start to world leader as the centre of fintech in two years.
So, how has London has displaced Silicon Valley to attract fintech firms from all over the world? And what can we learn, apply and do better in Australia?
London is genuinely creating a fintech ecosystem by tackling the key impediments facing fintech entrepreneurs and putting money on the table. A number of their key initiatives resonated with me.
1. Unchain and motivate me
Fintech is hard. It’s not creating a game, a social network or selling goods online. It’s dealing with people’s money, savings and retirement needs. Fintech needs entrepreneurs with a deep knowledge of the pipes, processes and regulations, risk management systems, and investment opportunities that comprise financial services.
The people with this experience and knowledge have plenty of alternative lower-risk employment opportunities. Moreover, breaking new territory requires years of persistence, trial and error.
Founders see their stakes diluted at every turn. Without the assistance of non-dilutionary funding, the risk-reward profile simply isn't strong enough to attract the best experienced talent away from lower-risk opportunities.
Private capital funding for commercialising fintech ideas is doubly hard. Not only is there a paucity of early stage capital finance in Australia.
But additionally, traditional sources of finance for fintech have an interest in retaining the status quo, and therefore generally unwilling to fund businesses that could make their investment in legacy systems redundant.
There are strong arguments for government funding: market failure to finance fintech; innovation is the driver of productivity gains that create social and economic benefits for society; the virtuous cycle created when innovation precipitates further innovation; and the ease of international transportability of the intellectual property and entrepreneurs to places where finance is more readily available (whether by private capital or government funding).
2. Show me the money
Investing in fintech is risky, and attracting qualified staff and ensuring risk and compliance standards are met is expensive. The UK offers considerable tax incentives for high-risk investments, to attract private capital. Yes, there will be some massive successes. But for each of those, there will be many failures.
You want Australians to invest in the businesses of the future? Try CGT rollover where proceeds are invested in start-ups, deductions for invested capital, tax-free status for the first $10 million in gains and patent box concessions.
3. Give me a place I can call home
Challenging the status quo is lonely. Subsidised work spaces to pull like-minded organisations together creates opportunities for ideas to cross-fertilise.
4. Bring me my army
Half of ‘fintech’ is ‘tech’. We need mathematicians to work out what the data means, coders and tech developers to translate ideas into systems, engineers to give the systems a backbone, and UX people so anyone with a phone and a finger can understand and use the service.
The best universities prepare their students to take the high-value jobs of tomorrow, not yesteryear. Let’s educate fewer lawyers (I am one, so I can say that) and more STEM students.
5. Share the data with me
The UK government has introduced legislation requiring banks to open up their data by providing standardised APIs to innovative new entrants.
This allows customers to authorise access to the data that an institution holds about them. This creates a symbiotic digital ecosystem with banks providing the risk management, infrastructure management and customer history and fintechs providing sources of innovation.
Australia, with its high levels of equity ownership, can build on this by extending the open API project from banks to include centralised registers, such as the CHESS system, share and property title registries.
I feel confident that the emergence of fintech presents Australia with an unprecedented opportunity. Technology means that proximity is not a hindrance. Australia’s new Prime Minister, Malcolm Turnbull, may be better placed than any other political leader in the world to understand the potential of technology to reframe the country’s future.
Christopher Pyne and Wyatt Roy have been given a huge opportunity and responsibility to spearhead policies that will drive innovation.
I asked Eileen Burbidge – the UK Treasury’s ‘special envoy’ for fintech – if she would share London’s blueprints. In the spirit of the Anglo-Australia relationship and the world of innovation, where collaboration is key, the answer was an assured ‘yes’. This is not an opportunity that Australia should miss.
So how do we make Australia the hub for fintech so we can create world-leading firms in the disaggregated future of finance, where every person in the world can seamlessly connect? Do all the things that the other countries are doing – only better.
Only Australia and the US are in the top 15 countries by both GDP and GDP per capita. Australia can afford to invest in this future, much more than many other countries. We need to make staying in Australia the rationale choice. After all, London is only a 24-hour flight away.
Ben Bucknell is the chief executive of On-Market Bookbuilds. He was flown to London as a winner in the UK Trade & Investment’s competition to select the best Australian fintech organisations.
