One of the biggest business buzzwords of today is “fintech” or “financial technology”. Fintech is a catch-all phrase that refers to the many start-ups that have emerged that are developing challenger businesses in the financial services. These early stage ventures are using digital technology to come up with new, smart ways of offering services in the financial services sector.
The Federal Government is supporting the fintech sector. In March Federal Treasurer Scott Morrison, published the government’s statement of support for the fintech sector.
The statement made a number of commitments supporting the fintech sector. For instance, it has committed to tax concessions for venture capital investors in start-ups. The government is also directing the Productivity Commission to outline plans to increase data availability and access for new digital products and to support consumer access to those products. It has also said it will take action to address double GST treatment of digital currencies such as bitcoin.
According to Let’s Talk Payments, an information resource for fintechs, in December 2015 alone US$944.5 million was raised in funding by fintechs around the world. Australia represented 14 per cent of that amount, equivalent to US$132.2 million.
The top three fintech start-up sectors by percentage of funds raised over the period are lending (21 per cent); payments (15 per cent); and insurance (11 per cent).
One of the major fintech hubs, of which American Express is a supporter, is Stone & Chalk. The idea behind creating hubs for fintech businesses is that if fintechs are co-located, they can learn from each other, work together and be conveniently located for venture capital investors, bigger businesses and governments that may want to work with them.
Stone & Chalk will ultimately help Australian financial services organisations build sustainable long-term competitive advantages. No one can predict which specific technologies or business models will be successful from the emergence of new technologies. The focus should be on fostering a collaborative environment for entrepreneurial activity and innovation for new fintech start-ups and established financial institutions to flourish.
Jeremy Liddle, founder of Capital Pitch, which helps start-ups raise funds, is one of the businesses located at Stone & Chalk.
He says as a start-up, choice of workspace is critical to success. This is especially the case if the business is not yet funded, as the right incubator, accelerator or co-working space can help to connect the business owner with potential investors.
“We chose Stone & Chalk because, after being open for only a few months, the team has done an amazing job of creating an ecosystem that supports rapid growth in our industry. The attention to ecosystem and proactive approach to building it is, from what I've seen here and globally, world class,” he says.
Another fintech hub is Fishburners. The businesses represented at Fishburners include early stage start-ups, as well as more established businesses with large teams.
“Fishburn was the largest of the three ships in The First Fleet. It carried all the resources the early settlers needed to live here. As such, Fishburners’ philosophy is similar as it provides a nurturing ecosystem with the resources required for a start-up to thrive,” explains Nikhil Sreedhar, Founder and CEO of one of the businesses located within Fishburners, ProAdviser. He describes his business as the Uber of financial advice.
In terms of the value fintech hubs offer the broader business community, Sreedhar says fintech hubs make the finance sector more competitive, which will over time make operating businesses cheaper and easier. They will also help provide better financial services to consumers in the future.
Fintech hubs offer CFOs a great opportunity to partner with businesses at the cutting edge of technology. At the same time, fintech businesses have a lot to learn from finance chiefs.
“Many fintech companies are faced with the issue of distribution. As they are start-ups, with limited resources, building trust and gaining clients can be difficult. Since CFOs deeply understand the problems their own stakeholders such as employees, customers and investors have in terms of financial services, they have an opportunity to partner with fintech hubs and feed this knowledge to start-up founders,” Sreedhar advises.
The benefit of this is that start-up founders can create technology that directly meets a CFO's requirements.
“CFOs end up with a product that works perfectly for their business. An example of this would be a fintech company specialising in mobile payments. A CFO of a large retailer could work with the start-up to build a better payments solution. The retailer gets a low cost upgrade to their payment systems and the fintech company has a working product that can be marketed to other retailers,” Sreedhar suggests.
Ian Dunbar is the CEO of online meeting technology company SuiteBox Solutions. He also runs a fintech hub, Afination – the Finance Technology Network. More than 200 fintech businesses are part of the network.
He says there is a huge wave of fintech innovation occurring in Australia. “There are a number of ways CFOs can become involved in the local fintech community, in addition, the many co-working spaces across Australia and New Zealand are great conduits into the latest innovations.”
Fintech provide a great way for any CFO to harness the energy of innovators to solve many of the business challenges facing their businesses, says Dunbar.
“CFO can work with fintech hubs to seek potential solutions to problems they are trying to solve. Often these solutions will be much lower cost, involve the latest thinking and be more flexible than dealing with the larger software providers. This approach might appear to be more risky, but the returns can be much greater,” he advises.
- Contact fintech company founders directly and build relationships with them.
- Attend or even sponsor events the hubs host.
- Provide early-stage funding to start-ups that are aligned to their businesses.