SCALING THE FINTECH OPPORTUNITY: FOR SYDNEY & AUSTRALIA ISSUES PAPER 17 | JULY 2017 © 2017 KPMG, an Australian partnership and a member frm of the KPMG network of independent member frms affliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo and are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.The KPMG name and logo and are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 2 Scaling the Fintech Opportunity: for Sydney & Australia MINISTER’S FOREWORD The New South Wales (NSW) financial services sector is experiencing rapid growth and is cementing its position as a leading financial services hub for the Asia-Pacific region. It is fostering new businesses, driving digital innovation, and creating skilled jobs in an emerging global industry. Three years on from the release of the Financial Services Knowledge Hub’s first industry report, Unlocking the Potential: the Fintech Opportunity for Sydney, it’s clear that NSW is making real progress in creating a thriving and strong fintech environment. Sydney is now home to 59% of the nation’s fintech companies, it is the focus for venture-capital investment, and it boasts two locations purpose-built for supporting fintech start-ups. This includes the largest fintech incubator in Asia, Stone and Chalk. I’m particularly proud that the success of the sector is also helping to support start-up development across regional NSW, by providing a platform for fintech entrepreneurs, regardless of where they are located, to access the right support structures and markets. This is helping to spread the benefits of the digital economy right across the state. However, there is more that needs to be done. The Scaling the Fintech Opportunity: for Sydney and Australia report showcases the NSW fintech sector’s achievements and also provides key recommendations for government and the private sector to ensure we continue to grow the sector in both regional and metropolitan NSW. This industry-led, industry-driven research will help to inform the sector’s next steps in strengthening its competitive advantage and growing the nation’s innovation pipeline. The NSW Government is proud of the ongoing collaboration between the NSW Government’s Financial Services Knowledge Hub, the Committee for Sydney and industry. Partnerships such as these are vital if we are to continue to build on the sector’s growth and competitive advantage. On behalf of the NSW Government I would like to congratulate and extend my thanks to the Committee for Sydney for their eforts in producing such an important report for the fintech sector in Sydney and Australia. THE HON NIALL BLAIR MINISTER FOR PRIMARY INDUSTRIES, MINISTER FOR REGIONAL WATER, AND MINISTER FOR TRADE AND INDUSTRY © 2017 KPMG, an Australian partnership and a member frm of the KPMG network of independent member frms affliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo and are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.The KPMG name and logo and are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 3 CONTENTS SCOP E 5 EX E C U T I V E SUM MARY 6 IN T R O D U C T I O N 12 FI N T E C H T R E N DS AND D E V E L O P M E N TS 14 WH E R E HAVE W E C O M E F R O M 22 WH E R E ARE W E N O W 26 FU T U R E O P P O R T U N I T I ES & CHAL E N G ES 48 SAT KE H O L D E R C O NSATU L T I O N 50 REC O M M E N DATI O NS 56 The contacts at KPMG in connection with this report are: aI n oP llari aJ em s aM ob tt Head of Banking Sector Head of KPMG Innovate Partner, Sydney, KPMG Australia Partner, Sydney, KPMG Australia T© 2+01 67 K1 P2M G9,3 an3 A5u s8tra4lia0n 8partnership and a member frm ofT th +e K6PM1 G2 n9et3w3or5k o8f in5d2e7pendent member frms affliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo and are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.The iKpPMoGll SCOPE OF THE RESEARCH PROJECT This follow-up report to ‘Unlocking the Potential: The Fintech opportunity for Sydney’ published October 2014 was developed by KPMG for the Committee for Sydney. The purpose of the report is to determine whether digital and Fintech innovations have been successfully adopted in the Australian financial services industry, to identify any impediments to further industry progress and provide recommendations for both the public and private sectors to improve Australia’s standing in a global and regional context. BACKGROUND AND PURPOSE OF THE FINTECH ECO-SYSTEM IN THE RESEARCH AUSTRALIA • This research has been commissioned by the Committee This follow-up report seeks to: for Sydney in its role as coordinator of the Financial • Illustrate the positive shift for Sydney’s financial services Services Knowledge Hub. The Knowledge Hub aims and Fintech sector since 2014 to establish Sydney as a key global financial services ecosystem by improving the attractiveness of the • Articulate Sydney’s areas of strength and opportunity in NSW business environment, encouraging innovation financial services in the NSW financial services sector and increasing the • Identify opportunities for both government and industry- competitiveness of industry based projects. led initiatives to maintain and improve momentum • The purpose of this research is to acknowledge any improvements that have been made or initiatives that APPROACH UNDERTAKEN have been implemented, since the release of the 2014 report and to identify any areas that need to be addressed • KPMG Global Services desktop research on current to enable Sydney to become a strong and prosperous publications and reports into the financial services Fintech ecosystem industry and Fintech sector in Australia and globally • External meetings and interviews with key local stakeholders (Government, industry, regulators, Fintech start-up community, investors) Supported by 5 EXECUTIVE SUMMARY Launched in 2014, the Committee for Sydney (KPMG) • Establish a series of events in the city, regionally and report “Unlocking the Potential: the Fintech opportunity for globally to promote Sydney as a leading Fintech hub Sydney” identified five key enabling conditions required to in the ASPAC region, in line with our leading financial drive the growth and development of the Fintech sector in services position; Sydney and Australia, namely: • Form an independent Fintech focussed industry • Available and accessible early stage funding for Fintech association, based in Sydney, to give the sector a public start-ups and a strong pipeline of opportunities for voice and champion; investors/VC funds; • Review current regulatory, tax and business incentives • Depth of financial services and technology talent, with available to the start-up community and target foreign close proximity of these talent pools to each other (in repeat entrepreneurs and attract them to Sydney; and city locations); • Engage the university sector to research key • A robust financial services industry, with a vibrant Fintech themes. technology start-up community with mentoring, With the successful implementation of a number of these networking and high visibility; recommendations significant growth has been experienced • Government and regulatory support for the Fintech in the Fintech sector not just in Sydney but across Australia sector specifically, and technology start-ups generally; and as a whole: • Business backing for a Fintech hub, with high levels of • Key to this growth has been the establishment of the collaboration and a strong culture of knowledge-sharing not-for-profit Fintech hub Stone & Chalk which opened and entrepreneurship. its doors in 2015 and is supported by government and financial services institutions alike. We have also seen the From these we made a series of recommendations for both establishment of the privately run Tyro Fintech Hub; the private and public sector to build momentum: • A Fintech industry association Fintech Australia was • State Government to continue working with partners in also established in 2015 providing a voice and advocacy the private sector and the Committee for Sydney on the platform for the sector across Australia; development of a comprehensive Fintech vision and strategy for Sydney; • Regulatory and incentive changes have also been made to further enhance the attractiveness of the sector for • Explore the establishment of a not-for-profit Fintech entrepreneurs and investors alike; and hub in the heart of the city that co-locates venture capital, technology start-ups and established financial • Outside of this opportunity still exists for greater clarity in services firms; terms of the development of a comprehensive vision and strategy for Fintech within a broader financial services 6 Scaling the Fintech Opportunity: for Sydney & Australia strategy. More efort is also required to enhance university • In May 2016, London was ranked as the largest Fintech engagement to further develop business development hub in the world employing 61,000 people and and commercialisation opportunities for research in generating £6.6 billion in revenue. Government support financial services. for the sector remains strong in the post-Brexit era; As a consequence the Fintech eco-system has continued to • In 2016, 35 New York Fintech companies raised grow and build on its early promise: $US459m. The average early stage funding per start-up in New York was valued at $US568,000, while the global • The number of Fintech start-ups in Australia has increased average was at $US252,000; from less than 100 in 2014 to 579 companies today with 59% of all Fintech companies basing themselves in • The Monetary Authority of Singapore (MAS) and Sydney; and the National Research Foundation announced the establishment of a Fintech ofice in order to facilitate • Australian Fintech investment has remained strong with the development of Singapore as a Fintech hub. MAS $US675 million invested across 25 deals in 2016 and allocated a budget of $SG225 million to aid in the Sydney has been the major recipient of Fintech related VC development of the Fintech ecosystem from 2016 to investment at $US171 million between 2014 and 2016. 2021; and Equally important to the development of the sector has • London, Hong Kong and Singapore all host major week been the ongoing investment in innovation by our largest long Fintech events to raise the profile of their local financial institutions: sectors and attract international Fintech talent and capital • Many of our largest financial institutions are key to their ecosystems. supporters of Stone & Chalk (Westpac, NAB and ANZ); And our research shows there are a number of emergent • CBA, NAB and Westpac have all invested in Fintech opportunity areas to be realised and key challenges to be businesses either through VC or acquisition; addressed to successfully scale the Fintech opportunity for Sydney and Australia: • All the major banks are trialling blockchain technology either individually or as part of consortiums; and • To take advantage of the opportunities that Fintech presents requires a continued focus on customer • Outside of banking major insurers, such as, IAG, Suncorp, expectations and needs as we see digital adoption AMP and TAL have either partnered with or invested in continuing to grow. Further industry collaboration and Fintech and built out their own innovation capabilities. an ability to compete in the Asian region is increasingly However we cannot rest on our laurels as major financial important as financial centres need to compete on the centres worldwide have been actively developing the world stage. Finally we also need greater focus on our strength of their own Fintech eco-systems: growing superannuation sector as both a potential source of capital and Fintech innovation; and 7 x In terms of key chalenges, we continue to see the ALIGNMENT threat of international tech giants and disruptive start- 1. NSW Government to continue working with the ups entering financial services as significant for the Committee for Sydney and the private sector to refresh local industry. Regulatory challenges continue to stifle the existing NSW Government Financial Services Strategy, innovation and have the potential to create uneven articulating a strong commitment to support and playing fields for incumbents, start-ups and tech giants champion the growth of the Fintech sector, providing a alike. Sydney, and Australia more broadly, doesn’t have a focal point for the alignment of efort between the public clear business brand for Fintech and beyond our quality and private sectors of lifestyle there is a lack of clear incentive for international talent to come to Sydney to start a business. PROMOTION Discussions with industry leaders across financial services and Fintech as well as regulators and government oficials 2. Foster greater alignment and coordination between and have identified some key areas of focus if we want to lead within Commonwealth and NSW Government agencies to in Asia: actively promote Australia and Sydney as a leading global financial services centre, with a specific focus on Fintech x Payments, Regtech and Blockchain are seen by the and digital innovation industry as key areas where Australia has potential to lead the world; 3. Provide continued promotion of and support for Fintech hubs, such as Stone & Chalk and Tyro Fintech Hub, and x To focus and accelerate growth in Fintech the role of assisting them to provide opportunities for cross-industry government policy, support and vision for Fintech was collaboration and Fintech community engagement highlighted as being critical along with the ongoing development of the regulatory environment and development of skils and talent attraction; and CAPABILITY DEVELOPMENT 4. Drive public and private sector collaboration eforts and x Although London is seen as the clear global leader there investment to develop ‘priority’ areas of capability in is an opportunity for Sydney to lead in Asia where we are Payments, Regtech and Blockchain, leveraging our world viewed more credibly. leading financial infrastructure To further enhance and scale our Fintech ecosystem ten 5. Build meaningful international pathways for Australia’s core recommendations for both private and public sector Fintech sector, helping to support the export of our have been made: leading Fintech capability ofshore and to attract the best international Fintech companies to Sydney (Australia) SKILLS AND EXPERIENCE 6. Develop Fintech skills and experiences (e.g. entrepreneurial, technology, etc.) in the local workforce and attract international talent to enhance the quality of ventures and support their ability to scale, as well as gain greater levels of capital (locally and globally) POLICY AND REGULATORY SETTINGS 7. Facilitate active cross-industry engagement to support the Commonwealth Government to expedite policy frameworks in ‘enabling’ areas of capability, such as digital identity, open data and cyber-security 8. Engage policy makers and the regulatory community to improve the efectiveness of existing grants, incentives and regulatory settings, as well as introduce new measures to further enhance the Fintech sector’s continued development © 2017 KPMG, an Australian partnership and a member frm of the KPMG network of independent member frms affliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo and are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.The KPMG name and logo and are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 8 Scaling the Fintech Opportunity: ro f S yend y & Aaila su rt EDUCATION behaviour around transport by creating diferentiated transport pricing and rewarding outcomes that reduce 9. Work with the regulatory community and private sector to congestion. Developments in blockchain and smart create more efective mechanisms to educate consumers contracts could lead to better land-use management, title and businesses on digital financial services, helping to records and development processes. Insurtech combined raise the awareness and understanding of new Fintech with wearable technology can provide data and analytics and/or digital financial products and services to support health outcomes for chronic diseases (i.e. 10. Engage the university sector and leverage the capabilities heart, obesity) and encourage citizens to actively take research institutes, such as Data61, to research key preventative measures. Fintech themes and explore business opportunities for Scaling the Fintech opportunity for Sydney and Australia is commercialisation (supporting ‘priority’ and ‘enabling’ not simply about the development of the financial services areas of capability) industry. It also has the potential to develop infrastructure Getting this right has the potential to contribute to the that can support the delivery of economic and societal development of other adjacent sectors. Fintech could play benefits more eficiently and efectively; today and into a key role in enabling smart city outcomes; for example, the future. payments has the potential to influence and shape citizen © 2017 KPMG, an Australian partnership and a member frm of the KPMG network of independent member frms affliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo and are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.The KPMG name and logo and are registered trademarks or trademarks of KPMG International. 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