FinTech Retrospective: Tyro, RateSetter, Stockspot and Westpac on 2016 and the year ahead

By Matthew Parker

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“If we don’t get our act together and open up banking, the next-gen banking will not be here.” Jost Stollmann, Tyro

Over the past six months, I have been fortunate to work with many of the businesses and thought leaders that are shaping the future of FinTech in Australia. I recently stated my perspective of the FinTech ecosystem in Australia drawing contrasts to the growth I witnessed back home in the UK. This week, instead of spouting my own opinion, I was able to sit down with the leaders that I look up to; those that are pioneering FinTech in this country. Here, we are able to look back at the industry over the last 12 months in Australia and reflect on the year that was and what we can expect from the year ahead.

Those in the FinTech hot seat were:

Cathy Kovacs – Head of Business Development at Westpac Group, Australia’s first bank and provider of financial services.

Daniel Foggo – CEO of RateSetter, Australia’s largest peer-to-peer lender, connecting investors with creditworthy borrowers.

Jost Stollmann - Executive Director of Tyro Payments, committed to building Australia's next-gen bank to help SMEs grow by providing them with frictionless banking and access to growth funding.

Chris Brycki - Founder & CEO of Stockspot, Australia’s first online investment adviser and fund manager.

Matthew Parker [MP]: What were the big wins for FinTech in 2016?

Daniel Foggo [DF]: 2016 was a successful year for FinTech in getting in the ear of government. The Parliamentary committee inquiry into the Big Four headed by David Coleman focused on leveling the playing field, especially in regards to data, and endorsed the FinTech sector’s view that customers should have greater control of their banking data to make it easier to switch to FinTech alternatives..

Cathy Kovacs [CK]: For me, it was the amount of money flowing into the sector and because of this we saw good ideas get funded.

Jost Stollmann [JS]: There’s momentum! FinTech hubs such as Stone & Chalk and Tyro are humming and there’s even momentum politically, with ASIC moving forward with the sandbox.

Chris Brycki [CB]: There’s an explosion in consumer adoption in P2P lending such as Daniel’s RateSetter, our own Stockspot providing robo-advice and low cost currency remittance through TransferWise.

MP: Can you see any emerging trends in the Australian FinTech scene?

JS: Banks have started to put significant effort into partnering and investing into FinTechs. This could prove useful for FinTechs that provide innovative user experiences and smaller optimisations and for those who are looking for an exit via banks. For REAL disruptors, this is toxic. Succumbing to the charms of the establishment means selling short one’s potential. It’s not a time to sell out early; this is the time to build REAL champions.

CK: The transferability of information is huge with a growing number of middleware, SaaS applications and APIs. Sharing data and improving collaboration in the market is continually on the improve, benefiting the customer.

CB: A continued increase in consumer trust in FinTech services will continue to strengthen; customer referrals will be the strongest growth driver.

MP: What were some of the losses / pain points / difficulties in 2016 for the sector?

CK: With the constant change of governments, regulation that was tabled was never approved. The pace of regulatory change is a pain point, in particular that around equity crowdfunding.

CB: The Big Four continue to push back against open data policies to stifle competition and protect their oligopoly. DF: Investors are much more discerning in the businesses they back. This will be better in the medium term, but it’s been difficult for some businesses locally.

MP: What were your personal highlights?

CB: We had a fantastic year… This year Stockspot became the first robo-adviser in the world to give clients the flexibility to personalise their portfolio with the launch of Stockspot Themes. We’ve already managed to generate some fantastic net returns for early adopters (6.2% and 9.2% per year) while charging clients less. All are great examples of technology improving financial products for the end user. We also notched up over half a million views for our Fat Cat Fund Awards video and made it onto the Today Show!

CK: Being a judge at the startup weekend was a highlight for me. It’s great to see such passion and commitment to new ideas, in particular people who were new to financial services but also from long-stay finance individuals. It’s encouraging for future ideas.

DF: For RateSetter, expanding our offering from consumer lending to business lending was a significant development. In Australia there’s been a real lack of business financing options outside residential property-secured bank finance and expensive short-term working capital finance, so we’re excited that RateSetter now offers Australian businesses a low-rate funding alternative to help them grow and prosper.

JS: My biggest highlight has been Tyro receiving a bank license. We are the only tech company to have achieved this so far. This was such a massive win for us and the sector. Following this, we were then able to deliver next-gen banking, a cloud-based, totally mobile & totally integrated banking solution for SMEs and growth companies. Another highlight has been hiring Gerd Schenkel, my CEO successor.

MP: What would you like to see more of in 2017?

CK: The industry could still do better in terms of collaborating, and I’d like to see large and small companies working together across the ecosystem. It’s such a small market here in Australia and we should be working together.

CB: I’d like to see more collaboration between consumer FinTech businesses and other non-competing industries.

DF: I’m hoping to see more FinTech businesses working to build independent, sustainable alternatives to incumbent and traditional players. If we want FinTech to fulfill its potential to deliver better outcomes for Australian consumers and businesses, it’s important that innovative new businesses hold their ground and not become just an extension of traditional financial institutions. With the aim of building an alternative to banks and other traditional lenders, RateSetter is focused on building an alternative lending and borrowing channel, creating genuine alternatives for consumers.

JS: We now have a thriving test bed of FinTech startups at Stone & Chalk and Tyro that is growing, but we need to see them seriously scale-up, ideally in competition with the banks.

MP: What regulation would you like to see changed in 2017?

JS: The FinTech community has limited potential if banking is not opened up. In a way, Australia is cursed by the entrenched bank oligopoly. However, momentum is building around the demand for open data & open API. Tyro is providing support to resolve the digital identity issue through a shared KYC framework, which is a huge opportunity for Australia to leapfrog global competition.

The European Commission (EUC) has mandated, through its Directive on Payment Services (PSD2), open banking by the beginning of 2018. That is only a year from now. Banks across Europe have said it’s not doable, but now that they only have a year left there’s a huge momentum being generated for talent and investment to be applied to develop open banking and APIs.

If we don’t get our act together and open up banking, the next-gen banking providers will not be Australian. We can shamelessly copy EUC as they are ahead. In 2018, there could be an explosion in Australian FinTech if Australia can deliver open data, open API, and shared digital identity.

CB: There are two things the Government could do to improve fairness for consumers when it comes to investing and superannuation. One is to require all superannuation and managed funds to provide fee and performance data to comparison websites so consumers can easily compare fund options. The second is to implement a public tender for the right to manage default super funds as outlined by the [Grattan Institute](https://grattan.edu.au/wp-content/uploads/2015/04/821-super-savings2.pdf]. Chile established public tenders for the right to manage default super funds and it has reduced average annual super fees by 50%.

CK: I touched on it before, but I’d like to see a change in equity crowdfunding. We came close this year, but the government dragged their heels. It will genuinely help small companies access cash.

MP: What are your top 3 predictions for FinTech in 2017?

CK: It’s all about data. We will find a way to share personal data for customer benefit. In regards to regulatory technology, there are new tools available to drive change in regtech to get cost savings out of the industry. There’s a massive opportunity that needs a local approach, and with such a big cost and huge inefficiency, I’m hoping to see growth here. We will also see a few companies looking towards a partnership approach; small companies banding together and going where customers are. It doesn’t have to be banks, it could be loyalties, superannuation, anything where there are large companies with strong customer bases looking to collaborate with smaller companies who can get things done faster.

DF: P2P lending is sound and of gold standard globally, and I think the regulatory sandbox will have a good impact. Here’s hoping that ASIC is given a mandate to encourage competition in financial services.

CB: Consumer adoption of P2P lending and robo-advice will accelerate as more satisfied customers refer their family and friends. There will be more collaboration between traditional industries and FinTech where services are complimentary and not competing. The banks will start shutting down their struggling innovation hubs and internal FinTech venture.

MP: Finally, what can we expect from you in 2017?

CK: Westpac will continue to support the FinTech ecosystem, and keep investing in businesses that will give more product and services for their customers. We’re making it easier for individuals to work with us.

DF: Continued growth. 2016 saw us grow more than 200%, and we expect this strong growth to continue. Our focus will remain on providing everyday Australian investors access to the established asset class of consumer and business credit, helping them earn strong and stable returns while giving creditworthy borrowers a much better deal.

JS: We want to eliminate inefficiencies in banking and provide SMEs with growth funding. The average SME wastes 20 days per year with frictions in banking (equates to $7 billion) and the SME community suffers a dramatic shortfall in unsecured working (estimated at $60 billion). Imagine giving SMEs their time back and funding them adequately; how much faster could they grow, and how many jobs could they create.

SOURCES
Matt Parker on Fintech in UK vs AUS

Parliamentary Inquiry into the Big Four by David Coleman

Scott Morrison on the regulatory fintech sandbox

Stockspot Themes

Stockspot’s Fat Cat Fund Awards

Startup Smart – Sydney Startup Weekend

Tyro receives bank license

AFR on Tyro hiring Gerd Schenkel

The European Commission on Directive on Payment Services

The Grattan Institute on superannuation