Building momentum: the Fintech opportunity for Sydney · Unlocking the potential: the Fintech opportunity for Sydney. Scope of the research project. ... and investment at all levels

Unlocking the potential:the Fintech opportunity for Sydney

October 2014

Unlocking the potential: the Fintech opportunity for Sydney

Foreword from the Deputy PremierSydneys position as Australias financial services powerhouse is set to move up a gear. The convergence of digital and financial sector strengths and growing global recognition of the citys role as a key financial hub for the Asia Pacific are fuelling Sydneys fast emergence as one of the worlds most exciting new financial centres.

The NSW Government has recognised this opportunity and is working with businesses and researchers to improve collaboration and knowledge sharing across the NSW financial services industry. We are supporting the establishment of an industry-led Knowledge Hub for financial services to create a new platform for collaboration, to enhance productivity and innovation, build capabilities, and identify market opportunities.

With an improved culture of innovation and collaboration between government, industry and research, we have the potential to provide fresh insights for NSW businesses to help them build sustainable long term competitive advantages.

The Financial Services Knowledge Hub, coordinated by the Committee for Sydney, aims to capitalise on this by positioning the NSW financial services industry for new markets, new opportunities, new capabilities and global growth.

This report provides some specific insights into the rapidly developing market for financial services technology or Fintech, and it will help to inform the activities of the Financial Services Knowledge Hub. Fintech presents a fantastic opportunity for Sydney as a leading financial services and technology hub for Australia and the Asia Pacific.

I commend the Committee for Sydney for commissioning this highly relevant research, and for its important ongoing role in driving growth and innovation with the Financial Services Knowledge Hub. This initiative will further enhance Sydneys emerging position as a leading global financial services centre.

Andrew StonerDeputy Premier


ContentsPage

Scope 4

Executive summary 5

Fintech in Sydney: Building on success 8

Importance of financial services to Sydney 11

Importance of the financial services industry 12

The changing industry landscape 14

The development of Fintech 19

What is happening globally 23

Global perspective 24

What can we learn from global leaders 32

Sydney Fintech today 33

Sydneys Fintech sector 34

Key implications and recommendations 40

The key implications for Sydney 41

Building on our foundations 42

Recommendations 43

Appendix 46

The contacts at KPMG in connection with this report are:

Ian PollariHead of Banking SectorPartner, Sydney, KPMG Australia

Tel: + 61 2 9335 [email protected]

James MabbottFinancial ServicesDirector, Sydney, KPMG Australia

Tel: + 61 2 9335 [email protected]

mailto:[email protected]:[email protected]


Scope of the research projectUnlocking the potential: the Fintech opportunity for Sydney is the result of a KPMG research project for the Committee of Sydney, aimed at understanding the emerging Fintech sector and what conditions, if any, are necessary and sufficient to enable Sydney to compete with other global cities

This research has been commissioned by the Committee for Sydney in its role as a key member of the Financial Services Knowledge Hub. The Knowledge Hub aims to establish Sydney as a key global financial services hub through encouraging cross industry collaboration to identify the key projects and initiatives required to meet this goal.

Fintech (Financial Services Technology) has been chosen as one of five key areas to focus on initially (other areas of focus include Index Based Products, Asia Pacific Equities for Australian Super, Australian Bond Markets and Infrastructure & Real Estate Funds) with the first phase being research into global leaders for Fintech.

The purpose of this research is to identify what conditions, if any, are necessary and sufficient to enable Sydney to compete and thrive on Fintech at a local, regional and global level.

KPMGs report, Unlocking the potential: the opportunity for Sydney, seeks to explore five key questions:

1. What is Fintech?

2. Where are the major global ecosystems for Fintech?

3. What are the necessary conditions to establish a successful Fintech ecosystem?

4. What are the key implications for Sydney as a financial services hub?

5. What recommendations would we make for private and public sector companies to establish a successful Fintech ecosystem in Sydney?

KPMG Global Services desktop research of current publications and reports into Fintech in Australia and globally, as well as a review across eight leading and emerging global centres for Fintech.

A series of interviews with Australian Fintech start-ups (emerging and successful), Venture Capital funds, financial institutions and Government and other stakeholders.

Internal KPMG workshop with key local and global partners from the technology and financial services industries to test research findings and assumptions

Meetings with key local and global stakeholders to verify and refine research outcomes

Background and purpose of the research The Fintech eco-system in Australia Approach undertaken

Supported by

Executive Summary


Executive SummaryFinancial services is a substantial driver of the Australian and NSW economy, with Sydney widely regarded as a leading international financial services centre

The Australian financial services industry contributes the highest share of sector value to the national economy (9%), employing 420,000 people and paying A$11.5 billion in tax in 2013, 18% of total corporate tax receipts.

Financial services is a significant employer in NSW, representing 42% of total industry employment nationally.

Sydney is the dominant city for finance and insurance, with the most significant cluster of industries, as well as critically linked industries that support financial services, such as ICT/digital, tertiary education, creative and professional services.

Sydney boasts a strong and sophisticated financial services industry, ideally located within the rapidly growing Asia-Pacific region. The city of Sydney is the location of employment for 77,946 workers in the finance and insurance industry, or around 21% of the total Australian employment in this sector.

Sydney is home to many Australian and foreign-owned financial institutions, the financial regulators, central bank and stock exchange (e.g. ASX).

There is a paradigm shift in financial services occurring driven by technology, with new business models emerging

Post GFC, strategic imperatives for financial institutions and evolving consumer behaviours, in part driven by new technology, has been a catalyst for innovation in the global financial services industry.

The traditional financial services landscape is being disrupted by new entrants leveraging technology to deliver new and existing services in more relevant and convenient ways to consumers and businesses.

The agglomeration of technology and financial services (Fintech) is creating new business models, e.g. peer to peer lending.

The emergence of Fintech represents an opportunity and a threat to Sydneys position as a leading international financial services centre

Financial institutions globally are taking a wide range of approaches in trying to keep up with the wave of technology innovation, with Fintech emerging as a key enabler.

The Fintech sector is experiencing rapid growth globally, with financing activity predicted to rise from US$3bn to US$6-8bn by 2018.

As a leading global centre for financial services, coupled with a deep cluster of ICT/digital, creative and professional service industries, Sydney is ideally positioned to capitalise on this growing trend.

Fintech provides a pathway to position Sydney for the digital economy, fostering new business ventures, both in the financial services and technology industries, creating benefits from a multiplier effect across NSW and nationally.

Fintech also represents an opportunity for Sydney to export our financial services and ICT/digital capabilities globally.

Other leading international financial centres are also pursuing the Fintech opportunity and are supporting this through a strong alignment of activity and investment at all levels of government, regulators and industry to accelerate their success.

Based on our discussions with local Fintech start-ups, other countries, such as the UK, are actively targeting Australian Fintech start-ups to relocate to London.


We need to proactively respond to maintain our leadership position

To capitalise on the opportunity and defend our current strong position in the financial services industry (i.e. protect tax revenue and employment), Sydney must proactively respond in a coordinated and committed manner.

No-one can predict which specific technologies or business models will be winners (or losers) from the emergence of new technologies and the implications for financial services.

Therefore, the focus should be on fostering a collaborative environment for entrepreneurial activity and innovation from new Fintech start-ups and established financial institutions to flourish.

Creating the enabling conditions to support as many options as possible should be prioritised by government and industry.

There are a set of enabling conditions that can be drawn from other developed and emerging Fintech hubs

Analysing the emergence of Fintech in other international jurisdictions, the following factors were observed as important enablers:

- available and accessible early stage funding for Fintech start-ups and a strong pipeline of opportunities for investors/VC funds;

- depth of financial services and technology talent, with close proximity of these talent pools to each other (in city locations);

- a robust financial services industry, with a vibrant technology start-up community with mentoring, networking and high visibility;

- Government and regulatory support for the Fintech sector specifically, and technology start-ups generally; and,

- business backing for a Fintech hub, with high levels of collaboration and a strong culture of knowledge-sharing and entrepreneurship.

The UK in particular have accelerated the development of London as a Fintech hub over the past 18 months through a concerted effort by the government, regulators, the City of London, technology start-ups and industry.

There are a series of recommendations, including both the public and private sector, that are proposed

Recommendations proposed to build momentum for Sydney as a Fintech sector are as follows:

- State Government to continue working with partners in the private sector and the Committee for Sydney on the development of a comprehensive Fintech vision and strategy for Sydney.

- Explore the establishment of a not-for-profit Fintech hub in the heart of the citythat co-locates venture capital, technology start-ups and established financial services firms.

- Establish a series of events in the city, regionally and globally to promote Sydney as a leading Fintech hub in the ASPAC region, in line with our leading financial services position.

- Form an independent Fintech focussed industry association, based in Sydney, to give the sector a public voice and champion.

- Review current regulatory, tax and business incentives available to the start-up community and target foreign repeat entrepreneurs and attract them to Sydney.

- Engage the university sector to research key Fintech themes.

Fintech in Sydney: Building on success

Lucy Turnbull, AO, Chair Committee for Sydney


Fintech in Sydney: building on success

Sydneys financial services industry is a key driver of national productivity. In itself it produces 5 percent of Australias GDP with a significant extra multiplier effect in innovation and job creation - for the rest of the economy. Overall, Sydneys finance and professional services driven CBD produces more wealth for Australia than the mining sector as a whole. At the same time, Sydney is also the centre of Australias ICT industry and leads the nation in technology start-ups. It is because of the agglomeration and combination of high labour productivity sectors here that the Committee for Sydney has talked of Sydneys increasingly important dividend for Australia as the mining boom moderates and the need for public policy and investment to support its continued growth - in the national interest.However, despite the importance of Fintech both on the global stage and nationally and the fact that many financial services companies are clearly redesigning their business models because of the new digital and mobile platforms, there has been little research on it in Australia. The conditions for the emergence and success of Fintech here have not previously been identified to inform a strategy aimed at actively promoting the growth of the Fintech sector. As Fintech will actually shape the future of Sydneys key financial services industry and produce beneficial spill-over effects in other productive, tech-based sectors of our urban economy, this gap needs to be filled.This report goes some way towards doing that. It is the first study produced under the aegis of the new Financial Services Knowledge Hub initiated by the Committee for Sydney, its many members in finance, ICT and the NSW Government Department of Trade and Investment. Recognising that digital, mobile and cloud computing technologies are revolutionising how customers bank and businesses raise finance, the Knowledge Hub will seek to help accelerate Sydneys growing position in the regions financial services industry by supporting its burgeoning Fintech scene and the eco-system and environment required to sustain it.


Focusing on what will enable the sector to grow

Like all Committee for Sydney reports, this is not an academic exercise. The report has a decidedly practical objective. It focuses on what innovations, policies or tools are required across the public and private sectors to help grow the capacity and economic impact of Sydneys Fintech sector. Sydney has great foundations for a thriving Fintech cluster and a significant opportunity to benefit from a technological revolution that plays directly to its strengths, both as a financial and an ICT centre.

Of course while understanding our strengths we also need to overcome our challenges.

While Sydney enjoys many natural advantages and its lifestyle is a magnet for young talent, previous research finds that such mobile talent is attracted for rational economic reasons to cities with the right mix of assets. They want to be assured that the employment, enterprise and investment opportunities and the face to face, digital or transport networks they need from their city and indeed the required tax and visa regimes - are also available alongside the lifestyle they seek.


Providing a supportive eco-system for innovation and growing export potential

With tech entrepreneurs, this means that the eco-system and environment for innovation need to be attractive and supportive and also that the skills and finance they need are readily available. In this context this sector faces some critical challenges and barriers to overcome. This report seeks to identify them and suggest ways in which the ecosystem supporting Sydneys Fintech cluster that combination of financiers, entrepreneurs, customers and civic support can be further enhanced.

And, by growing the Fintech sector in Sydney we will further cement Sydneys reputation as the national leader of innovation in the financial services industry, as well as reinforce our reputation as a hub of technology development and talent. With the right policy settings, talent attraction strategies, collaboration and above all ambition, Sydney can become a key Fintech leader within the Asia Pacific region and a key exporter of financial services and wealth management expertise and products to the region. That must certainly be our objective.

Collaborating to compete and to accelerate learning from competitors

Just as the most successful cities internationally are those who collaborate to compete so too will greater success for the Fintech sector require greater collaboration. In principle the very essence of Fintech is the coming together of financial services and ICT/digital economy enterprise. We must build on this. Whereas some serendipity always helps in innovation, the report stresses that little should be left to accident if we wish to succeed in Fintech in Sydney. Structuring and enabling collaborations between banks, alternative finance providers, insurance providers, Fintech entrepreneurs, universities, venture capitalists and indeed government is vital to overall success and specifically to sharply reduce the typically longer product development and sales cycles found in the Fintech sector. Assertive collaboration, skills development and capacity building are crucial to speeding up the maturing of Fintech firms and to realisinga flourishing Fintech sector in Sydney.

Experience from other global cities suggest the initiatives and institutional innovation is required. Both New York and London are leveraging the benefits of having the two interlinked sectors of financial services and ICT, close to one

another physically by actively promoting closer working of financial institutions and tech entrepreneurs: this ensures innovation is tailored to the specific needs of financial services and their customers. We must do the same.

Both are actively engaged in supporting training and workshop initiatives to arm first time Fintech entrepreneurs with the skills that would otherwise take years of experience to attain. We must do the same.

Both have created Fintech accelerators or innovation labs to reduce the time to market and speed up deal-making between financial institutions and Fintech enterprises from 18 months to 18 weeks. We must do the same.

Vital: effective partnership between the public and private sectors

At the heart of success are effective public-private cooperation. We know that the NSW Government gets financial services and understands Sydneys dividend from them for the state and the nation. We have also seen how creative a partner they have been in working with the Committee and the private sector on developing effective new industry policy and initiatives such as the Global Talent and Knowledge Hub projects. We are confident that our State Government will seek to reduce any unnecessary barriers to the success of Sydneys financial services industry and to the development of a successful Fintech sector.

Some further policy development and advocacy will be required at the Commonwealth level to ensure that we have competitive tax and visa regimes in place to enable Sydney to attract the global talent and investment required to maintain its existing status as the nations centre for both finance and ICT and indeed to enable it to increase its economic significance in the region. In making the case for Sydney as Australias financial services export platform, the NSW Government will, we believe, be able to point in the coming years to a flourishing Fintech sector of regional significance. This report, and its key recommendations, will help catalyse this result.


Thank you to Michael Rose for Chairing the Committees Financial and Professional Services Taskforce, Andrew Low for Chairing the Financial Services Knowledge Hub and KPMG for developing this report.

The importance of financial servicesto Sydney and thecase for change

Unlocking the potential: the Fintech opportunity for SydneyThe importance of the financial services industry

Financial services and ICT, are significant employers in NSW, representing 42% and 37% respectively, of total industry employment nationally

Sydneys highly educated and multilingual financial services workforce is growing. About 180,000 people were employed in NSWs finance and insurance services industry, representing 42% of the Australian industry.

Finance and insurance is the largest industry in NSW, contributing A$57 billion to the States economy. NSW makes up 46% of Australias finance and insurance industry. It is also the second fastest growing industry in NSW, recording annual average growth of 3.6% between 1998-99 and 2008-09.

Furthermore, NSW has number of leading workforce education and training providers in financial services; anecdotal evidence suggests these providers have a positive level of engagement and make significant investment in education and training activities.

NSW accounts for 43% of Australia's total ICT businesses and almost 40% of national industry value-added output. Almost 160,000 people are employed in the ICT sector in NSW, representing 4.7% of total employment in NSW and 37% of Australian employment in the ICT industry. NSW has over 13,000 students studying information technology courses at the 11 universities in NSW

Size of the finance and insurance services workforce Key employing occupations of finance and insurance services workforce

The distribution of workforce in the financial and insurance services industry corresponds to the share of total population in Australia, and in turn, the share of the countrys banking businesses located in each states.

Over the past five years, both NSW and VIC recorded the largest employment gains in the industry, at 10% and 8% respectively.

The vast majority of NSWs financial services industry employees are located in the Sydney CBD.

Within, financial services, the banking sector is the dominant employer in NSW, employing over 40% of the workforce.

Whilst the industry employs an almost equitable mix of professional and more generic skills across states, NSW and VIC have a higher proportion (54%) of professionals and managers than more junior, clerical and administrative staff

52%18%30%

QLD

55,000

45%

33%

VIC

120,000

42%

17%

38%

NSW

180,000

7%

39%

15%

39%

50%16%

OtherWA

38,00033,000

Managers

Other (sales, technicians)Clerical and admin.

Professionals26%15%

8%7%4%

Other

WA 34,000(9%)

QLD

32,000

VIC

54,000(13%)

120,000(28%)

NSW

180,000(42%)

100% = 420,000

(8%)

Source: ABS Catalogue number 6291.0.55.003 - Labour Force, Australia, Detailed, Quarterly


Finance and insurance industry The City of Sydney is the location of employment for 77,946 workers in the

finance and insurance industry, or around 21% of the total Australian employment in the industry in this sector.

Of the top 10 locations for finance and insurance employment, 3 are located in Sydney. Therefore, Sydney has the greatest concentration of overall finance and insurance industry employment.

The City of Sydney is the clear leading city for financial services in Australia, ranked 1st in a number of ANZIC industries:

- Depository financial institutions 57.1%

- Broking services 43.6%

- Life insurance 20.8%

- Banking services 19%

- General insurance 18.5%

- Professional services

Professional Services Sydney is home to the largest base of professional services (e.g. accounting,

taxation, legal, consulting) to the banking, finance and property industries (estimated to be around 30-35%).

The importance of the financial services industry

The City of Sydney is also dominant in critically linked industries to the financial services industry in terms of clusters of national employment in:

Digital industries 14.7% (rank: 1st) Tertiary education, Adult education and Support services 5.8% (rank: 3rd) Creative industries 13.8% (rank: 1st) The City of Sydney grew in employment terms at a rate greater than the national

average, as a result of the cluster/agglomeration economies and innovation.

This suggests that concentrated collaborative work between businesses in these financial industries, education and research institutions and Commonwealth, state and local government could provide the support to ensure that these benefits continue or can be enhanced in the future.

Notably, financial centres are not country, rather cities described as hubs, e.g. New York and London as financial hubs.

Sydney has the greatest concentration of overall finance and insurance industry employment, as well as ICT, professional services and tertiary educationSydney is the dominant City for finance and insurance, with the most significant cluster of industries, as well as critically linked industries, such as ICT, digital, tertiary education and creative services

Sydney boasts a strong and sophisticated financial services sector, ideally located within the rapidly growing Asia-Pacific region. It has deep, liquid financial markets and is recognised as a leader in investment management, as well as areas such as infrastructure financing and structured products.

Sydney is an attractive city to relocate staff, ranking in the top 10 cities of the World Liveability Index of 140 cities ranked on culture and environment, healthcare, education and infrastructure.

Sydney ranked 8th in the Global City Index in 2014 and ranked 12th in the Global Start-up Ecosystem Index 2012 (higher than any country in the Asia-Pacific region).

Critically linked industries The City of Sydney is also the workplace for 15% of the total information, media

and technology industry and 11% of creative and performing arts activity across Australia.

Source: City of Sydney Council; Z/Yen 2014; Economist Intelligence Unit, Liveability Ranking, 2013; Singapore Civil Service College, 2014; IBIS World 2014

Unlocking the potential: the Fintech opportunity for SydneyThe changing industry landscape

Changing consumer behaviour and demands are putting greater pressure on traditional providers of financial servicesTomorrows customer is likely to be even more demanding and less loyal to their financial institution, characterised by a desire for immediacy, valuing simplicity and transparency and expecting a more personalised service.

Consideration of non-traditional alternatives

Growing advice from peers

Less loyal

Reduced information asymmetry

Willingness to adopt new technology

Customers are likely to be more willing to consider non-traditional alternatives to traditional loans, savings, investments and retirement products, either as a result of increased availability, customer awareness, social and peer pressure.

Technology is reducing information asymmetry in the industry, giving customers greater transparency when selecting a financial services provider, product or service.

Customers are increasingly value-driven and less loyal to financial institutions. This concern for value has driven increased levels of switching, as well as increased the likelihood of future switching.

Customers may increasingly trust and value advice from alternative sources. Decisions are likely to be influenced not only by their peers, friends and colleagues, but also the opinions of online groups and social media communities, which may span countries, cultures and which will almost certainly be comprised of strangers.

As the pace of technological advancement continues to increase, customers willingness to adopt new products and technologies is also likely to grow. Consumers are adopting innovations at an increasingly rapid rate

Personalised services

Multitasking and time scarcity is likely to continue to escalate, prompting more customers to look for time-saving solutions, single point of access and aggregation across a range of providers.

This is evidenced by the level with which customers have embraced self-service. In return for sharing more data about themselves, customers will demand even greater levels of personalised service.

Source: KPMG, Investing in the Future


The rapid pace of technological advancement will continue with companies seeking to significantly alter the financial services landscapeExamples of new entrants, both from established technology companies, as well as relatively new companies, are circling financial services and payments

Google has already launched a plastic debit card to accompany its Google Wallet, which is used by millions of consumers.

Financial Services

SocietyOne is Australia's only active peer-to-peer lender. They claim to be able to offer borrowers cheaper loans and investors access to a new asset

class with a lower cost business model that is more efficient than that of

traditional banks.The social network is only weeks away from obtaining regulatory approval in Ireland for a service that would allow its users to store money on Facebook and use it to pay and exchange money with others.

Apple has incorporated an NFC chip in its latest smartphone, the iPhone 6, and will support it with a service called Apple Pay. The iPhone 6 and iPhone 6 Plus have an NFC antenna and a Secure Element chip allowing users to be able to add their debit and credit card details from their iTunes store account. Payment will also be possible via the Apple Watch.

PayPal is rapidly shifting from being a company that powers payments on the Web to a company that provides payments on mobile devices, at cash registers, and soon, on the Internet of Things.

Bitcoin uses peer-to-peer technology to operate with no central authority or

banks; managing transactions and the issuing of bitcoins is carried out

collectively by the network. Bitcoin is open-source and its design is public.

Square, the mobile payments company started by Twitter co-

founder Jack Dorsey, has begun preparations to launch in Australia,

according to sources with knowledge of the plans.

San Francisco company Stripe has launched its global payments

platform in Australia, marking a first move into the Asia-Pacific region for the three-year-old payments start-up

backed by a trio of PayPal co-founders.

Many technology players are focussed on disrupting financial services, with the substantial profits of banks attracting the attention of many of the worlds most innovative companies.

Despite these threats, KPMG research reveals that 53 per cent of consumers trust their banks the most when it comes to making financial transactions over a mobile device."

Source: KPMG Desktop Research


Digital disruption is challenging existing business models, with estimates of around 25-30% of current banking industry revenue at riskTechnological change is one of the biggest disruptions facing banking since the 1980s

The technology is now in place to substantially transform financial services (e.g. cheap IT, widespread mobile penetration, regulation, such as the Financial Claims Scheme requiring Single Customer View, real time payments, internal ratings based models)

According to Macquarie, there appears to be A$27 billion of current revenue at risk. The areas of financial services most at risk of digital disruption are lending, payments and merchant acquiring.

Regulation is also driving a level of innovation and competition, e.g. the RBA and the development of real-time payments infrastructure.

The ATO recently highlighted in its Banking and Finance Industry Strategy for 2014-15, that digitisation may present issues and risks for the traditional retail banking model (e.g. peer to peer lending, trading platforms, electronic payment and investment services).

The changing industry landscape

In the near term, it is expected that shorter-tenure, high turnover products like credit cards, loans and payments will see the most digital transformation.

Looking further ahead, bank accounts and mortgages, which together typically drive more than 50% of many banks revenues and usually provide sticky annuity streams, will be brought into the fray

Banks should try to act like start-up companies if they are to thrive in an era of sweeping technological change-Westpac is trying to think and act like a 200-year-old start-up company.

Brian Hartzer, Westpac (BRW 2014)

Source: 2014 Macquarie Research: Australian Banks Trust in the IT Arms Race; ATO; McKinsey; Business Review Weekly

0

5

10

15

20

25

30

Payments MerchantAcquiring

Lending -P2P

Lending -SME

Total

A$27bn of current banking industry revenue is at risk of digital disruption

Removes doubleCounting for credit cards

6.82.2

13.2

10.3 26.8


Institutions are taking a wide range of approaches in trying to keep up with the wave of technology innovation that is threatening to disrupt their sector

Announced a venture capital fund in July, 2014.

The fund will be based in London, with a global remit.

Will provide Fintech companies with finance; US$100m committed.

HSBC has allocated up to US$200m for investment in tech start-ups with the aim of improving the banks financial technology.

The bank will invest globally, both in firms that operate in retail and capital markets financial services technology.

In June, 2014, Barclays announced the Barclays Accelerator, a 15-week programme for Fintech start-ups.

10 start-ups will receive up to US$50k and be selected to go to London to accelerate their Fintech businesses.

UBS has created a system of internal working groups to work on specific technology projects.

So-called innovation spaces have dedicated funds to finance their operations and will comprise individuals from both the IT and the business divisions of UBS.

BBVA announced the formation of BBVA Ventures, a strategic initiative that will invest US$100m in start-ups looking to transform the financial services industry.

Based in Silicon Valley, it is establishing ties with start-up firms, incubators and venture capital funds.

Citi Ventures is Citi's global corporate venturing arm, chartered to collaborate with internal and external partners to conceive, partner, launch, and scale new ventures that have the potential to disrupt and transform the financial services industry.

American Express, established Amex Ventures which is a US$100m fund.

Invests in innovative start-ups in order to enhance Amexs company's core capabilities and accelerate their efforts in digital commerce and financial inclusion.

Wells Fargo has launched a financial technology accelerator program that combines a cash investment (ranging from US$50k to US$500k) for a minority stake with six months of coaching and collaboration.

The bank has selected three companies to pilot the accelerator in areas such as artificial intelligence and location and mobile identity technologies.

Source: Company websites; Financial Times; Wall Street Journal


Leaders of the worlds largest, most successful financial institutions recognise the emerging threatand imperative for change


When people ask me: Who do you look to for leadership or who are you impressed with...My comments quickly are Amazon, Google, Apple,

Tech companies all want to eat our lunch. Every single one of them is going to tryWere going to have competition from Google and Facebook and somebody else.

John Stumpf, CEO, Wells Fargo (Financial Times 2014)

Jamie Dimon, CEO, J.P. Morgan (Financial Times 2014)

The Apples, the Googles, the Samsungs, the PayPals, the credit card companies, who can pick particular slivers as a result of the application of technology into financial services and competeWe need to be prepared for that.

Ian Narev, CEO, Commonwealth Bank (SMH 2014)

We are stepping up the pace of innovation at the bank I run: generating more ideas, implementing them more swiftly, being quicker to discard the ones that do not workThe upsides are huge, and the downsides are stark. That is why accelerating technology-driven innovation is a top priority.

Peter Sands, CEO, Standard Chartered (Financial Times, 2013)

Source: Financial Times; Wall Street Journal


This marrying of technology with core financial services has been termed Fintech and is seeing exponential growth globally

Simply stated, Fintech is the application of technology (software, hardware and services) to financial services Financial technology (or Fintech) ranges from creating software to processes, that enable financial institutions to enhance their customers experience and

streamline their operations, or by consumers to fulfil their financial needs (saving, investment, make payments).

The Fintech sector includes - new start-ups (in financial technology), the activities and investment in technology innovation from established financial services institutions, as well as ICT/technology providers and collaboration between these parties or disruptive innovation by any of them individually.

Growth in Fintech is being driven by a convergence of six key trends: 1) digitalisation of financial services (increase in electronic transactions); 2) falling cost of computing and IT services; 3) need for cost reduction; 4) technology innovation; 5) ubiquitous data; and 6) changing customer behavior (proliferation of devices and willingness to adopt new things).

The development of Fintech

Capital Markets Technology Tools and platforms that enable buying and selling of securities such as foreign exchange.

Personal Finance Tools to help individuals manage their wealth, including stock portfolios, personal budgets and taxes.

Big Data & Analytics Application of big data and advanced algorithmic techniques to risk management, fraud detection, credit scoring, calculation of insurance premiums, etc.

Payments Technology and tools to facilitate transactions of virtual currencies and mobile payments to eliminate processing costs.

Front Office Tools and platforms that drive efficiencies into traditional banking operations and practices such as loan origination, fundraising and sales etc.

Areas of Financial

Technology (Fintech)

Digitalisation

Cost reduction

Technology innovation

Ubiquitous data

Changing customer behaviour

Falling cost of computing

Source: KPMG analysis, Accenture


A more collaborative model of innovation in financial services has emerged, bringing together FIs, Government, technology start-ups and investorsThis is different to the traditional model, which typically sees financial institutions relying solely on IT vendors, as well as acquiring or funding start-ups to meet their innovation pipeline:


Overseas jurisdictions are witnessing an emerging model wherein multiple stakeholders collaborate via a duration-based accelerator program to incubate and nurture a talented tech start-up in the financial space

Acquisitions or Funding

Financial institutions

Government supportVC funds

Traditional approach

Accelerator/ Incubator programs

Emerging approach

Reliance by financial institutions on one or twoIT vendors for their technology innovation needs

New Fintech start-ups ready for disruption and brimming with innovation and creative ideas; funding and mentorship key deterrents

Tech start-up

Tech start-up

Financial institutions

Benefits for financial institutions By introducing other stakeholders in addition to third-parties to manage

these programs, FIs are able to greatly reduce risk exposure while being able to drive innovation and focus on other priorities, e.g. regulation

The opportunity to increase customer satisfaction and engagement through digital disruption by embracing cutting-edge technology.

FIs are presented with the opportunity to engage with innovative start-ups and evaluate options beyond their traditional vendors.

Benefits for start-ups Tech start-ups benefit from access to funding, working spaces, sector

guidance, and more importantly a privileged audience for showcasing their offering.

Improving their understanding of how FIs operate and leverage the knowledge gained into building a market-relevant product.

The support of an FI to help overcome its funding hurdles for R&D and innovation continuity reduces sole reliance on informal funding sources or VCs/PE firms.

Source: KPMG analysis

Innovation is critical but risk trade-off is high and often at

the cost of loss of market perception and acceptance


The Fintech sector is experiencing rapid growth globally, with financing activity predicted to rise from US$3bn today to US$6-8bn by 2018Fintech financing activity has grown substantially from around US$100 million in 2008 to US$3 billion in 2013

Fintech financing activity is currently estimated at US$3 billion which is projected to rise to between US$6-8 billion by 2018.

Fintech start-ups in New York have raised around US$800 million since 2008, with US$450 million only raised in 2013.

From 2008, the value of Fintech investment in the UK and Ireland increased nearly eightfold to US$265 million in 2013.

The US$346 million invested in Fintech venture deals in Europe in the first six months of the year is already more than double what was raised in the whole of 2013 (US$145 million).

Payments, banking and corporate finance currently represent the fields with the higher investments in Fintech.

The upward trend of mobile devices and cloud computing suggests that data analytics and performance financial management will keep growing and attracting investors.

0

500

1000

1500

2000

2500

3000

3500

0

100

200

300

400

500

Inve

stm

ents

(US$

M)

Dea

l Vol

ume

United States Europe Asia-Pacific Other Global Investment

29%

23%

33%

26%

32%

10%

10%

9%

4%

11%

4%

10%

19%

10%

8%

7%

6%

6%

28%

46%

49%

50%

53%

70%

14%

12%

7%

6%

6%

5%

2013

2012

2011

2010

2009

2008

Banking & corporate finance Capital markets Data analysis Payments Personal finance management

2008 2009 2010 2011 2012 2013

Fintech financing activity (US$)

Fintech investment areas


Source: Pitchbook; Accenture; CB Insights


The Fintech sector is growing rapidly in profile and awareness globally

Banks Lure Fintech Startups With Venture Funds

Banks are taking a wide range of approaches in trying to keep up with the wave of technology innovation that is threatening to disrupt their sector.

Wall Street Journal, August, 2014

Banks Playing Larger Role in 2014 Fintech Funding

Corporate venture capital firms have been the biggest surprise of 2014 in Fintech, according to experts in the financial technology industry.

Bank Innovation, July, 2014

Londons Fintech start-ups aim high

Financial technology start-ups in the UK and Ireland raised more than $USD700m from investors between 2008 and 2013.

Financial Times, August, 2014

VC Investment in European Fintech Hits Post-Dot-Com High

Venture capital investment in European financial technology companies reached its highest level in more than 10 years in the first quarter of this year.

Wall Street Journal, April, 2014

Fintech Investment Boom is an Opportunity for New York to Lead in TechnologyNew York is the fastest growing market for financial-technology ventures in the US; investment is set to double by 2018.

Bank Innovation, July, 2014

Israeli Fintech start-ups get their place in the sun

This week, Bank Leumi announced that it was joining with other financial institutions, both Israeli and foreign such as Citi and Mastercard to develop new technologies with Israeli Fintech start-ups.

Times of Israel, January, 2014

An explosion of start-ups is changing finance for the better

A wave of financial-technology firms, many of them just a few years old, are changing the ways in which people borrow and save, pay for things, buy foreign exchange and send money.

The Economist, August, 2013

Is Silicon Valley the Future of Finance?

Financial start-upsknown collectively as Fintechare spreading like kudzu, each with a different idea about how to usurp the giants of Wall Street by offering better services, lower fees, or both.

New York Magazine, June, 2014


What is happening globally and what

can we learn


KPMG has identified eight key international locations that foster prosperous Fintech eco-systemsThree established centres (Silicon Valley, New York and London) command considerable resources and a strong population of innovative companies and entrepreneurs. Emerging centres, including Sydney, have the potential to develop into global or regional hubs for Fintech.

66m

Silicon Valley New York

London

Dublin Berlin

Tel Aviv

Hong Kong

Singapore

Sydney

Location and annual Fintech investment USD

Location only

1.5b

600m

Global Perspective


Established hubsSilicon Valley and New York dominate the global Fintech landscape. Each has formidable assets and capabilities. However each has limitations amongst the foremost are restrictive visa requirements. While Silicon Valley is the undisputed Fintech global capital today the lack of a financial services industry may prove a limiting factor in the longer term, as Fintech start-ups seek closer proximity to financial services firm

Silicon Valley Silicon Valley boasts a vibrant technology sector and is home to many of the

worlds best known companies. Against this backdrop Silicon Valley has developed a formidable Fintech eco-system. Almost one third of global Fintech investment in 2013 went to Silicon Valley companies.

Initial government support for the American defence sector in the 1930s to 1950s, as well as strong universities (e.g. Stanford) have played a key role in establishing the valley. More recently successful repeat entrepreneurs and availability of venture capital have played a key role in funding and establishing new ventures. However Silicon Valley has a relatively small financial services sector which may hamper long term primacy.

Approximately 11,000 people working in Fintech in the valley.

New York New York is the second largest Fintech hub globally, with Fintech investment

growing rapidly (CAGR 31%), increasing twice as fast as Silicon Valley over the past five years. However as deal volumes rise, deal value is diminishing which may impact the ability of start-ups to attract latter stage funding.

New York is a world centre for financial services. As a result there is a ready pool of financial services skills to feed entrepreneurial Fintech business. Other tech businesses such as Google, Facebook, Amazon and eBay are growing in New York which may impact the ability to attract quality engineering talent.

Approximately 43,000 people working in Fintech in New York. The citys relatively low Fintech profile affects its ability to attract influential capital.

Government Support

Private VCFunding

Skills / Talent

Business Environment

Start Launch Build Scale

Government Support

Private VC Funding

Skills / Talent



Start-up Environment:

Funding Availability Profile:



Global Perspective


Established hubs

London is second only to New York as a global centre for financial services. The UK government is actively trying to foster development of the Fintech sector. This investment has the potential to drive further development and innovation.

Government Support

Private VCFunding

Skills / Talent





London London is second only to New York in terms of global financial services.

The UK government is promoting London as a Fintech hub and actively attracting investment and talent. This coupled with reasonable access to funding, talent and a conducive business environment position the Fintech eco-system in London for growth.

Private funding has been growing strongly (the 5 year CAGR in 2013 was twice the global average). Late stage funding/IPO options may have been problematic in the past but are less of an issue today.

Approximately 44,000 people working in Fintech in London.

Global Perspective


Emerging centres - EuropeDublin and Berlin are both promising centres with good access to technical skills. However both are challenged in terms of financial services skills. Dublin suffers brain drain to London while the financial services sector in Berlin is relatively underdeveloped. Start-ups in Dublin also enjoy better access to capital.Dublin The Fintech sector in Dublin benefits from strong government support.

Mechanisms include pro-investment tax settings, to bespoke services/support, and actively recruiting foreign talent.

It also has a network of angel investors and venture capitalists. The government also supports inward investment from foreign investors. Latter stage funding is harder to secure.

There is a strong education sector and a good supply of young skilled workers (ranked #1 for the availability of skilled labour).

Berlin Berlin has a robust education system and attracts young talented

people. It has a good business environment and costs are modest by European standards. However it lacks a strong financial services sector. Government support for Fintech and entrepreneurship is limited but may be growing.

Access to private funding and venture capital is also limited as are sophisticated investors who can help guide entrepreneurs towards success. This may present an opportunity for foreign investors.





Global Perspective

Government Support

Private VCFunding

Skills / Talent



Government Support

Private VC Funding

Skills / Talent



Source: IMD World Competitiveness Yearbook 2014


Emerging centres - AsiaSingapore and Hong Kong are both vibrant financial services centres. Singapore is aggressively pursuing Fintech development. Hong Kongs proximity to China represents significant opportunities for financial services. Access to private sector VC investment remains a key hurdle for both cities.

Singapore The Singapore government has invested heavily in the

promotion of an innovation eco-system through direct investment, tax incentives, and measures to make Singapore an attractive destination for entrepreneurs.

Singapores strategic location, conducive cultural and legal factors, developed financial services sector and ICT capabilities provide a fertile environment for Fintech. However, early stage funding is not matched by funding available later in the cycle.

Hong Kong There are a range of government incentives and services. The government is also

active in attracting foreign entrepreneurs however the visa process can be an impediment and tax structures are less favourable than some other centres.

The local pool of venture capital is small but growing and foreign investors are becoming more active.

The financial services and ICT sectors are well developed. Additionally, Hong Kong has a strong entrepreneurial pedigree and a supportive business environment.

Hong Kong is also a key gateway to the Chinese mainland which represents significant a opportunity for financial services.Start-up Environment:




Global Perspective

Government Support

Private VCFunding

Skills / Talent



Government Support

Private VC Funding

Skills / Talent




Emerging centres Middle EastTel Aviv has spawned several successful technology ventures. Its strong technical capabilities are underpinned by skills developed during military service. The incentives for Foreign Direct Investment (FDI) though the Yozma Fund are amongst the most generous seen globally.

Government Support

Private VC Funding

Skills / Talent





London Tel Aviv The Yozma Fund has been offering generous incentives to attract foreign

investments for over 20 years. Tax breaks also exist for research and development and the government supports entrepreneurs through events and provision of shared working spaces.

A good education system and technical skills developed during mandatory military service contribute to a strong skills base. Changes to make it easier for foreigners to start a business in Israel are also under consideration.

Almost 300 venture capital firms are active in Israel. Seed-stage funding is a relatively small proportion of aggregate investment.

Global Perspective


Government support can be segmented into four broad areas:

Direct assistance and funding Concessional tax structures Visa and immigration policies Other measures.Within these categories there are a variety of approaches and policy settings and no clear leader.

Global Perspective

London

Singapore

Tel-Aviv

Start-up loans for seed capital Broad based 100% investment matching across early stages of

start-up lifecycle Support for development of VCs S$100 million early stage start-up funding Up to 85% government investment in incubators SPRING Networking assistance from multiple agencies Plans to scale back once eco-system is self sustaining Start-up grants for seed capital (repayable via royalties) Tnufa Program provides a grant for up to 85% of approved

expenses (capped at US$50k per venture)

Relative to best-in-class

London

Singapore

Tel-Aviv

Entrepreneurs Relief 10% Concessional Capital Gains EIS/SEIS - income tax relief and cap gains exemption (until

2014)

Start-up partial tax exemption (3 years) Corporate tax exception for 15 years (qualifying profits only) Up to 400% deduction for innovation investment (S$400k cap) Low tax environment Tax breaks for VC accelerators and angel investors Moves to simplify criteria for start-ups under three years old

(2015)


Comparison of government programsWith the exception of Silicon Valley (where the start-up eco-system is self sustaining) all centres had government programs to incentivise and support innovation.

Direct assistance and funding:

Concessional tax structures:


Government support can be segmented into four broad areas:

Direct assistance and funding Concessional tax structures Visa and immigration policies Other measures.Within these categories there are a variety of approaches and policy settings and no clear leader.

Global Perspective

London

Singapore

Tel-Aviv

Entrepreneur Visa scheme Global Entrepreneur Programme to attract early stage

companies

Open Immigration Policy easy access to Permanent Residence

EntrePass flexible Visa for foreign entrepreneurs

Currently reviewing Visa policy


London

Singapore

Tel-Aviv

Recent relaxation of IPO requirements able to list only 10% equity

Technology Strategy Board to oversee innovation programs

I-Class innovation accreditation for financial service organisations

Government focus on key sectors

Start-Up Week (1,500 participants) Go 4 Israel: the 12th edition of go 4 Europe conference MIXiii: Mix Israel Innovation International Israel innovation

conference


Comparison of government programsWith the exception of Silicon Valley (where the start-up eco-system is self sustaining) all centres had government programs to incentivise and support innovation.

Visa and immigration policies:

Other measures:


Our analysis of the different Fintech hubs (Silicon Valley, New York, London, Dublin, Berlin, Tel Aviv, Singapore and Hong Kong) demonstrate that in order to develop a strong Fintech ecosystem the following factors are important enablers:

available and accessible early stage funding for Fintech start-ups and a strong pipeline of opportunities for investors/VC funds;

depth of financial services and technology talent and close proximity of these talent pools to each other (in city locations);

a robust financial services industry, with a vibrant technology start-up community with mentoring, networking and high visibility;

Government commitment and regulatory support for the Fintech sector specifically, and technology start-ups generally; and,

business backing for a Fintech hub, with high levels of collaboration and a strong culture of knowledge-sharing and entrepreneurship.

One conclusion from the analysis is that those locations that perform strongly across three or more of these factors we see clear evidence of strong Fintech ecosystems. Silicon Valley, New York and London are notable examples of this.

In addition, there also needs to be aligned activity and coordinated action across each of them. For example, the UK in particular have accelerated the development of London as a Fintech hub over the past 18 months through a concerted effort by the government, regulators, the City of London, technology start-ups and industry.

What we can learn from the global leaders

Global Perspective

Another key finding is that in some locations, notably Tel Aviv and Silicon Valley, there is also a strong cultural drive to innovate and that risk taking is not only acceptable but desirable and encouraged. It is clear that policy makers at city (or municipal) levels are closer to the sources of innovation than those at a national level (in most of the jurisdictions included in the analysis). For example, Berlin has developed a vibrant ecosystem in the past few years without systematic government support.Fintech start-ups and technology start-ups generally suffer from a lack of access to the relevant government agencies, often hampered and delayed by having to deal with many stakeholders this creates the potential for bottlenecks. Clear start-up contact points in government and regulatory agencies can greatly assist Fintech start-ups throughout their development.As the competition for investment and entrepreneurial talent reaches global proportions, city/municipal support for nascent entrepreneurial clusters becomes a must-have, especially for large metropolitan areas.There are a number of implications for Sydney and NSW in terms of the future competitiveness of the financial services industry. There is also a window of opportunity for Sydney to position itself as the leading regional Fintech hub, as Hong Kong and Singapore, have not aligned efforts within their respective jurisdictions around Fintech nor promoted themselves internationally.

Our analysis of the global Fintech landscape has identified a number of leading and emerging hubs. From this we have identified a set of common characteristics that can enable the development of a thriving Fintech sector in Sydney. There is a window of opportunity for Sydney to position itself as the leading regional Fintech hub.

SydneyFintech today


Australia has examples of start-ups and successful businesses across key areas of the Fintech spectrum

Activity started picking up in 2007 with Australia boasting ~1,500 tech start-ups by 2013

Sydney is the leader among Australian cities as a key hub for tech start-up activity with over 950 businesses, followed by Melbourne (350 businesses)

Fintech makes up a small proportion of these businesses Venture Capital is limited with two funds taking a direct interest in Fintech:

AWI and Reinventure. AWI Ventures runs the only dedicated Fintech accelerator in Australia

As well as emerging players (e.g. SocietyOne and PocketBook), there are established Fintech businesses too (e.g. OzForex and Tyro Payments)

There is limited participation from established firms in Fintech through either accelerators or venture capital (Westpac being a notable exception)

Whilst back office support has moved to other parts of Sydney (e.g. Kogarah and Parramatta) Fintech activity is mainly located in and around the CBD

Sydneys Fintech sector

950

350 105 300

200

400

600

800

1000

Sydney Melbourne Brisbane Perth

Mapping Sydneys Fintech Hubs

Mapping Sydneys Fintech Hubs

Surry Hills

Darlinghurst

Barangaroo

Sydney CBD

Pocketbook

AWI Ventures Accelerator

StockspotEquitise/MacroVue/Debt to 10K/Simply Wall St^

VC Fund

Fintech start-up

Accelerator

LEGEND

Innovyz

Reinventure

Note: *Represents approximate figures; ^Fintech start-ups operate out of Sydney CBD as part of the AWI Ventures Accelerator Source: The start-up economy - How to support tech start-ups and accelerate Australian innovation , Google Ventures & PwC (April 2013) accessed July 2014; Industry reporting; KPMG analysis

The Australian tech start-up sector has the potential to contribute A$109 billion or 4% of GDP to the Australian economy and 540,000 jobs by 2033 with a concerted effort from entrepreneurs, educators, the government and corporate Australia.

No. of tech start-ups in Australia*

Note: *Represents approximate figures; ^Fintech start-ups operate out of Sydney CBD as part of the AWI Ventures AcceleratorSource: The start-up economy - How to support tech start-ups and accelerate Australian innovation, Google Ventures & PwC (April 2013) accessed July 2014; Industry reporting; KPMG analysis

http://www.digitalpulse.pwc.com.au/wp-content/uploads/2013/04/PwC-Google-The-startup-economy-2013.pdf


The Australian start-up ecosystem is still in its nascent stages, with most companies being one or two person start-ups, although activity is picking up

Australia has an emerging Fintech start-up landscape across the full spectrum of Fintech areas, with many new emerging start-ups, as well as more established successes


Personal Finance

Pocketbook provides personal financial management solutions

SocietyOne is Australias first peer to peer lending network

StockSpot acts as an online advisor, assessing a consumers investment goals, risk tolerance and recommends an appropriate portfolio

Nimble allows consumers to obtain finance within the hour

Big Data & Analytics

Quantium allows businesses to capitalize on the value of their data and employs talent from the best statisticians around Australia

Front Office

Equitise is a new start-up that provides crowd-funding exclusively for SMEs in Australia

Flamingo is a vendor relationship management platform that interfaces with an organisations CRM platform, and provides tools for customers to manage their vendors

Payments

Tyro Payments offer an alternative merchant acquiring solution and is Australias only independent EFTPOS provider

CoinJar is Australias largest and longest running bitcoin company

Capital Market Technology

Pepperstone and OzForex are both Australian online retail foreign exchange brokers specialising in foreign exchange trading

Source: KPMG analysis; Company websites


More broadly, there are many examples of an emerging Fintech landscape, with most Fintech start-ups originating from Sydney


Personal Finance

Middle and Back Office

Front Office

Capital Market Technology

Accelerators & IncubatorsVenture Capital

Big Data & AnalyticsPayments


http://reinventure.com.au/http://reinventure.com.au/


This development is supported by a small number of new specialist Fintech venture capital funds and accelerator programs

A critical dimension to the success of Fintech start-ups are venture capital funds and accelerator programs


Reinventure

In February, Westpac established its own limited partnership venture capital fund. It hopes to fund about a dozen companies run by proven entrepreneurs with proven business models. Westpac is the largest investor in the Reinventure Fund. The fund is operated independently by the managers, Danny Gilligan and Simon Cant, who are also co-investors in the fund. This allows them to fully focus on helping the portfolio companies succeed and, with A$50M in committed funds, they have the resources to continue investing and stay engaged with companies as they grow.

One area of focus will be companies that offer disruptive technologies that might improve the traditional banking customer experience. Reinventure makes investments from seed through to Series A and up. For the right entrepreneur and the right idea, Reinventure will invest at the company foundation stage.

Australasian Wealth Investment & AWI Ventures

Australasian Wealth Investment (AWI) is an investment company listed on the ASX and focused on the financial services sector. AWI will hold equity stakes (up to 100%) in operating businesses in four core thematics: digital distribution; research and information; funds management; and trustee & super services. AWI will also invest selectively in early stage businesses through AWI Ventures where these businesses complement its core operating businesses.

AWI Ventures invests in digital finance industry start-ups with a particular interest in direct-to-consumer wealth management services. AWI Ventures holds typically minority stakes in early stage, growing businesses that have the potential to become successful and substantial enterprises and potentially valuable partners for core AWI businesses. AWI Ventures is building a portfolio of investments in digital financial services. To foster genuine innovation in the digital financial services industry, AWI Ventures has launched a start-up accelerator program. This is the only financial services focused accelerator in Australia and one of the first in the world.


http://reinventure.com.au/http://reinventure.com.au/


Sydney also has a fledgling Fintech community


Sydney has an emerging Fintech community with around 450 members that is already holding events (Meet Ups)

Sydney Fintech Startups Meetup, founded by Kim Heras in 2013.

Since its establishment they have held six Meetups in Sydney.

Source: Sydney Fintech Startups Meetup website


Our local technology start-ups are gaining attention from offshore Governments, with some, such as the UK targeting them to move to London

There are threats from other Governments, particularly the UK and Singapore in targeting the Australian technology start-up community, to relocate their businesses offshore


UK Trade & Investment (UKTI) is the government department that helps overseas companies bring high-quality investment to the UKs economy. It has recently published a document setting out the strengths of the UKs Fintech sector and the market opportunities for Fintech companies in the UK.

The UKs success indicates that a strong customer base, supportive regulator, availability of capital and the financial services infrastructure all make the UK offer attractive to Fintech companies. This evidence is being used by UKTI to attract further potential Fintech investors to the UK.

UKTI is launching a global roadshow to lure financial technology companies to the country, as part of the governments push to make London a global centre for Fintech.

Representatives from the business trade body plan to travel to countries including the US, India, Singapore, Germany, Scandinavia and Hong Kong in a bid to attract Fintech companies to London. UKTI is looking to attract both established Fintech providers and new, innovative start-ups.

Chancellor of the Exchequer, George Osborne recently announced a range of measures promoting Fintech:

- Consultation on a new strategy for Britains digital communications infrastructure, to ensure the UK remains a leading digital nation and is equipped to harness the emergence of Fintech.

- A major new review examining how the technology that serves the financial sector will evolve in the future, to be lead by the Government Office for Science. Industry and academic experts will look at the technologies, enablers and barriers that will shape the future of the Fintech sector up to 2025, and the policy implications for the government.

- Proposal for a range of new awards and prizes to promote the development of innovative finance solutions that help small businesses access finance, co-sponsored by the British Business Bank and Innovate Finance (UK Fintech industry association).

Source: KPMG analysis; UK HM Treasury; Australian Financial Review

Key implications and recommendations


The key implications for Sydney

Government Support

Private VC Funding

Skills / Talent





Enabling conditions

Applying the same analytical framework we have used to look at both leading and emerging Fintech hubs, Sydney has the many of the required elements in place but underperforms relative to global leaders.

One area where Australia does no perform as well is in regard to capital availability, particularly post-GFC. This relative lack of capital available to new firms in Australia is highlighted by the 2013 OECD venture capital statistics which show that Australian VC totals just 0.02% of GDP, which can result in start-ups that would otherwise operate domestically moving offshore for funding.

Sydney

However, there are Australian examples of international success in Fintech most notably in wealth management platforms and foreign exchange (e.g. Bravura Solutions and OzForex).

This is a significant opportunity for Sydney and Australia. Financial services is the single largest employer in the city and the Australian financial services industry is well developed and mature across banking, wealth management and insurance. Through Fintech, we can export our capabilities to the region and globally.

Tax incentives for both start-up firms and investors can play an extremely important role in building critical mass in a Fintech eco-system. Despite reductions, tax is still an area in which Sydney falls behind other cities competing for start-up capital both on a total tax and tax on R&D basis (ranking 44 compared to other international cities in an index of 51 cities in total).

Fintech also has the potential to disrupt established businesses and also challenge Sydneys place as a leading financial services centre. The need to develop and foster Fintech is as much about responding to the disruptive threat as it is about looking for growth opportunities for the Australian and State economies.

Source: Innovation in Australia, Australian Centre for Financial Studies; KPMG Competitive Alternatives (2014)


Building on our foundations

London provides a template for Sydney to follow in terms of taking concerted action across a range of public and private sector stakeholders to accelerate their stated ambition to be the world leader in Fintech

Enabling conditions

London is maximising its high concentration of financial services and technology talent as well as an established hegemony in financial services. Action is being coordinated across business and government through Innovate Finance and the UK Government (through UK Trade and Investment) is sending a consistent message that London wants to lead the world in Fintech.

Policy settings have also been adjusted to allow for innovation and to support the growing Fintech ecosystem (for example, the promotion of bitcoin and start-up specific regulatory frameworks).

Sydney can learn a lot by looking at London specifically for Fintech but cities like Tel Aviv and Singapore also provide strong examples particularly in terms of government support for technology start-ups.

We have strong foundations in terms of financial services and access to skilled and capable resources across financial services, technology, digital and creative industries, as well as a number of leading universities and business schools.

For Sydney to have a vibrant and flourishing Fintech eco-system we need to focus on those enabling conditions where we are strong and also seek to develop the areas where we are underweight.

This means we must leverage:

our concentration of and access to financial services and technology talent; and, our clear leadership position in financial services. Whilst also taking action to:

increase the availability of funding at both seed and venture capital stages; build both government and business support for technology start-ups; and foster a more entrepreneurial mind-set.


What Sydney needs to do

For Sydney to lead in Fintech we need to take action that will build and strengthen the pipeline of Fintech business ventures looking to call Sydney home.

This requires concerted aligned action from both the public and private sector.

Recommendations for the public and private sector

We have identified a number of key enabling conditions for a successful Fintech sector in Sydney. These are:

having a concentration of and access to financial services and technology talent; increasing the availability of funding at both seed and venture capital stages; building government and business support for technology start-ups; having a clear leadership position in financial services; and embracing a more entrepreneurial mind-set.Maximising each of these conditions is essential to building a pipeline of Fintech business ventures. All play a role to a differing degree in each of the cities included in the analysis.

London is consciously acting to take ownership of Fintech and use it to protect and enhance its place as a leading global financial services centre.

Similar to London Sydney has a vested interest in maintaining our leadership in financial services. If we are serious about maintaining a leading position in financial services locally and regionally it is imperative we act now.

The steps we take to do so must clearly help to maximise our performance against each of the enabling conditions and action must be aligned across the public and private sector.

This is not about backing winners and avoiding losers but creating optionality for Sydney and the financial services industry in Australia.


2. Commitment 4. Accessibility 5. Collaboration 6. Promotion3. Alignment1. Vision & strategy



There are six areas that warrant attention in order to position Sydney as a globally recognised, respected, attractive City for the emerging Fintech sector

Fintech start-up activity tends to occur in large metropolitan areas.

Establish a coherent and supportive entrepreneurial vision and strategy for Fintech at a city level (Sydney).

Consider Fintech in a broader global financial services context and particularly Asia as an export opportunity.

It is important for government (and regulatory agencies) to publicly state their commitment to supporting the development of the Fintech sector.

Maximising the opportunity will take strong commitment from government and industry.

To accelerate the development of the Fintech sector, alignment and coordination of activity and investment is required (government, regulators, start-ups, industry, academia).

Explore adjacent opportunities and benefits across sectors, e.g. financial services, ICT, professional services.

Critical to any start-up is access to funds and expertise.

Beyond this there is also a need for access to regulators, government and data.

Government providing a single point of contact for start-ups to remove bureaucracy.

Sydney needs a clear point of entry for Fintech where various stakeholders can come together.

A centre of gravity or physical focal point needs to be established.

Fintech requires established financial services organisations and new ventures to come together.

Problems need to be shared and safe environments created to truly foster innovation.

Financial services and Fintech both need a champion and voice at local and global levels.

This needs to be at both an industry level and also at a political level.

Promotion can be used as an effective tool to attract capital, investment and the best talent (locally, regionally and globally).




Recommended actions Rationale1. State Government to continue working with partners in the private sector and the Committee for Sydney on the development of a comprehensive Fintech vision and strategy for Sydney, providing a focal point for the alignment of effort across the public and private sector and articulating a clear commitment to the Fintech sector

Provides an aligned vision and goals for the development of the Fintech sector, as part of the State Governments support for financial services

Articulates the importance of and commitment to Fintech as a sector Establishes the critical pathway and actions for success

2. Explore the establishment of a not-for-profit Fintech hub in the heart of the city that co-locates technology start-ups, venture capital and established financial services firms

Creates a critical mass and local centre of gravity for Fintech in Sydney Provides low cost services, e.g. working space and expertise for start ups Provides access to low cost capital for start-ups, as well as a pipeline of opportunities

for venture capital and established financial services firms Drives collaboration between start-ups, established financial services firms, as well as

regulatory agencies

3. Government (local, state and Commonwealth) to promote Sydney as the leading Fintech centre in the ASPAC region and establish a series of events in the city, regionally and globally, to showcase Fintech in Sydney, in line with our leading financial services position

Establishes a platform to promote Fintech in Sydney and globally Raises awareness for Fintech start-ups to export their capability offshore Attracts funding and venture capital to Sydney Attracts entrepreneurial talent to Sydney

4. Form an independent Fintech focussed industry association, based in Sydney, to give the sector a strong voice and champion

Helps to prioritise the needs of the sector (liaising with Government and regulatory agencies) and provides a representative voice for the Sydney Fintech community

Promotes Sydney as the centre of gravity for Fintech in Australia and regionally Drives collaboration between financial services firms and Fintech start-ups

5. Work with the Federal Government and regulatory agencies, to enhance the current regulatory, tax and business incentives available to the start-up community, as well as introduce measures to target foreign entrepreneurs, attracting them to Sydney

Provides a regulatory and tax framework that supports innovation Helps to broaden the entrepreneurial culture base Attracts funding and venture capital to Sydney Attracts entrepreneurial talent to Sydney

6. Engage the university sector and leverage research institutes, such as the Centre for International Finance and Regulation (CIFR) to research key Fintech themes and explore business opportunities for commercialisation

Develops ideas and business opportunities for commercialisation Connects the university sector, the Fintech start-up community and business Leverages existing infrastructure, such as CIFR

AppendixUnlocking the potential:the Fintech opportunity

for Sydney

Context: Macro-level trends


Post-GFC, financial institutions globally have recognised the need to work smarter and be more customer-centric, while the consumer space was seeing a disruptive change of its own

Strategic imperatives for financial institutions and evolving consumer behaviours, in part driven by new technology, has been a catalyst for innovation

For Financial institutions1 Driving revenue steams while lowering costs was a priority:

Financial institutions (FIs) realised that by using innovative technology solutions, they were able to not only achieve scale, but also be more efficient. Use of automated procedures and the introduction of non-branch channels drastically cut employee costs, while allowing financial institutions to grow their customer base.

Improving the customer experience was also key: Technology was a means to develop innovative financial solutions. FIs began to record customer data to gain deeper insight into their clientele. They were able to drive loyalty by predicting customer behaviour, anticipating the need for new products and risk of attrition. This allowed FIs to improve the customer experience.

Financial institutions realised that they needed to cope with a challenging business environment, and in parallel, the advent and proliferation of mobile devices led to users to demand advanced financial solutions

Technology acted as the key enabler, and bridged the gap between the FIs current state and the customers need

The Catalyst

During the GFC, there was a mass exodus of banking and finance employees who had the know-how, funds and an entrepreneurial mind-set to try new things

These ex-employees began to focus on technology to try and solve some the industrys biggest challenges

For Customers 2 The digital revolution was in full steam: As streaming data and

cloud storage rapidly replaced CDs and DVD, the need for personal banking and payments emerged as a strong consumer and business need.

Mobile device proliferation: The ubiquity of mobile devices further fuelled this need and changed the financial and transactional experience (and expectations) of consumers.

Macro-level trends

I think the City of London has a large part to play in the UK's dominance in Fintech. Banks were shedding staff during the recession, but we're seeing people who were experts in a big bank and had nice bonuses, some savings and strong expertise. They've come out with interesting plays that leverage cloud infrastructure and their own knowledge. They've become experts to the sector, rather than one particular bank. It's the best type of spinout really.

Alex McCracken, Director Venture Services, Silicon Valley Bank

(UK Branch)

Source: KPMG analysis


Thomas Edison performed 9,000 experiments before coming up with a successful version of the light bulb.

The US has proved to be more entrepreneurial than Europe in large part because it has embraced a culture of failing forward as a common tech-industry phrase puts it: in Germany bankruptcy can end your business career whereas in Silicon Valley it is almost a badge of honour.

Companies must recognise the virtues of failing small and failing fast, like placing little bets.

Placing small bets is one of several ways that companies can limit the downside of failure.

Disruptive innovation has created new ways of doing business, which destroyed or severely damaged old existing giants

Innovation plays an integral role in growing a nations economy, employment and standard of living through the development of new products, processes and fledgling industries. Business leaders know that the speed of development is such that they have to keep innovating and changing faster to remain competitive

Documents

Building momentum: the Fintech opportunity for Sydney · Unlocking the potential: the Fintech opportunity for Sydney. Scope of the research project. ... and investment at all levels