Today’s report by KPMG and the think tank “The Committee for Sydney” proposes a list of recommendations to compete for Sydney’s future as a global financial services and technology hub. Good to see a review of Sydney’s competitive position.
The reality is that while the fintech industry is growing rapidly in the financial centres of the globe, Sydney will fall behind, if it fails to build the required technology ecosystem with researchers, start-ups and VCs cooperating and if it fails to flatten the existing access and expansion barriers with regulators, established financial services firms and particularly the dominant banks allowing competition.
So far, the results are mixed at best. KPMG identified 950 start-ups in Sydney. Hardly any has grown yet to a significant size. KPMG identified wealth management platform Bravura, foreign exchange platform OzForex and Tyro Payments as well established fintech companies.
Tyro Payments, Australia’s only independent EFTPOS provider, is probably the most telling case, because it is the only start-up and growth company that competes head-on with the major retail banks. The task is daunting, because the payment system access regime is broken, the access terms detrimental, growth capital unavailable and the market largely locked up by the major retail banks.
We do support the report’s recommendations of vision, strategy, promotion, association, research, cutting red tape and changing tax laws. Who would not?! However, benefiting from our painful experiences in the trenches, we think it falls short. Tyro would add some harder recommendations:
1. An ACCC Inquiry into the anti-competitive structure and behaviours in the Australian payment space dominated by the four major retail banks.
Since the pattern of anti-competitive behaviour seems to be below the level of severity that allows the ACCC to intervene, Tyro recommends to heighten the threat of penalty significantly by introducing the concept of triple damages. This would increase the risk perception and improve the competitive behaviour all across the large bank organisations.
2. A review of the Australian Government procurement policies and procedures to promote competition and innovation through open panel tendering of products and services in its multi-billion dollar budgets
The Government itself has the key to promote innovation and competition through its procurement. It is the largest purchaser of products and services in Australia. With a panel tendering process it has a low risk approach at its disposal to open up markets and give start-ups, fast growth companies and small-to medium enterprises also a chance to provide innovative products and services.
3. An engaged regulator to open up access of the payment system to new technology players, while maintaining supervision and a level playing field
An efficient and frictionless payment system – an essential prerequisite for a safe, healthy and growing economy – requires the regulator and the prudential supervisor to eliminate the credit risk between the participants. The regulatory approach to new business models should reflect the degree of risk exposure for the banking system and the consumer. Such a graduated approach would establish light, but early oversight of emerging and fast growing new systems like stored-value, loyalty or cryptographic currency payment solutions.
When Tyro Payments started in 2003, three extremely talented and naïve engineers felt they could take on the banking establishment. The Reserve Bank of Australia had invited new entrants. They were the only ones that came. A testimony to how little attractive and welcoming the Australian financial industry was and is perceived by potential new participants.
Tyro closed the 12th year of its efforts processing $5.2 billion in credit and debit card transactions for 10,000 small-to-medium businesses; that is out of $480 billion that Australians spent in card payments. Tyro’s story proves that one can compete successfully with the bank oligopoly, but it is a school of hard knock.
Yes, the banking industry should be ripe for disruption. Yes, Sydney has the potential to compete in fintech on a global scale. It is a fabulous location with a wealth of talented people, could be entrepreneurs and resourceful institutions. With a much more supportive ecosystem there could be many more Tyro’s inventing the future and making Sydney one of the leading hubs of innovation and growth.