More than 100 digital and fintech innovations have been successfully integrated into the Australian financial services industry since the end of 2019. With Afterpay making waves locally, and the global fintech sector set to be worth $305 billion by 2025, what can Australia do to get a bigger slice of the pie?
The past 18 months have forced radical changes in customer behaviour, moved significant portions of the economy online, and increased customers’ comfort and willingness to engage digitally. No wonder then that the Government is paying lip service to fintech as a key part of our economic future.
Senator Bragg, addressing the Senate Select Committee on Financial Technology and Regulation, has said numerous times that he wants Australia to be a leader in this space. Despite this, we remain laggards in investor and founder incentives, in direct investment, and in creating a favorable environment for fintech.
The Australian fintech industry was recently elevated into the top six most important fintech ecosystems globally, recognising the awesome talent we have here in this country. This success however has come in spite of the Government rather than because of any targeted support, and the industry continues to face headwinds of regulatory concerns and international competition.
If Australia is to be truly globally competitive, fintech companies need appropriate policies and regulation, along with broader government support, to put our ecosystem on the global investment radar.
Tax is the biggest issue holding Australia back from being competitive with other hubs like London, Israel and Singapore. Our international competitors all have strong, stable tax supports in place that make them attractive to both domestic and international investors.
Benchmarking our tax incentives against other hubs, and matching or bettering them, could very quickly make Australian companies a much more serious target for investors both at home and abroad.
Australia does have two Government sponsored vehicles for investing in local companies. The Early Stage Venture Capital Limited Partnership and Venture Capital Limited Partnership programs are designed to support investment into young companies, however they’re effectively banned from investing in companies that have anything to do with financial services. This is an odd quirk in the legislation, originally designed to protect retail investors but worded so poorly that ESVCLPs and VCLPs are now unable to allocate capital to any company associated with lending, insurance or banking. This frankly foolish situation must be addressed urgently if Australian fintechs are to flourish to their full potential.
Another missing piece in Australia is a directive from the Government for our sovereign wealth fund — The Future Fund — to deploy some of its capital to funds that invest in Australian companies. All the other major fintech hubs in the world enjoy meaningful support from their sovereign wealth vehicles.
It’s inexcusable to me that The Future Fund deploys capital to 14 funds, but all of them are international, and none of them invest in Australian early-stage fintech. If even half of 1% of that capital were redirected to Australia, that would make a massive difference.
Beyond the nuts and bolts of taxation and fund rules, we need to take a broader look at aligning Australia’s rules with those of the hubs with which we want to compete. International investors, faced with the choice between deploying capital in Australia or somewhere else, are going to choose the country that has the best incentives and the most supportive ecosystem.
Australia’s physical distance and reputation for being closed off, and difficult to navigate from an international investor’s perspective, needs to be trying twice as hard to attract investment as our competitors. At the moment, that’s not happening. Our amazing local talent and entrepreneurship have brought us this far — imagine what we could do with real, meaningful Government support as well.