Fintech Deja Vu in Australia
What happened in London’s booming fintech scene is now unfolding in the land of Oz and there are three logical reasons why…
As I sit on an outdoor table in Sydney’s CBD with my laptop drinking my long black with milk (Australia’s version of a “white americano”) my gaze shifts to streams of city bankers streaming by. Someone walks past in blue trousers a white shirt and a pair of dark RM Williams boots and there’s something familiar about it. I have a sense of deja vu. I’ve seen it before — hmmm — in fact, just a few minutes ago… My gaze shifts and lo behold there’s someone else wearing the same thing — white shirt, blue slacks and brown boots — hey, its a pattern! I look to the left and the right and there are hordes of them, like that army of replicant suited Agent Smiths in the Matrix — perhaps in Sydney reality a collective adoption of Barak Obama’s brilliant dress code philosophy — but nonetheless like the Matrix itself, a repeating pattern of the incumbents and the status quo which, in the Matrix, all came slightly unstuck when young upstart Neo decides to be violently disruptive…
I look down, past my coffee at my laptop and I sense deja vu again Neo — not the bullet dodging hero I remember from the Matrix movie but in the form of neo-banks, neo-lenders and neo-insurance tech — and just like Keanu Reeves, they are taking on an entrenched system and mighty incumbent infrastructure (for the most part run by those hordes of Agent Smith lookalikes which are walking past me right now) but which will still have to cross a mighty chasm-width to mainstream adoption — but likely to do so quickly. Why do I sense deja vu? And what pattern do i see you ask?
I’ve seen this movie before.
I saw these neo-models in their infancy across the other side of the world in London — easily 8 years ago. I’ve seen the wave of neo startups that hit up the London VC scene, I’ve seen how the business models reeled, rocked and adjusted to the backlash of toxic payday lender Wonga doing some extremely naughty things, and I’ve seen the mistakes they made and the things they absolutely nailed. I’ve been lucky enough to experience a lot of that first hand (well… as first hand as an investor and occasional operator can get) and I’ve also been awestruck by the magnitude of the entrenched markets they are disrupting. And the pattern I’m recognising right now in Sydney, suggests similar disruption will unfold here in Australia. And I can see at least three broad factors that have played a part in creating this wave.
The first one is that historically the nation has traditionally been dominated by an increasingly redundant four pillars banking policy which I noticed, from the other side of the world in 2008, protected the “lucky country” from the global financial meltdown, but has always seemed also to mute competitive tensions from challengers (the blue slacks worn by the armies of the Sydney finance mainstream have very deep pockets). Now we have all these neo fintech models running hard at the Agent Smiths of the Australian banking system — and I can’t wait for the competition to get violent.
Banks beware — Neo is not going to come and take your platform; it’s way to cumbersome. But if a pattern is any predictor, a wave of nimble neo-startups will steal market share away from you all on a product by product basis. Tide in London, for example, has already stolen a huge 1% of the SME banking market and it wants (and will get) more. And, according to TransUnion, in the US fintech companies accounted for 38 per cent of all US personal loans in 2018, up from 5% in 2013.
London’s fintech scene is awesome, and it has been booming for a while — over the last 5 years, the UK issued 34 new banking licences compared to only one the previous hundred years — and despite Brexit it will continue to be the most innovative place for fintech on the planet. But Australian’s are hugely innovative, progressive and are often seen as early adopters. So why are we only seeing these fintech models get traction right now? Well, the first reason might be that four pillars policy which is becoming a little less rigid than it once was. When you have four banks so deeply, profoundly entrenched in a small market, it's pretty tough and probably quite expensive to nip at their heels. And perhaps the second is Australia’s risk capital markets being relatively shallow up until the likes of the awesome Niki Scevak (Blackbird) and several other much-needed trailblazers deepened the pools of VC cash sitting around. One thing I have noticed is that there is actually a lot of appetite for deploying risk capital in this country — it just seems to have been punted on mineral explorers searching for something in Western Australia (in their RM Williams of course) rather then fintech companies on a search for a business model that works… Fortunately, that’s slowly changing and the fintech models that were born and took hold in London are becoming more likely to repeat out here in the land of Oz.
The third condition that seems to me to be broadly relevant is that in the years following 2010 Great Britain, like many countries (except Oz) was in the midst of wholesale banker bashing as the post-financial crisis sunlight poured in on years of staggering irresponsibility. Bruised and exposed the reputation of many big financial institutions became mud, and new, modern and well-branded fintech platforms stepped in and started to take market share in a whole lot of niches where banks just couldn’t compete on many bases, a big one of which was user experience. Over a year ago in Australia, the launch of the Hayne Royal Commission heralded the era of Australia’s version of “sunlight poured in on years of staggering irresponsibility”. Granted, the four pillars emerged far better than their UK counterparts did all those years ago, but over a year of negative headlines about the dubious behaviour of financial services has been sufficient for an analogy. And the pattern will repeat. Amongst others, the likes of Volt in retail banking (the first recipient of APRA’s new “restricted banking licence”), Wisr in personal lending, Prospa in small business lending and Evari in SME insurance — they are just a few scattered across a number of categories and are reminiscent of the archetypal constituents that collectively formed a pattern contributing to London’s fintech success, a pattern currently repeating in the Australian market.
So the thesis is actually quite simple — the pattern of the rollout of great fintech models in the UK has started to repeat in Australia. The Neo fintechs are not just going to nip at the heels of the incumbents and they probably won’t obliterate them like Neo did to the Agent Smiths in the Matrix — but, there is a lot up for grabs and they will certainly take their pound of flesh...
And those that have seen this movie before know how the plot unfolds.
Over the next few weeks I’ll be publishing a deeper dive into several of the segments mentioned in this piece. Click follow if you’d like to be notified when they hit the screens :)