Government fintech agenda spotlights microbanking

The Federal Government will open the doors to disruption in the banking sector as part of changes to its revised fintech investment agenda.

The 2017-18 Budget includes provisions for newer entrants into the banking industry, including the relaxing the legislative 15% ownership cap and lifting the prohibition on usage of the term "bank" by authorised deposit-taking institutions with less than $50 million in capital. This will, the Budget statement said, "allow smaller ADIs to benefit from the reputational advantages of being called a 'bank.'"

Over time, the statement added, "these changes are expected to improve competition by encouraging new entrants."

Further benefits to smaller banks include support for a phased approach to bank licensing, which the statement said "will make it easier for new innovative banks to get started and help foster competition in the market. More competition means more choice, lower prices and better service for Australian customers."

Customer Owned Banking Association chief executive Mark Degotardi was positive about this news, saying: "We welcome the Government's announcement that ADIs with less than $50 million in capital will be able to use 'bank' to describe their business. Of course, not all credit unions and building societies wish to rebrand as 'banks' but they should be able to use the term given that what they do is 'banking' and they are subject to the same rules as other banks by the banking regulator, APRA."

The Government has also announced broader concessions for the Australian fintech industry. Purchases of digital currency, for example, will no longer be subject to the GST, which removes the "double taxation" on said purchases.

Crowdsourced equity funding (CSEF) will also receive a boost, providing additional sources of capital to newer companies who will now be allowed an unlimited number of CSEF shareholders.

Additional provisions include enhancing the regulatory sandbox for fintech companies by allowing testing of holistic financial advice, consumer credit issuance, short-term deposit and CSEF intermediary services.

"This will reduce regulatory hurdles which have traditionally suffocated new businesses trying to develop innovative financial products or services and caused Australian talent to go offshore," the statement said.

FinTech Australia chief executive Danielle Szetho described the new initiatives as a "huge step forward when it comes to growing a globally competitive Australian fintech industry, that will also deliver greater choice and improved financial outcomes for consumers."

"We're also proud that many of these initiatives have come about through the strong and detailed advocacy work undertaken by FinTech Australia and its members," Szetho said.

"It is pleasing to see that the government has clearly used the budget to reaffirm its commitment to Australia's fintech industry, and sees this industry as a driver of increased consumer choice and jobs growth in financial services."

Speaking to Financial Standard, KnowIT chief executive Wayne Wilson said that while he welcomed many of the changes to the treatment of fintech companies, he was concerned about how those working with superannuation funds would navigate the "huge systems issues" certain Budget measures will create.

"Putting aside anything else, I think a whole range of superannuation service providers will be faced with a reasonable amount of costs to create a technology solution to what the Government has prescribed," Wilson said.

"A whole lot of nuance will come out in the next few weeks and months as businesses think about how to provide what the Government has asked for, since there are lots of superannuation technology solutions that go back 30 or 40 years now. It'll definitely create an opportunity for third-party providers dealing with superannuation clients who can't meet those requirements, but this is going to take some time to work out."

Read more: BudgetFederal GovernmentFinTech AustraliaAPRACustomer Owned Banking AssociationDanielle SzethoFinancial StandardKnowITMark DegotardiWayne Wilson
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