Fintech sector among the winners in 2016 Budget
As far as the startup landscape goes, the fintech sector has emerged as the real winner of Treasurer Scott Morrison’s 2016 Budget. A key focus has been made on supporting innovative ideas to ensure Australia is a leading destination for fintech companies and global disruptors.
“Tonight I will announce a growth friendly, ten year enterprise tax plan to boost new investment, create and support jobs and increase real wages, starting with tax cuts and incentives for small and medium-sized enterprises,” said Morrison.
“We will continue our investment in our national innovation and science agenda – to create our own ideas boom, in every city, in every town, in every factory, farm, shop and office – including support for new start-up businesses.”
Global disruptors in fintech are driving change in Australia’s economic and financial landscape and are re-shaping the way companies do business. For our country to stay competitive the fintech community must continue to innovate and receive support and funding from the government.
The 2016 Budget highlights improvements to Australia’s regulatory framework, opportunities to review Blockchain technology, changes to GST treatment on digital currencies, the development of a Digital Marketplace to make service delivery to government easier for SMEs and startups, and the launch of studies into improved data availability across public and private sectors.
While many funding initiatives for the startup space were already announced by Malcolm Turnbull in the National Innovation and Science Agenda (NISA) in December last year, the Budget has reiterated the government’s investment into fintech to boost jobs and support startups to build and test their ideas and business models.
One of the major components in the Budget for fintech startups is the implementation of a regulatory sandbox. First announced in March, this scheme will allow entrepreneurs to focus on building business ideas and developing new products without the hassle of navigating through complex regulatory requirements.
In February the regulatory sandbox was proposed to the Treasury by Fintech Australia, the fintech body and industry association. Tonight the acceptance of that proposal was acknowledged by the government, which will be implementing appropriate safeguards for startups to trial their ideas.
For some startups it takes years for their concepts and products to get regulatory approval, and with this space changing and growing month on month, the waiting game is a challenge that needs to be overcome.
With the Australian fintech ecosystem ranking as one of the top seven around the world, the country’s startups are well placed to disrupt financial services both nationally and globally. The implementation of a regulatory sandbox scheme provides a controlled and safe environment for startups to determine if their ideas are viable and whether or not they have potential to transform into multi-million dollar companies.
Under this scheme startups will not need to gain ASIC licences until the company grows to a certain size; this size of course is limited, but will help small startups move quickly through the proof-of-concept stage. Startups will still need to comply with various ASIC rules on marketing, privacy, anti-money laundering compliance, disclosure, and management of conflicts of interest.
The announcement of this scheme, while already anticipated by the fintech sector, has been welcomed by many leaders in the startup community.
Phil Morle, cofounder of Pollenzier, said the facilitation of testing new fintech products and services with a regulatory sandbox is a brilliant idea.
“There is a massive unfair advantage to Australian startups to invent the next generation of financial products. Initiatives like this and the serious investment in cyber security is the sign of a forward thinking government that understand that ‘forward’ is now the next 12 months not the next decade. Soon, everything valuable will be ‘cyber’ and we need to be building it, capturing the value and making it safe for citizens that enjoy the value,” he said.
Stuart Stoyan, CEO of MoneyPlace, added that it is reassuring to see innovation and the ideas boom at the forefront of the government’s vision for Australia.
“While this is a budget for conservative times, a number of measures promoting fintech and startups more broadly are much welcomed. Specific measures for a regulatory sandbox and promotion of Australian fintech overseas recognise that fintech is a key driver of future growth,” Stoyan said.
The measures put in place for regulation in the startup space are also a big win for fintech startups working in spaces like Blockchain, where there is a high amount of regulatory uncertainty.
Blockchain technology is a space within Australia that is more or less untouched. As our country is one of the most regulated economies worldwide, and also geographically speaking one of the most remote, it makes sense to take advantage of digital currencies.
The government has also announced Data61 will be reviewing the opportunities for the application of Blockchain across the government and private sector. Data61 will be responsible for concurrent pilot testing in areas like shareable registry information and verifiable supply chains.
In relation to reviewing Blockchain capabilities and opening this space to more innovative ideas, the government has released a consultation paper on changing the GST treatment of digital currencies.
This means consumers will no longer run the risk of being double taxed when using digital currencies to buy goods and services that are already subject to GST.
This year the Turnbull government has been promoting an ideas boom and with the Budget looks to explore key innovations within the startup and SME community. Morrison has announced an additional $18.8 million over five years to the DTO (Digital Transformation Office) to create a Digital Marketplace where SMEs and startups can sell to government.
Within this digital marketplace businesses will be provided a platform where they can compete for government information and communications technology (ICT) work. In terms of larger scale ICT project, individual components will be broken down to make way for more innovative and collaborative solutions.
Russell Francis, CEO of eLearning portal Velpic said this initiative has been taken directly from the UK government, as Australia looks to replicate successful global actions.
“This is a huge initiative given one of the biggest spenders on ICT in Australia is the government. To date startups have been locked out of this via red tape, nepotism and and the old ‘you don’t get fired for buying IBM’ mentality. The UK has G-Cloud and now the DTO in Australia will hopefully provide a similar marketplace,” he said.
The work within the new digital marketplace platform will focus on overhauling ICT procurement processes, building a product catalogue and customer base across government, and developing a supplier ecosystem.
The Digital Marketplace is already in the development stage with an alpha prototype expected to be released late this year and a beta expected to launch in early 2017.
Another investment into the future is eInvoicing, where the government will undertake a study into the costs and benefits of this technology by agencies. It is estimated eInvoicing could improve efficiency by 60 to 80 percent with annual savings to the economy of up to $10 billion.
Concerns for the roll out of the eInvoicing system have already been raised however, with questions as to whether it will be one centralised system the government will run or whether individual government departments will be able to choose their own provider.
The government is yet to provide any real details on which direction they wish to take, nonetheless it is a study into an area that needs innovation and progress into the digital age.
The 2016 budget has, overall, demonstrated again the government’s real interest in the fintech space.
The opportunities in the space are huge: according to a report from Ernst & Young released this year, the Australian fintech market is worth an estimated $1.3 billion, with an investment space of $384 million. The report warned however that the sector needs a high level of collaboration to grow beyond these numbers – with this gained in today’s Budget, the fintech sector should be optimistic about the times ahead.
Morrison has backed up the government’s earlier fintech statement and has demonstrated specific measures that will greatly support and benefit Australia’s startup community.