Musings of a Fintech: Start-up Inversion

We write this blog as we embark on a new business chapter for Huffle. As an Australian based FinTech, we are in the process of opening a UK office!

The UK is a natural step for Huffle. Two of our founders, Conor Svensson and Damian Horton, are British. The bulk of their professional lives have been spent in the UK and this brings both a huge amount of international skill and experience to Australia but also offers a natural next stepping stone.

However, the rationale is beyond just a new market and really comes down to business risk and regulation. Should the UK just be a new office or should it be our Headquarters?

The story of this begins with the UK. A huge financial crisis in 2008 that impacted the UK banking system was a huge motivation and realisation that diversity of lending sources is beneficial in a crisis. If one channel becomes strangled with credit losses, funding constraints or another inability to service the economy, another channel as either an overflow or with the ability to grow offers a major diversification of risk. The UK realised 4 banks are not enough.

In addition to this, financial technology brings global reach. The UK dropped the ball in creating technology start-ups but wasn’t going to miss the FinTech opportunity. This creates jobs, companies and brings in revenue that is now £20bn of the UK economy. It is exportable, with companies like Funding Circle operating in the US and Europe. This supports what the City of London has always been: an exporting powerhouse of financial services.

The FCA, the UK regulator responsible for oversight of FinTechs, is active in providing help and assistance to get businesses started. Communication is timely, transparent and informative. The goal is to get businesses operational in a safe and reliable format.

Comparing this to Australia is stark and clearly provides motivation to relocate Headquarters to the UK. Firstly, Australia has a Four Pillar Policy in the banking system. Originally aimed to prevent an oligopoly shrinking to 3, it now acts as an informal barrier to greater competition and was left off the table for the Financial System Inquiry. Really, it should be an Eight Pillar policy or actively have alternative lending channels to provide financing for a substantial portion of the economy.

Whilst Australia has a strong domestic financial services industry, the banks are mostly local and focused on local lending. This presents a second problem: Australia isn’t a huge exporter of financial services, albeit outside of ANZ’s recent progress. A few examples aside, Australian financial services companies have not been successful in overseas expansion and reliance on current incumbents to take up this challenge on their own today is naïve.

The battle of FinTech’s isn’t a local issue. It is about creating an environment to create a new and local powerhouse before overseas FinTechs own financial services in a similar way to Google and Apple’s domination of technology. At stake: it may be Google that dominates FinTech and Australia becomes even more bound to importing services.

So the battleground is set. If we cannot innovate here due to a regulatory regime that cannot quickly adapt, as a start-up the business risk is too great to keep our intellectual property here. We need to be in a place where we can innovate, launch new products and services and recognise and hire global skills.

If local regulatory barriers stop initial traction, we will have global start-up inversion to locations that can accommodate innovation.

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