Australian Treasurer, Scott Morrison, today made an announcement regarding the creation of a Regulatory Sandbox for Finance Start-ups. Below is my speech introducing the Treasurer at Tyro FinTech Hub.
Good regulatory frameworks are incredibly important for well-functioning financial systems and the Regulatory Sandbox is an important piece that helps start-ups, regulators and consumers work together to allow the formation of new products and services.
Attempting a finance start-up is a daunting experience. Not only do you need to develop significant advantages over existing well-resourced businesses, the layers of regulation make it almost impossible to get going and test hypotheses. The Sandbox should lower the very early stage constraints so that we can have a huge wave of innovative businesses delivering better outcomes for Australians and overseas.
For those who don’t know me, my name is Damian Horton and I’m the co-founder of Huffle. We’re an early stage FinTech with the ambitious aim of introducing a new type of home loan to Australia and beyond.
As co-founder of a young finance start-up, we welcome the Government and Treasurer’s announcement of a FinTech Sandbox and I’d like to spend a few minutes explaining its importance from our perspective.
Finance, as a sector, is now playing catch-up to the ever increasing influence of technology on our lives. Hence the recent growth in FinTechs.
The major underlying trend is that we are moving away from physical bank branches on our streets and into the mobile phones in our pockets. And the entire economy needs to keep up.
Up until today, we have only seen an initial wave of financial technology start-ups. And while many of these companies have been great trailblazers, we’d expect to see many more companies offering new products and services that haven’t even been considered yet. Much of this will occur as the cost of using technology continues to fall, talented and energetic people leave the comfort of the corporate world and consuming finance via your phone expands from about 10% towards 100% of the population.
And this is what brings us to the importance of the Fintech Sandbox.
In the case of my start-up, Huffle, where we are aiming to bring long-term fixed rate home loans to Australia which significantly reduce borrower risk, the complexity of being a start-up, primary lender, derivatives business and with a bank-like appearance all at once from day one creates a number of challenges.
As with all leading global financial centres, a strong regulatory framework is crucial, particularly for consumer protection, but these protections often present barriers for start-ups that are simply too expensive to overcome.
A start-up might not initially be able to tick all of the required boxes for regulatory approval. So they then can’t determine if a new business idea would work. The opportunity to create something new and potentially of major benefit has been lost as the cost of trying is too prohibitive.
In Huffle’s case, the initial barrier to ticking all of the boxes was driven by overseas founder experience not counting towards the required Australian experience under the consumer protection act.
Other fintechs face challenges such as the high cost of obtaining a financial services licence, which is required if they are offering investment and savings products.
Another challenge is the heavy reliance on incumbents to provide early stage services.
If there’s a market for a product and a start-up gains traction, this then becomes the right stage to invest in additional people to meet full regulatory approval.
The next step is nurturing.
The sandbox will provide a controlled environment in which start-ups, their customers and the regulators can explore and understand the new product and associated risks. Feedback from these multiple stakeholders can then help to refine and improve the initial products and nurture the new businesses to transform them into tomorrow’s banks and financial services businesses.
I congratulate the treasurer, the government, FinTech Australia and ASIC in the work they have done to put together the framework for this Sandbox and look forward to seeing many new fintech businesses and the jobs it will help create.