This paper was produced under the Funding Australia’s Future project which aims to better understand the changing dynamics of the financial system and its impact on future economic growth. The research from Stage Four explores the growth of fintech, its implications on the structure of the financial sector and the value it can produce for the broader Australian community through increased competition in the financial services sector.
Internationally, fintech growth has happened under three types of conditions: 1. Countries with a history and culture of promoting start-ups (e.g. US), 2. Countries where businesses have been able to operate in regulatory gaps (e.g. China) or 3. Countries that have adopted fintech-specific policy and regulation (e.g. UK and Singapore).
The major categories for intervention to encourage fintech development are: policies that remove regulatory barriers to entry (more open and transparent regulation, industry sandboxes, licensing reforms and pro-competitive mandates); policies that remove market barriers to entry (opening up banking and payments system modernisation); industry promotion and support (grants and businesses assistance).
Care is needed in changing policies and regulation to facilitate competition. To improve welfare, benefits must result in overall improvements in efficiency and economic growth, rather than benefitting one business, sector or industry at the expense of others.
The Australian Centre for Financial Studies (ACFS) initiated the Funding Australia’s Future project in late 2012 to undertake a stocktake of the Australian financial system, and its role and challenges in facilitating future economic growth within the wider economy.
In an economy which has enjoyed 26 years of consecutive economic growth and showed a resilience through the Global Financial Crisis which was the envy of many nations, the financial sector has played an important role. The past decade, however, has been one of significant change. The growth of the superannuation sector, the impact of the GFC, and the subsequent wave of global re-regulation have had a profound effect on patterns of financing, financial sector structure, and attitudes towards financial sector regulation. Identifying the extent to which these changes are transitory or likely to be more permanent is crucial to understanding how financing patterns and the financial sector will develop over the next decade or so.
The Funding Australia’s Future project is in four stages, the fourth of which explores the growth of fintech, its implications on the structure of the financial sector and the value it can produce for the broader Australian community through increased competition in the financial services sector.