- Many fintech startups are disappointed with their collaboration with the main financial services players.
- And they believe the financial services royal commission could delay innovation.
- But also see this “trust deficit” created by the banks as an opening for fintechs.
Australia’s fintech startup community sees the hammering taken by the banks in the financial services royal commission as both an opportunity — to grab a piece of the action — and a speed bump hindering collaboration.
The 2018 EY FinTech Australia Census, released at FinTech Australia’s Intersekt Conference in Melbourne today, found almost half (46%) of the startups identified building partnerships with banks and other financial institutions as a key external challenge, up from 40% in 2017.
Many startups reported the big players were difficult to engage with and slow to act.
Meredith Angwin, EY Australia’s Fintech advisor, says the census identified several areas where improvements are still needed, particularly when it comes to collaboration with incumbents in the financial services sector.
“Although there has been considerable investment by major institutions in establishing the internal structures required to foster innovation and actively engage with fintechs in recent years, there is continued frustration within the fintech community about the extent this is actually being realised,” she says.
“In the near term at least, this is likely to continue as much of the focus of the incumbent players is taken up by the Financial Services Royal Commission.
“While fintechs generally expect the Royal Commission to be a ‘nett positive’ for their sector in the medium term — seeing it as an opportunity to grab consumer mindshare and differentiate their offerings in the market — they also believe it will slow the innovation focus for the next 12-18 months, as the wider financial services industry deals with the impact of the final report that will be delivered in early 2019.”
The census report says the Hayne Royal Commission has solidified declining consumer trust in major financial institutions.
“It has been an intense, if not traumatic, experience for many, including the major institutions, as their integrity and honesty has been questioned,” the report says.
“The negative sentiment and disapproval in the community is real. As consumers have learned of the misconduct and poor treatment of often loyal customers, their level of cynicism has deepened.”
The sense is that the trust deficit creates an opening for fintechs, with the challenge to ensure their brand is seen as separate from the incumbents.
One founder told the census: “It’s a great opportunity for fintech to grab consumer mindshare and differentiate our risk-based innovative lending models.”
Startups are disappointed at the response from the big players to collaboration.
“Many fintechs report that the major financial services organisations remain difficult to engage with and slow to act,” the report says.
Some talk of having hit a wall when it comes to dealing with the big players.
“While the Royal Commission is believed to have tempered incumbents’ innovation focus as the spotlight is now on risk mitigation, the apathy is believed to be driven by broader and more entrenched factors,” says the report.
The fintechs interviewed said common barriers included: coming up against the internal walls driven by legacy structures and mindsets; and “show me where you have implemented this before“ procurement processes that disadvantage start-ups.
A fintech founder interviewed said: “We took part in an incumbent innovation challenge, we won and part of our prize was an introduction to the head of the internal department where our solution could help. He was quite clear when we met that he was not interested in what we had to offer saying, ‘I am only here because I was told to be’. Not the prize we were expecting!”
Niels Maartens, COO of YBF Ventures and a board member at FinTech Australia, said: “While the full impact of the Royal Commission is yet to be felt, what we are sure of is that the outcomes will shape the financial services landscape for incumbents and fintechs alike. One positive outcome we are working towards is improved partnering and collaboration with fintechs.”
The 2018 EY FinTech Australia Census surveyed 151 fintechs across Australia and interviewed 12 founders.
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