Guest Post by Jessica Ellerm Norton

To understand the opportunities to hand when it comes to fintech innovation in Australia, it is first important to understand the lay of land when it comes to local financial markets.  And with a financial sector dominated by the Big 4 Banks, (Commonwealth Bank, ANZ, National Australia Bank and Westpac) one simply cannot ignore the successes and pressures facing the local oligopoly.

To give you first a flavor of the successes:

• In the past 12 months alone, shares in Australia’s biggest 4 banks have appreciated by up to 26%.

• The share price of Commonwealth Bank stocks is expected to surpass $100  in the coming weeks.  To give you a comparison point, pre GFC (Global Financial Crisis), Commonwealth Bank stocks reached a high of $61.65.  Post GFC, Commonwealth Bank stocks bottomed out at $24.07.

However’s it’s not all sunshine and rainbows for Australian banks.  A comprehensive report into the state of the current financial system in Australia, the Financial System Inquiry has concluded that a number of risks remain within the sector or have even grown since 2008, notably in relation to Australia’s housing market boom.  Keen to ensure banks are capable of withstanding another GFC-like event, they have made a comprehensive number of recommendations around risk management.

Two key recommendations amongst this list have the potential to significantly hurt bank profits, or customers hip pockets for that matter, especially if banks decide to pass these increased costs on.  These two recommendations are to:

• Significantly increase the level of capital currently held by banks.  Some estimates put this at an additional $60 billion that would need to be raised to top up bank coffers.

• Increase the risk weights applied to mortgages by the banks, thus resulting in an increase in capital provisions set aside to cover defaults.  Today this capital provision sits at about 18% for the majors and 39% for smaller banks and credit unions.

So while the banks continue to roll out their analysts and PR teams to try and convince the regulators and the public that such demands are detrimental to the economy and overall health of the banking sector, many fintech startups are seeing the somewhat imminent increase in bank costs as a golden opportunity to start establishing a foothold in the local market, ready to swoop in on businesses and consumers as soon as the pinch of higher rates and bank fees starts to be felt.

I’ve listed below a number of these locally bred fintech start-ups and high growth companies that have the potential to capitalise on the changing banking landscape in the coming months.

Personal Banking

CoinJar | @GetCoinJar

What they do:  CoinJar is a global personal finance company, where people can easily buy and spend bitcoin and other currencies.  With over 37,000 customers, they’ve processed over $50M worth of transactions in the last 12 months.

Potential impact: They’re making Bitcoin accessible to everyday users, from mobile management of your Bitcoins through to an Australian issued debit card.  Plus hedging of Bitcoins against the four major currencies is now also available through the platform.  Traditional payment systems allow banks to collect a number of fees from both sellers and buyers.  In the new world of Bitcoin this revenue stream could take a significant hit.

Nimble | @nimblemoney

What they do:  Nimble is a paperless, online credit provider, issuing $100 – $1200 loans to consumers, with transfers completed within 60 minutes.

Potential impact:  Nimble recently placed 34th in the worlds top 50 fintech innovators, according to a report prepared in conjunction with AWI, FSC and KMPG Australia.  For consumers, fed up with racking up credit card bills and overdrafts when they need temporary credit, Nimble is a viable alternative.

SocietyOne | @mysocietyone

What they do:  SocietyOne is a Peer-to-Peer lender that connects investors with creditworthy borrowers, anonymously, in a secure online platform.

Potential impact: James Packer, Kerry Stokes and News Corp have contributed $20 million in equity funding to back Society One.  They’re more than likely hoping Society One will be Australia’s first Lending Club.  It’s a marketplace outside of the traditional control of the banks, which means no clip on loans or brokerage fees.

Stockspot | @stockspotcomau

What they do:  Stockspot is Australia’s first online, automated investment adviser and fund manager.  They aim to make professional wealth management accessible to more Australians.

Potential impact:  Stockspot recently placed 45th in the world’s top 50 fintech innovators, according to a report prepared in conjunction with AWI, FSC and KMPG Australia.  With a significant degree of heat on Australia’s beleaguered and scandal-ridden financial advice sector, more and more consumers will look to robo-advice as a viable and far more cost effective alternative to the banks in-house planners.

Business Banking

Lend2Fund | @lend2fund

What they do:  Lend2Fund, launching in April this year, aims to provide institutional investors with direct access to profitable commercial property transactions that until now have largely been the preserve of banks.

Potential impact:  Lend2Fund see themselves as a pure marketplace lender, not another peer-to-peer lender and as such, they’ll be applying for an Australian Market License (AML). Currently Australian peer-to-peer lenders operate under Australian Financial Services Licenses (AFSLs).  While banks are likely to continue to play a part in commercial property financing, with less appetite for risk, Lend2Fund envisages they will take smaller stakes, with balances been made up by a combination of other investors keen to get a slice of the property market.

Tyro Payments | @tyro

What they do:  Tyro Payments is Australia’s only independent and fastest-growing EFTPOS provider.  They are an unlisted public company and hold an authority to carry on banking business in Australia subject to conditions.

Potential impact:  Tyro broke into the payments space over 10 years ago and has since acquired over 12,000 customers.  The key to Tyro’s success has been to create an ultra-sticky payments product that integrates with a small businesses’ point-of-sale software.  The emerging cloud and iOS market is all but being dominated by Tyro currently, with banks failing to keep up with the technological pace when it comes to connecting their systems to these emerging platforms.

Other Early-Stage Players to Watch

Pocketbook | @getpocketbook

Similar to Mint in the US, Pocketbook wants to own the personal mobile money management space.  Currently in pre-monetization stage, the company claims to have over 100,000 users on its platform.

MoneyPlace | @MoneyPlace_AU

Another peer-to-peer lender, MoneyPlace was founded by 4 former NAB bankers. They have not yet launched but are looking to do so after a capital raising in March 2015.

Fintech Hubs and Investors to Watch 

Tyro FintechHub | @TyroFinTechHub

Not content with simply being the leading banking disruptor, Tyro has opened its doors to local fintech startups.  Co-working space is available as is the opportunity to partner more closely with Tyro via access to a range of open APIs and co-marketing expertise.

Stone & Chalk | @stoneandchalk

Backed by leading industry banking and technology veterans, Stone & Chalk is an independent, not-for-profit Fintech hub whose overarching objective is to help foster and accelerate the development of world-leading Fintech start-ups.

AWI Ventures | @awiventures

AWI is Australia’s only fintech focussed incubator and venture capital investor.  They’re reported to be looking to raise $50M in 2015 to back more fintech plays.  Currently they have a $2M invested in 7 fintech-related businesses, including StockSpot.

Meetups 

The one and only Meetup that really matters is the Sydney FinTech Meetup, founded by serial entrepreneur Kim Heras.  The last event, hosted by Sydney’s Macqaurie Bank, had over 200 registrations.  No doubt a sign of positive things to come and a clear indication of the groundswell of activity in the fintech space.