2 November 2017
Speech - #2017029, 2017

Address to the FinTech Australia Collab/Collide Summit, Melbourne

Check against delivery

Digital disruption and collaboration in financial services is changing the world.

This change is putting the power back in the hands of the consumer. It's what they want that counts, and that's how it should be.

Empowering the customer, driving down cost and increasing speed and efficiency - this is what we want to see for Australian customers. We want to see the customer at the centre.

It's a change that is putting the heat squarely on businesses to be customer focused, innovative and forward thinking; to be ahead of the pack.

Dominant market share can no longer be relied upon to compensate for failure to anticipate, innovate and adapt.

This power shift is already fostering a raft of innovative new products and platforms that are giving consumers greater choice through increased competition within the financial sector.

And it's not just about allowing the small players to compete with the big players on the same pitch. Or building a FinTech company with the sole purpose of being bought out by a bank; and walking away with a cheque.

There is an exchange taking place; a collaboration between the establishment and the new that is accelerating the pace of change within the financial sector.

The Turnbull Government has been methodically positioning Australia to become a world leader in FinTech, in conjunction with ensuring our financial system is unquestionably strong, accountable, competitive, and therefore fair.

We believe the health, strength and stability of our financial sector will be an important enabler of our FinTech agenda.

So this morning I want to share with you how I believe Australia can build upon the impressive disruption that we have already seen in this space - more than evident at this conference - and see Australia go on to lead the world in FinTech creation and adoption.

Our job is to put the building blocks in place so organic FinTech development has a strong foundation from which to grow and flourish.

But I should stress my passion and vision for FinTech is not confined to the benefits for the sector alone, as substantial as they may be.

I am not a frustrated FinTech developer.

As strange as it may seem, I do not pine to mushroom myself in a highly caffeinated corner of a Stone & Chalk innovation lab, conversing only in code and challenging the health benefits of Vitamin D. But I am certainly glad so many of you do. You have the passion of true pioneers and it is energizing.

My real motivation is that, as Treasurer, I can see how the success of FinTech in Australia can transform our economy by realizing the gear shift in productivity that is critical to securing more and better paid jobs for Australians in the future. This is the real prize, more and better paid jobs.

By having new and better systems; seeing data as the new dominion, digitising our processes and embracing a new world of artificial intelligence and digital identities.

And finally by opening our doors to a world hungry for effective digital transformation that will drive productivity.

For new ideas to take seed and prosper, it is critical that we have a FinTech ecosystem that encourages and facilitates our creative thinkers.

What they are trying to achieve is tantamount to a revolution in the financial sector; one that will benefit us all, both in the way we do business and the way we go about our lives.

And it's happening.

As with any transformative change within industries, there are teething problems, misfires, failures and a tendency to overpromise and underdeliver.

However, the potential gains are well worth the trials and tribulations.

In the past two years, Australia has developed a healthy FinTech ecosystem and is now the second largest alternative finance market in the Asia-Pacific, especially among small business.

We rank fifth in the EY FinTech Adoption Index, putting us ahead of key markets in Singapore and Hong Kong. And in the recent Global Financial Centres Index, Sydney and Melbourne were ranked eighth and 13th respectively out of 108 financial centres around the world on their strengths in FinTech.

Our FinTechs are also changing the world.

The number of FinTech start-ups in Australia increased from less than 100 in 2014 to 579 companies in July 2017 and now represent a broad spectrum of innovation, from payments and digital currencies, RegTech, credit, data and analytics and personal finance management.

Perhaps none more impressive than invoice2go, which is now used by 350,000 companies in 20 countries with $2 billion worth of invoices sent electronically every month.

Peer-to-peer lender Ratesetter recently reached a milestone of $150 million in loans facilitated, backed by their 8000 registered lenders. In August alone, they facilitated $12 million in more than 1000 loans.

The loan book at Prospa, a Sydney-based lender that dishes out loans between $5000 to $250,000 to small businesses, is now worth $450 million. It has 12,000 customers and growing at warp speed.

These are the type of innovative, nimble businesses that are providing real competition to the traditional banking pillars.

But I believe we are yet to feel the full force of change coming from an expanding FinTech sector that is sure to be a new driver of productivity.

Consultancy firm McKinsey said "Australia's digitisation is uneven and still a distance from its full potential."

The firm predicted "digitisation could contribute between $140 billion and $250 billion to Australia's GDP by 2025, based on currently available technology alone."

This is a real impact that benefits a nation and why I am behind FinTech all the way.

We will have in place the world's most forward leaning regulatory sandbox for FinTech development. The pieces of the puzzle are coming together for the financial services revolution in this country.

A regulatory sandbox allows entrepreneurs to test new products without the inhibitive need to have a financial services licence. It is trial and error in a safe environment, determining if the products are commercially viable. It is to give startups a real leg up and clear air to get going.

As promised in the Budget, we have worked hard on a world leading legislative regulatory sandbox which will give firms huge scope to test their products and get going.

I released the draft legislation for consultation just over a week ago and at this stage we remain on track to introduce the legislation to Parliament by the end of the year, with the regulations to come into effect in the first half of 2018.

This enhanced legislative sandbox will be broad - to whom it applies to, what can be tested and how long businesses can remain in it. It will include financial advice, the issuing of consumer credit contracts and facilitating crowd-sourced funding.

This is the ideas workshop, and will no doubt be a source of many innovation breakthroughs in FinTech in the coming years.

As well as this ability to test their products, we will made it easier for entrepreneurs to fund their ventures by extending the government's crowd-sourced equity funding framework to private companies.

Of course, the banks won't provide funding for every business venture that comes knocking on their doors. For those who are finding it difficult to access traditional sources of funding to grow their business, this change gives you a fighting chance.

We have also introduced new tax incentives for angel investors who are looking at jumping into an innovative FinTech when the elevator is still at the ground floor.

These include a 20 per cent non-refundable carry forward tax offset for investment in early-stage Australian innovation companies and a 10-year exemption on capital gains tax where these investments are held for more than 12 months.

Also, on the advice of my FinTech Advisory Group, we are clarifying the venture capital tax rule to ensure the venture capital sector can invest in FinTech businesses.

This will ensure the FinTech has great access to venture capital funding.

These measures, in addition to the fostering already underway through the National Innovation and Science Agenda, are part of the Turnbull Government's solid investment in our FinTech future.

All this means little if at the end of the day the endgame is not the empowerment of the customer in their financial lives.

And nothing determines the power of a customer more than the access and use of their individual and collective data.

In the Budget this year I committed to mandating comprehensive credit reporting if lenders did not reach a threshold of 40 per cent data reporting by the end of the year.

Such a regime, the Financial System Inquiry concluded in 2014, would "reduce information imbalances between lenders and borrowers.'' That conclusion was backed by the Productivity Commission in its review into data availability and use.

But it is clear that this target will not be met as only a negligible volume of data is currently being reported in the existing voluntary comprehensive credit reporting scheme.

Less than one percent of CCR data is currently being shared in public mode.

Which is why today I am announcing that the Turnbull Government will now be proceeding to introduce a mandatory comprehensive credit reporting regime from July 1 next year.

We intend to start with the four major banks, given they account for approximately 80 per cent of the volume of lending to households.

Other credit providers would likely follow suit quickly to improve their competitive position in the market.

The banks will be required to have 50 per cent of their credit data ready for reporting by 1 July 2018, increasing to 100 per cent a year later. This is a timetable the Government believes is entirely achievable.

We will consult further on whether to mandate additional institutions being included on a phased in basis as well as on the implementation mechanisms for this decision, including the legislation.

There is still a lot more work to be done, but that work now is about implementing this decision, rather than making it. We have reached and passed this important threshold.

This will be a game changer for both consumers and lenders, and will lead to greater competition in lending and naturally, provide better access to finance for Australian households and small businesses.

This will not only grow businesses and our economy, but can also change our daily lives.

The regime will give lenders greater transparency on a borrower's true credit position and their ability to pay a loan. A more comprehensive picture.

This reduces a lender's exposure to defaults by allowing it to calibrate its lending according to risk.

This new transparency will also open up the lending market to new players by enabling them to better assess the credit risk of customers.

They will then be able to offer interest rates that undercut the major lenders without the fear of defaults weighing heavy on their decision making.

Or give them the option of taking onboard more riskier customers at premium rates.

For borrowers, this regime should lead to one thing - a better deal on your mortgage, your personal loan or business loan.

If you have a good credit history - you're paying down your mortgage, you haven't missed a payment on your car loan and your credit cards are under control - you will be able to demand a better deal on your interest rates, or shop around, armed with your data.

Small business owners can spend less on financing costs and more on investment in business growth.

It will also increase the availability of credit, opening up the options for borrowers with thin credit files whom lenders may have put in the too-hard basket. And make it easier for customers who have one or two black marks on their name to get a loan, if their recent history of repayments is positive.

Treasury has consulted widely with stakeholders, including major banks, and no significant improvement in the volume of data reported is expected by the end of the year.

The Government appreciates that a number of the major banks have recently made public commitments to join the existing comprehensive credit reporting scheme in 2018. These have made clear that the end 2017 target will not be met, and there is still uncertainty as to when all will be on board.

Mandating will rely on industry led and administered frameworks for the sharing of data, as our view is 'business knows best', and our role should be merely to set minimum standards and inputs.

There is also discussion taking place in connection with the FinTech Advisory Group, to extend the comprehensive credit reporting regime to include gas, electricity and phone service providers.

Currently, utilities have no access to the positive payment history of Australians, only the default data, or more explicitly, every time a customer is more than 60 days late paying a bill of more than $150. We will continue to look at this issue in consultation with interested parties.

Reporting of positive credit histories has been commonplace in the UK and US, where customers have long been able to use their good repayment histories as leverage.

Naturally, this regime sits in perfect partnership with our Open Banking initiatives - giving customers greater control over their banking data.

Open Banking will empower customers to seek out products better suited to their needs - saving them money and allowing them to better achieve their financial goals.

I don't have to tell this crowd that Open Banking creates opportunities for innovative business models to edge their way into the market. I'm sure many of you already have plans to pounce, when customers can take their destiny in their own hands and go out and look for a better deal.

More informed customers will put pressure on the financial services sector to become more efficient, affordable, innovative and competitive.

And that can only be a good thing.

The customer at the centre.

But while the creation of 'new things' in this FinTech revolution takes centre stage, it is our traditional systems, bureaucracy and methods that also need a digital reboot.

Our systems need to evolve in step with market advances, and that is already the case here in Australia.

When you've got the ASX looking to establish the first blockchain settlement house in the world, that's a pretty exciting thing for Australia.

And we will have a new online real time payments platform active and operational by next February.

Businesses and consumers will have the ability to make payments in real time, with funds available to the recipient at the click of the fingers.

Twenty four hours, seven days a week.

Importantly, the New Payments Platform which we have been following closely, will support a range of real time 'overlay' payment services, which allow FinTechs to leverage the technology with their own products.

The infrastructure will shortly be here, and I cannot emphasise enough the opportunity for you guys to build businesses on top of this.

BPay's Osko payments system will be the first cab off the rank, allowing their customers to make instant payments without the hassle of entering tedious data.

No more asking your mate for their BSB and account number to slip them the $20 you owe, if you know their phone number. That will be enough. No more paper invoices from the bloke that mows your lawn, if you know his email. That will be enough.

This moves the goalposts. And creates a new realm of opportunity.

Because cash remains the most common form of payment in Australia, with more than two million cash outs and ATM withdrawals each day.

And while we have the highest rate of contactless payment purchases in the world, the use of mobile payments is still low, with RFi research indicating only about eight per cent of Australians had used a smartphone to make a contactless payment in 2015.

Only this week, three of the major banks (CBA, NAB and Westpac) announced they would be teaming up to launch a rival mobile app to Apple Pay, allowing its customers instant payments, including retail point-of-sale and the splitting of restaurant bills.

So it's no wonder that Citigroup CEO Michael Corbat recently proclaimed that credit cards were doomed.

Things are moving quickly.

They are too within our own public systems. We therefore continue to move towards creating digital identities and to streamline how people deal online with government services.

Our opt-in digital ID tool GovPass has now entered the beta testing phase.

Currently the government has more than 30 different logins for digital services. Under GovPass, Australians will only have to prove themselves once to Government to gain access to our online services.

The government is building an exchange that will act as a safe and secure go between for the government agency providing the online service and the organisation that vouches for the user.

That could be another government service, or in the future, a private sector organisation such as a bank.

Last month I attended the IMF FinTech and Financial Services conference in Washington where fellow treasurers and finance ministers discussed the path forward on blockchain and artificial intelligence.

Of particular focus was how governments and regulators treat FinTech developments, striking the balance between efficiency and stability, ensuring that innovation is not stifled, while maintaining trust in the financial system. All of which are driving our actions in this space.

We heard how the Financial Stability Board has been analysing the implications of artificial intelligence and machine learning within the financial system.

There is significant potential for AI to be implemented across the financial system, with the FSB pointing to its use to improve regulatory compliance and the effectiveness of supervision.

It points to AI leading to "unexpected forms of interconnectedness" between financial markets and institutions, leading to the emergence of new players.

That is particularly the case when you pair AI with the exhaustive data we have at our disposal.

The Turnbull Government has also taken steps to promote the development and use of blockchain and digital currencies in Australia.

We provided $350,000 to Standards Australia to lead the development of of blockchain standards and we introduced legislation to remove the double taxation on purchases of digital currency, opening the door for digital currencies to operate in Australia.

Bitcoin and other digital currencies may be too volatile and lack the scalability to challenge the existing order now, but it would be unwise to think their futures are limited.

They are coming, in some shape or form, promising to bypass the system and allow peer-to-peer transactions without the need of a mediator.

In her speech to the Bank of England conference in September, IMF managing director Christine Lagarde claimed "virtual currencies could actually become more stable" than physical dollars.

The best response by central bankers, she said, was to continue running effective monetary policy, while being open to fresh ideas and new demands, as economies evolve.

The Reserve Bank is doing just that, and is already well down the track of examining the role that digital currencies might play in the future payments mix, and remains a keen observer of the push from industry to trial a Digital Australian Dollar.

In late September, a consortium of Japanese banks, with the support of their central bank, announced plans to launch a new digital currency in 2020.

Central banks in Canada, Singapore, Uruguay, China, Russia and the UK, together with private banks such as HSBC, Barclays and UBS are also currently experimenting with digital currency prototypes and systems.

Digital business is a global business.

Therefore to enable our great Aussie firms to take this global step, I am announcing today we are working to build a stronger collaboration with the UK through a FinTech Bridge collaboration agreement.

The Australia-UK FinTech Bridge will open doors in the UK for Aussie FinTechs going overseas.

It is being designed to go beyond the existing agreements that the Australian Securities and Investments Commission has in place with counterpart regulators, in countries including Singapore, Hong Kong, Japan and Canada.

The FinTech Bridge will enable close collaboration between governments, regulators and the industry – to identify emerging trends, share policy developments and better position firms for the challenges of entering a foreign market. The Bridge will give our FinTech firms an avenue to pursue international expansion or partnerships with innovative companies in the UK.

Across the world there is interest in what both Australia and the UK are up to with FinTech developments, given we are a little more progressive in the way we view and treat FinTech compared to most countries.

That gives us a seat at the table in guiding international norms and regulatory treatment of FinTech which we don't take for granted.

The details of the UK Bridge agreement are still being finalised and I expect to complete an electronic signing commitment with UK Chancellor Phillip Hammond before the end of the year.

This relationship will work in conjunction with our Trade FinTech advisor recently appointed by AusTrade; who will work with Australian FinTech companies looking to go global.

The agreement - which FinTech Australia has been working closely with Government on - will have key pillars of cooperation, and enable enhanced collaborations around blockchain, data, RegTech, Wealthtech and hopefully much more.

We want governments, policy makers and regulators to have greater access to one another and work together going forward to streamline rules and processes for FinTechs looking to grow to reciprocal jurisdictions.

A collaborative approach on innovation speeds up the ability of our Australian FinTechs to reach for global coverage and enhances the product that can be offered.

So we are heading into an exciting chapter of innovation in this country, one that I believe will put Australia at the forefront of FinTech creation and adoption.

We have fostered the right environment for our creative thinkers to have the freedom and boldness to dream big and start small. To see them flourish, so our economy flourishes.

And you have a government that is both forward-leaning and passionate about innovation, willing to invest in our digital future, willing to back our brightest minds and entrepreneurs.

And willing to empower ordinary, everyday Australians.