2 November 2017
Transcript - #2017211, 2017

FinTech Australia Collab/Collide Summit Q&A, Melbourne

SUBJECTS: The future of FinTech; Mandating Comprehensive Credit Reporting; FinTech Bridge with the United Kingdom.

QUESTION:

The threat that we talked about two years ago and that threat really at some level is the globalisation of these industries whereby there is a risk Australia becomes a branch office for financial services and the way, to some extent our media industry has been impacted. Has that threat lessoned? Increased? In your mind?

TREASURER:

I don't know if it is about lessoning or growing, but it just continues to change. Whether it is in the media side of this or the finance side of this and I think in your introduction today you rightly highlighted, frankly, this is more significant when it comes to the financial services sector and what has happened there than arguably what it is in the media sector. Because as you rightly point out, the financial services sector is bigger, it employs more people, its growth profile was more important to Australia's future economic growth and the jobs that we are paying for. So, it is an even more important priority and the Government seeks to understand it. I still think there is a lot of churn at the moment. I think everyone is trying to find understanding in this space and that is why I was quite pleased at the most recent meeting in Washington there was serious discussions about this and we are much further ahead because we have been having those discussions, with government, with industry now for some years. My observation, apart from places like the UK, those discussions haven't been happening in the same way in a lot of those other places. The level of understanding probably among policy makers is not where it is here and while it has been a journey for me as Treasurer, it has also I think been a really important journey for the regulators and for our Treasury officials and others. There's been, if you like, an infusion of understanding. So, that is what actually diminishes the risk for Australia. And I suppose whether it is lessor or greater in terms of the use, what's good for Australia is I think these things are more dependent on the people driving them. The ideas – ideas are potentially more powerful than size now and things like [inaudible] are good examples of that. So, making sure that when we get it right here and we get a break – and it is hard to get a break in this space – and our venture capital markets aren't as strong as they are in the US but US venture capital markets are investing in Australian products here. That is very true. What we need to ensure is that we can go from early stage to late stage and that we can achieve scale here. The good thing about FinTech is that you don't have some of those scale limiting barriers that other industries have to see the ideas development stay here. There are big implications for that for our vocational and higher education systems. There are implications for our immigration system which we have discussed to make sure we realise that. So, look that is a long winded way of saying, I think we are still well placed. We will watch really closely and we just have to keep staying ahead of the game and not stay still because the risks certainly will be worse. You don't do that.

QUESTION:

Absolutely. One of the other things that have been interesting to watch, again on a global scale, is particularly in Western economies the ability to bring these sorts of innovation centres and everyone is talking to each other and they all think that everyone thinks the same thing but actually you get to the rest of the country and the country is not thinking that way. How are we going? Is there more that we can do to bring the rest of the country along with the innovation agenda? What can we do? What can Government do?

TREASURER:

This is an enormously important question. There are a couple of words that scare the hell out of people; productivity, innovation, reform. These are scary ideas to people. Particularly, while our economy particular this year has been improving. We have come out of a pretty hard place over the last decade and Australians remember while there has been a generation of prosperity – we haven't had a recession in 26 years in Australia – that didn't happen by accident. It was a product of very important reforms back in the 90s in particular. Those reforms also didn't come without costs. So, in managing transition – that's another scary word – change, I think we've got to be really honest with Australians, that when things change, yes there are parts of change that we have to manage and to be sympathetic and empathetic to and identify that and not pretend it's not there. At the same time we can't let that hold us back from the prosperity that comes with the change. So, you have got to sell the benefits as well as not kidding people about the costs. I think the heart of your question goes to, with innovation, is what we haven't yet seen in FinTech is its very supply led. You guys are thinking about all the things that people will want. I don't think we've hit yet that threshold point where the market is telling you what they want. I don't think yet we are at the stage with a lot of these developments where people really are getting a handle on what this can mean to them and the services and expectations that they can realistically have from this sector. In many ways we are trying to inform the public about what this can mean. So, today with comprehensive credit reform, I was pleased to see the coverage today which rightly told Australians, and they don't even know the details of how the CCR is going to work and all the rest of it, but what it does mean to them – if you are a good customer you can get a better deal. And that's great. If you are a small business and banks have been saying no to you because they don't understand your business, you're going to find someone who does get it and that means you're going to get that finance and you're going to be able to develop that new model or that new product. And the people that work for you are you going to be pretty happy about that because they're going to have jobs for the next ten years. It's hard for sectors which are of themselves are mainly about the technology and the interest in what you do, but it is about selling, it is about putting in those retail terms.

QUESTION:

I think a number of FinTechs in this room have been selling the 'get a better rate' message for some time but there's no doubt that when the Government tells that message it probably will get a bigger headline which is really helpful. One other question I was wanting to touch on is this notion of a regulatory arbitrator, it seems like increasingly the regulators are competing on a global level to really actually try to track FinTechs in their market, and increasingly there seems to be some of those that really concentrate power as well. How do we make sure that we can really stay in the forefront?

TREASURER:

The answer to that is by listening to you and making sure that our regulatory systems are flexible and effective. Things like the FinTech bridge with the UK which would be really important and I think there's potential for other features there to ensure there is an alignment of best practice. But I do think we are helping out there at the front of this now and the other countries would be looking at us. So it is about constant engagement. One of the useful things about the G20, it used to be about `there's a crisis so we'll all get together and put some package together'. That hasn't been a discussion at the G20 for some years now. The discussion has been about what's the impact of digitisation of businesses on tax bases? What does that mean for global competition policies but equally what does it mean for regulation of digital economies? And so, I think these discussions are getting very practical. And I think that is a good thing. So, while there is competition, I think there is also a keenness to have an even playing field – or at least some common standards.

QUESTION:

Last question I want to ask, there is a really interesting dynamic, probably a decade ago, the US was one of the leaders in current payment system structures – a number of terminals per person. But fast forward ten years, China now has 50 times the amount of mobile payments of the US. Can our strength in our traditional financial services actually become a vulnerability in that sort of hunger to adopt what the next generation wants?

TREASURER:

It's no different to what we've seen in many other areas in developing countries where they leapfrog generations of technology and we've seen that in many different sectors and I think this one is no different. One of the interesting discussions that we had in Washington was that in more developed economies, advanced economies with more developed payment systems and upgrading of those payment systems, the opportunity for disruptors to come in and establish new payment platforms doesn't exist to the same level because there isn't a margin that is there. You go to China and parts of South America or Africa and you're walking into an empty room, so there is a big value add that is going to be going by those countries investing. Now that's not true in Canada. That's not true in Australia. It's not true in the United Kingdom or the US, so I think it just means that it develops differently in those countries. When you're the first mover sometimes in a country with technology that does actually create a disadvantage because it's factored into your cost base and to move away from it can be costly and difficult. But at the same time, Australia has – I will argue – has the strongest banking and financial and most secure and stable banking and financial system in the world. We have a AAA credit rating as a country of one of only ten which means that's a good thing for our banking and financial system who are able to dovetail on that. Other places don't have that, so while in some areas yep, that might slow us down, in other areas it gives us great advantages so we've just got to play to our deck and they can play to theirs.

QUESTION:

Thanks for your time and your support, Treasurer, and for coming and joining us again.

TREASURER:

My pleasure.