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Fintech startups need better help, not necessarily less regulation

Monday, 20 October 2014 | By Kye White

Australia needs to better support early stage fintech ventures because they cater to the nation’s later stage strengths, according to the head of fintech accelerator AWI Ventures, Toby Heap.


Fintech refers to startups in the financial services sector. While it varies from startup to startup, Heap says most of the startups he’s dealt with operating in the space have needed a financial services licence of some description, a process that can take as long as four months and cost up to $100,000.


“For startups, both of those are big issues, the whole idea of a startup accelerator is you’re trying to get a startup in a handful of months, to take something to market to see if there’s a desire for that,” he says.


“The whole lean startup concept is about getting an MVP to market and finding out if people want, while spending as little money as possible.


“The problem for financial services is you don’t have that option, you have to spend that money up front, before you can get to that point.”


Heap says it’s possible to make it easier for Australian fintech startups to succeed, and it doesn’t necessarily mean there needs to be less regulation.


“The biggest barrier for fintech startups is trust in the eyes of end users, so we don’t want to lower the bar for regulation, because that potentially can make it even harder to gain people’s trust,” he says.


“What we care about is easing the process.”


Heap says Australia’s competitors in this space, most notably the United Kingdom, realised this long ago and are already moving to encourage the development of fintech startups.

London perks

Representatives from the UK Trade and Investment Commission are in Australia actively courting Australian startups to move to London. And they offer a number of benefits.


British High Commission head of communications Sarah Corcoran says the British government helps early stage startups get capital through the British Business Bank, which aims to ensure there is a healthy supply of finance providers for smaller businesses, in addition to the large banks.


“The UK regulator, the Financial Conduct Authority, supports the fintech industry through its new initiative Project Innovate, which will help both startups and established businesses bring innovative ideas to financial services markets. This is a clear signal that the regulator wants to ensure that fintech businesses operating in the UK are supported by the UK’s regulatory environment,” Corcoran says.


The UK also has a number of tax incentives, which include:


The Enterprise Investment Scheme (EIS); a tax-based venture capitals scheme designed to help smaller higher-risk trading companies raise finance.

The Seed Enterprise Investment Scheme; designed to help small, early-stage companies raise equity finance by offering a range of tax relief to individual investors who purchase new shares in those companies.

Entrepreneurs Relief; reduces the amount of Capital Gains Tax on a disposal of qualifying business assets.

R&D tax credits; for small or medium businesses the tax relief on allowable R&D costs is 225%.


In addition there’s Innovate Finance, an industry organisation that is “the voice of UK fintech” which is “directly supporting the next era of technology-led financial service innovators”.

Australia falling behind

Heap says there’s a need for something similar to Innovate Finance in Australia, “an ombudsman for lack of a better term”, which could be a single point of contact for fintech startups and the government bodies responsible for regulating them.


“(Licences) are a bit like tax returns,” he says. “The application process of applying to a licence isn’t that complex, you’re ticking a lot of boxes, showing evidence you’ve got required skills and experience,” he says.


“The problem comes is there’s a perception that if you don’t use a reputable legal firm to do all that paperwork, the regulator won’t give you the licence, and that’s what obviously leads to a lot of the cost.


“One of the thoughts is if the applications process can be clearly made to be something that can be fill out by a startup themselves. I guess this is where an ombudsman would be useful. If they got it wrong, they’d have someone on their side who could say, you can fix this.”


Heap says the key message is that Australia needs to do more to focus on its strengths.


“Our best chance of succeeding is to focus on our strengths in the later stages and one of the areas we’re really strong is financial services,” Heap says.


“And that’s what London has realised 18 months ago, and has focused all its efforts on being a fintech hub. Frankly, part of the reason they decided that is if a lot of your economy is in financial services, then you’ve got a lot to lose.”

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