The Fintech Opportunity for Sydney

Unlocking the potential: The Fintech opportunity for Sydney

October 2014 Unlocking the potential: the Fintech opportunity for Sydney

Foreword from the Deputy Premier Sydney’s position as Australia’s financial services powerhouse is set to move up a gear. The convergence of digital and financial sector strengths and growing global recognition of the city’s role as a key financial hub for the Asia Pacific are fuelling Sydney’s fast emergence as one of the world’s most exciting new financial centres. The NSW Government has recognised this opportunity and is working with businesses and researchers to improve collaboration and knowledge sharing across the NSW financial services industry. We are supporting the establishment of an industry-led Knowledge Hub for financial services to create a new platform for collaboration, to enhance productivity and innovation, build capabilities, and identify market opportunities. With an improved culture of innovation and collaboration between government, industry and research, we have the potential to provide fresh insights for NSW businesses to help them build sustainable long term competitive advantages. The Financial Services Knowledge Hub, coordinated by the Committee for Sydney, aims to capitalise on this by positioning the NSW financial services industry for new markets, new opportunities, new capabilities and global growth. This report provides some specific insights into the rapidly developing market for financial services technology or Fintech, and it will help to inform the activities of the Financial Services Knowledge Hub. Fintech presents a fantastic opportunity for Sydney as a leading financial services and technology hub for Australia and the Asia Pacific. I commend the Committee for Sydney for commissioning this highly relevant research, and for its important ongoing role in driving growth and innovation with the Financial Services Knowledge Hub. This initiative will further enhance Sydney’s emerging position as a leading global financial services centre.

Andrew Stoner Deputy Premier

Contents Page

Scope 4

Executive summary 5

Fintech in Sydney: Building on success 8

Importance of financial services to Sydney 11

§ Importance of the financial services industry 12 The contacts at KPMG in connection with this § The changing industry landscape 14 report are:

§ The development of Fintech 19 Ian Pollari Head of Banking Sector What is happening globally 23 Partner, Sydney, KPMG § Global perspective 24 Australia Tel: + 61 2 9335 8408 § What can we learn from global leaders 32 [email protected]

Sydney Fintech today 33 James Mabbott Financial Services § Sydney’s Fintech sector 34 Director, Sydney, KPMG Australia Key implications and recommendations 40 Tel: + 61 2 9335 8527 § The key implications for Sydney 41 [email protected]

§ Building on our foundations 42

§ Recommendations 43

Appendix 46

Scope of the research project Supported by Unlocking the potential: the Fintech opportunity for Sydney is the result of a KPMG research project for the Committee of Sydney, aimed at understanding the emerging Fintech sector and what conditions, if any, are necessary and sufficient to enable Sydney to compete with other global cities

Background and purpose of the research The Fintech eco-system in Australia Approach undertaken

■ This research has been commissioned by ■ KPMG’s report, Unlocking the potential: the ■ KPMG Global Services desktop research of the Committee for Sydney in its role as a opportunity for Sydney, seeks to explore current publications and reports into Fintech key member of the Financial Services five key questions: in Australia and globally, as well as a review Knowledge Hub. The Knowledge Hub across eight leading and emerging global 1. What is Fintech? aims to establish Sydney as a key global centres for Fintech. financial services hub through encouraging 2. Where are the major global A series of interviews with Australian Fintech cross industry collaboration to identify the ecosystems for Fintech? ■ start-ups (emerging and successful), Venture key projects and initiatives required to meet 3. What are the necessary conditions to Capital funds, financial institutions and this goal. establish a successful Fintech Government and other stakeholders. Fintech (Financial Services Technology) ecosystem? ■ Internal KPMG workshop with key local and has been chosen as one of five key areas ■ 4. What are the key implications for global partners from the technology and to focus on initially (other areas of focus Sydney as a financial services hub? financial services industries to test research include Index Based Products, Asia Pacific findings and assumptions Equities for Australian Super, Australian 5. What recommendations would we Bond Markets and Infrastructure & Real make for private and public sector ■ Meetings with key local and global Estate Funds) with the first phase being companies to establish a successful stakeholders to verify and refine research research into global leaders for Fintech. Fintech ecosystem in Sydney? outcomes ■ The purpose of this research is to identify what conditions, if any, are necessary and sufficient to enable Sydney to compete and thrive on Fintech at a local, regional and global level.

Executive Summary Financial services is a substantial driver of the Australian and NSW economy, The emergence of Fintech represents an opportunity and a threat to Sydney’s with Sydney widely regarded as a leading international financial services centre position as a leading international financial services centre ■ The Australian financial services industry contributes the highest share of ■ Financial institutions globally are taking a wide range of approaches in trying sector value to the national economy (9%), employing 420,000 people and to keep up with the wave of technology innovation, with Fintech emerging as paying A$11.5 billion in tax in 2013, 18% of total corporate tax receipts. a key enabler. ■ Financial services is a significant employer in NSW, representing 42% of total ■ The Fintech sector is experiencing rapid growth globally, with financing industry employment nationally. activity predicted to rise from US$3bn to US$6-8bn by 2018. ■ Sydney is the dominant city for finance and insurance, with the most ■ As a leading global centre for financial services, coupled with a deep cluster significant cluster of industries, as well as critically linked industries that of ICT/digital, creative and professional service industries, Sydney is ideally support financial services, such as ICT/digital, tertiary education, creative and positioned to capitalise on this growing trend. professional services. ■ Fintech provides a pathway to position Sydney for the ‘digital economy’, ■ Sydney boasts a strong and sophisticated financial services industry, ideally fostering new business ventures, both in the financial services and located within the rapidly growing Asia-Pacific region. The city of Sydney is technology industries, creating benefits from a multiplier effect across NSW the location of employment for 77,946 workers in the finance and insurance and nationally. industry, or around 21% of the total Australian employment in this sector. ■ Fintech also represents an opportunity for Sydney to export our financial ■ Sydney is home to many Australian and foreign-owned financial institutions, services and ICT/digital capabilities globally. the financial regulators, central bank and stock exchange (e.g. ASX). ■ Other leading international financial centres are also pursuing the Fintech There is a paradigm shift in financial services occurring driven by technology, with opportunity and are supporting this through a strong alignment of activity new business models emerging and investment at all levels of government, regulators and industry to accelerate their success. ■ Post GFC, strategic imperatives for financial institutions and evolving consumer behaviours, in part driven by new technology, has been a catalyst for ■ Based on our discussions with local Fintech start-ups, other countries, such innovation in the global financial services industry. as the UK, are actively targeting Australian Fintech start-ups to relocate to London. ■ The traditional financial services landscape is being disrupted by new entrants leveraging technology to deliver new and existing services in more relevant and convenient ways to consumers and businesses. ■ The agglomeration of technology and financial services (“Fintech”) is creating new business models, e.g. peer to peer lending.

We need to proactively respond to maintain our leadership position There are a series of recommendations, including both the public and private sector, that are proposed ■ To capitalise on the opportunity and defend our current strong position in the financial services industry (i.e. protect tax revenue and employment), Sydney ■ Recommendations proposed to build momentum for Sydney as a Fintech must proactively respond in a coordinated and committed manner. sector are as follows: ■ No-one can predict which specific technologies or business models will be - State Government to continue working with partners in the private sector and winners (or losers) from the emergence of new technologies and the the Committee for Sydney on the development of a comprehensive Fintech implications for financial services. vision and strategy for Sydney. ■ Therefore, the focus should be on fostering a collaborative environment for - Explore the establishment of a not-for-profit Fintech hub in the heart of the city entrepreneurial activity and innovation from new Fintech start-ups and that co-locates venture capital, technology start-ups and established established financial institutions to flourish. financial services firms. ■ Creating the enabling conditions to support as many options as possible - Establish a series of events in the city, regionally and globally to promote should be prioritised by government and industry. Sydney as a leading Fintech hub in the ASPAC region, in line with our leading financial services position. There are a set of enabling conditions that can be drawn from other developed and emerging Fintech hubs - Form an independent Fintech focussed industry association, based in Sydney, to give the sector a public voice and champion. ■ Analysing the emergence of Fintech in other international jurisdictions, the following factors were observed as important enablers: - Review current regulatory, tax and business incentives available to the start- up community and target foreign repeat entrepreneurs and attract them to - available and accessible early stage funding for Fintech start-ups and a strong Sydney. pipeline of opportunities for investors/VC funds; - Engage the university sector to research key Fintech themes. - depth of financial services and technology talent, with close proximity of these talent pools to each other (in city locations); - a robust financial services industry, with a vibrant technology start-up community with mentoring, networking and high visibility; - Government and regulatory support for the Fintech sector specifically, and technology start-ups generally; and, - business backing for a Fintech hub, with high levels of collaboration and a strong culture of knowledge-sharing and entrepreneurship. ■ The UK in particular have accelerated the development of London as a Fintech hub over the past 18 months through a concerted effort by the government, regulators, the City of London, technology start-ups and industry.

Lucy Turnbull, AO, Chair Committee for Sydney Fintech in Sydney: building on success Unlocking the potential: the Fintech opportunity for Sydney

Fintech in Sydney: building on success

Sydney’s financial services industry is a key driver of national productivity. In itself it Focusing on what will enable the sector to grow produces 5 percent of Australia’s GDP with a significant extra multiplier effect in innovation and job creation - for the rest of the economy. Overall, Sydney’s finance and Like all Committee for Sydney reports, this is not an academic professional services driven CBD produces more wealth for Australia than the mining exercise. The report has a decidedly practical objective. It focuses sector as a whole. on what innovations, policies or tools are required across the public and private sectors to help grow the capacity and economic impact At the same time, Sydney is also the centre of Australia’s ICT industry and leads the of Sydney’s Fintech sector. Sydney has great foundations for a nation in technology start-ups. It is because of the agglomeration and combination of thriving Fintech cluster and a significant opportunity to benefit from a high labour productivity sectors here that the Committee for Sydney has talked of technological revolution that plays directly to its strengths, both as a Sydney’s increasingly important ‘dividend’ for Australia as the mining boom moderates financial and an ICT centre. and the need for public policy and investment to support its continued growth - in the national interest. Of course while understanding our strengths we also need to overcome our challenges. However, despite the importance of ‘Fintech’ both on the global stage and nationally and the fact that many financial services companies are clearly redesigning their business models because of the new digital and mobile platforms, there has been little While Sydney enjoys many natural advantages and its lifestyle is a research on it in Australia. The conditions for the emergence and success of Fintech magnet for young talent, previous research finds that such mobile here have not previously been identified to inform a strategy aimed at actively talent is attracted for rational economic reasons to cities with the promoting the growth of the Fintech sector. As Fintech will actually shape the future of right mix of assets. They want to be assured that the employment, Sydney’s key financial services industry and produce beneficial spill-over effects in enterprise and investment opportunities and the face to face, digital other productive, tech-based sectors of our urban economy, this gap needs to be filled. or transport networks they need from their city – and indeed the This report goes some way towards doing that. It is the first study produced under the required tax and visa regimes - are also available alongside the aegis of the new Financial Services Knowledge Hub initiated by the Committee for lifestyle they seek. Sydney, its many members in finance, ICT and the NSW Government Department of Trade and Investment. Recognising that digital, mobile and cloud computing technologies are revolutionising how customers bank and businesses raise finance, the Knowledge Hub will seek to help accelerate Sydney’s growing position in the region’s financial services industry by supporting its burgeoning Fintech scene and the eco-system and environment required to sustain it.

Providing a supportive eco-system for innovation and growing export potential another physically by actively promoting closer working of financial institutions and tech entrepreneurs: this ensures innovation is tailored to the specific needs of With tech entrepreneurs, this means that the eco-system and environment for financial services and their customers. We must do the same. innovation need to be attractive and supportive and also that the skills and finance they need are readily available. In this context this sector faces some Both are actively engaged in supporting training and workshop initiatives to arm critical challenges and barriers to overcome. This report seeks to identify them first time Fintech entrepreneurs with the skills that would otherwise take years of and suggest ways in which the ecosystem supporting Sydney’s Fintech cluster – experience to attain. We must do the same. that combination of financiers, entrepreneurs, customers and civic support – Both have created Fintech accelerators or innovation labs to reduce the time to can be further enhanced. market and speed up deal-making between financial institutions and Fintech And, by growing the Fintech sector in Sydney we will further cement Sydney’s enterprises from 18 months to 18 weeks. We must do the same. reputation as the national leader of innovation in the financial services industry, Vital: effective partnership between the public and private sectors as well as reinforce our reputation as a hub of technology development and talent. With the right policy settings, talent attraction strategies, collaboration and At the heart of success are effective public-private cooperation. We know that the above all ambition, Sydney can become a key Fintech leader within the Asia NSW Government ‘gets’ financial services and understands Sydney’s dividend Pacific region and a key exporter of financial services and wealth management from them for the state and the nation. We have also seen how creative a partner expertise and products to the region. That must certainly be our objective. they have been in working with the Committee and the private sector on developing effective new industry policy and initiatives such as the Global Talent Collaborating to compete – and to accelerate learning from competitors and Knowledge Hub projects. We are confident that our State Government will Just as the most successful cities internationally are those who ‘collaborate to seek to reduce any unnecessary barriers to the success of Sydney’s financial compete’ so too will greater success for the Fintech sector require greater services industry and to the development of a successful Fintech sector. collaboration. In principle the very essence of Fintech is the coming together of Some further policy development and advocacy will be required at the financial services and ICT/digital economy enterprise. We must build on this. Commonwealth level to ensure that we have competitive tax and visa regimes in Whereas some serendipity always helps in innovation, the report stresses that place to enable Sydney to attract the global talent and investment required to little should be left to accident if we wish to succeed in Fintech in Sydney. maintain its existing status as the nation’s centre for both finance and ICT and Structuring and enabling collaborations – between banks, alternative finance indeed to enable it to increase its economic significance in the region. In making providers, insurance providers, Fintech entrepreneurs, universities, venture the case for Sydney as Australia’s financial services export platform, the NSW capitalists and indeed government – is vital to overall success and specifically to Government will, we believe, be able to point in the coming years to a flourishing sharply reduce the typically longer product development and sales cycles found Fintech sector of regional significance. This report, and its key recommendations, in the Fintech sector. Assertive collaboration, skills development and capacity will help catalyse this result. building are crucial to speeding up the maturing of Fintech firms and to realising a flourishing Fintech sector in Sydney. Thank you to Michael Rose for Chairing the Committee’s Financial and Experience from other global cities suggest the initiatives and institutional Professional Services Taskforce, Andrew Low for Chairing the Financial innovation is required. Both New York and London are leveraging the benefits of Services Knowledge Hub and KPMG for developing this report. having the two interlinked sectors of financial services and ICT, close to one

Financial services and ICT, are significant employers in NSW, representing 42% and 37% respectively, of total industry employment nationally

Size of the finance and insurance services workforce Key employing occupations of finance and insurance services workforce

100% = 420,000 ■ The distribution of workforce in the financial and 180,000 ■ Whilst the industry employs an insurance services industry corresponds to the almost equitable mix of Other NSW share of total population in Australia, and in professional and more generic

WA 34,000 turn, the share of the country’s banking 39% skills across states, NSW and (9%) businesses located in each states. VIC have a higher proportion 32,000 120,000 (54%) of professionals and (8%) Over the past five years, both NSW and VIC ■ managers than more junior, QLD 54,000 180,000 recorded the largest employment gains in the 15% 38% (13%) (42%) clerical and administrative staff industry, at 10% and 8% respectively. 17% 55,000 The vast majority of NSW’s financial services ■ 39% 33% 120,000 33,000 38,000 (28%) industry employees are located in the Sydney Professionals 42% 15% 30% 26% 16% Managers CBD. 18% 45% 50% Clerical and admin. VIC 7% 4% 7% 52% 8% ■ Within, financial services, the banking sector is Other (sales, technicians) the dominant employer in NSW, employing over NSW VIC QLD WA Other 40% of the workforce. ■ Sydney’s highly educated and multilingual financial services workforce is growing. About 180,000 people were employed in NSW’s finance and insurance services industry, representing 42% of the Australian industry. ■ Finance and insurance is the largest industry in NSW, contributing A$57 billion to the State’s economy. NSW makes up 46% of Australia’s finance and insurance industry. It is also the second fastest growing industry in NSW, recording annual average growth of 3.6% between 1998-99 and 2008-09. ■ Furthermore, NSW has number of leading workforce education and training providers in financial services; anecdotal evidence suggests these providers have a positive level of engagement and make significant investment in education and training activities. ■ NSW accounts for 43% of Australia's total ICT businesses and almost 40% of national industry value-added output. ■ Almost 160,000 people are employed in the ICT sector in NSW, representing 4.7% of total employment in NSW and 37% of Australian employment in the ICT industry. ■ NSW has over 13,000 students studying information technology courses at the 11 universities in NSW

Source: ABS Catalogue number 6291.0.55.003 - Labour Force, Australia, Detailed, Quarterly

Sydney has the greatest concentration of overall finance and insurance industry employment, as well as ICT, professional services and tertiary education Sydney is the dominant City for finance and insurance, with the most significant cluster of industries, as well as critically linked industries, such as ICT, digital, tertiary education and creative services Finance and insurance industry ■ The City of Sydney is also dominant in critically linked industries to the financial services industry in terms of clusters of national employment in: ■ The City of Sydney is the location of employment for 77,946 workers in the finance and insurance industry, or around 21% of the total Australian employment in the ■ Digital industries – 14.7% (rank: 1st) industry in this sector. ■ Tertiary education, Adult education and Support services – 5.8% (rank: 3rd) ■ Of the top 10 locations for finance and insurance employment, 3 are located in ■ Creative industries – 13.8% (rank: 1st) Sydney. Therefore, Sydney has the greatest concentration of overall finance and insurance industry employment. ■ The City of Sydney grew in employment terms at a rate greater than the national average, as a result of the cluster/agglomeration economies and innovation. ■ The City of Sydney is the clear leading city for financial services in Australia, ranked 1st in a number of ANZIC industries: ■ This suggests that concentrated collaborative work between businesses in these financial industries, education and research institutions and Commonwealth, - Depository financial institutions – 57.1% state and local government could provide the support to ensure that these - Broking services – 43.6% benefits continue or can be enhanced in the future. - Life insurance – 20.8% ■ Notably, financial centres are not country, rather cities described as ‘hubs’, e.g. New York and London as ‘financial hubs’. - Banking services – 19% - General insurance – 18.5% ■ Sydney boasts a strong and sophisticated financial services sector, ideally located within the rapidly growing Asia-Pacific region. It has deep, liquid - Professional services financial markets and is recognised as a leader in investment management, as Professional Services well as areas such as infrastructure financing and structured products. ■ Sydney is home to the largest base of professional services (e.g. accounting, ■ Sydney is an attractive city to relocate staff, ranking in the top 10 cities of the taxation, legal, consulting) to the banking, finance and property industries World Liveability Index of 140 cities ranked on culture and environment, (estimated to be around 30-35%). healthcare, education and infrastructure. Critically linked industries ■ Sydney ranked 8th in the Global City Index in 2014 and ranked 12th in the Global Start-up Ecosystem Index 2012 (higher than any country in the Asia- ■ The City of Sydney is also the workplace for 15% of the total information, media and Pacific region). technology industry and 11% of creative and performing arts activity across Australia.

Source: City of Sydney Council; Z/Yen 2014; Economist Intelligence Unit, Liveability Ranking, 2013; Singapore Civil Service College, 2014; IBIS World 2014

Changing consumer behaviour and demands are putting greater pressure on traditional providers of financial services Tomorrow’s customer is likely to be even more demanding and less loyal to their financial institution, characterised by a desire for immediacy, valuing simplicity and transparency and expecting a more personalised service.

Consideration of non-traditional alternatives Reduced information asymmetry

■ Customers are likely to be more willing to consider ■ Technology is reducing information asymmetry in the non-traditional alternatives to ‘traditional’ loans, industry, giving customers greater transparency savings, investments and retirement products, when selecting a financial services provider, product either as a result of increased availability, or service. customer awareness, social and peer pressure.

Growing advice from peers Personalised services Customers may increasingly trust and value ■ ■ Multitasking and time scarcity is likely to continue to advice from alternative sources. Decisions are escalate, prompting more customers to look for time- likely to be influenced not only by their peers, saving solutions, single point of access and friends and colleagues, but also the opinions of aggregation across a range of providers. online groups and social media communities, which may span countries, cultures and which will ■ This is evidenced by the level with which customers almost certainly be comprised of strangers. have embraced self-service. In return for sharing more data about themselves, customers will demand even greater levels of personalised service.

Willingness to adopt new technology Less loyal ■ As the pace of technological advancement ■ Customers are increasingly value-driven and less continues to increase, customer’s willingness to loyal to financial institutions. This concern for value adopt new products and technologies is also likely has driven increased levels of switching, as well as to grow. Consumers are adopting innovations at increased the likelihood of future switching. an increasingly rapid rate

Source: KPMG, Investing in the Future

The rapid pace of technological advancement will continue with companies seeking to significantly alter the financial services landscape Examples of new entrants, both from established technology companies, as well as relatively new companies, are circling financial services and payments

Google has already PayPal is rapidly shifting from being a Square, the mobile payments San Francisco company Stripe has launched a plastic debit company that powers payments on the company started by Twitter co- launched its global payments card to accompany its Web to a company that provides founder Jack Dorsey, has begun platform in Australia, marking a first Google Wallet, which is payments on mobile devices, at cash preparations to launch in Australia, move into the Asia-Pacific region for used by millions of registers, and soon, on the Internet of according to sources with the three-year-old payments start-up consumers. Things. knowledge of the plans. backed by a trio of PayPal co- founders. Financial Services

Apple has incorporated an NFC chip in its SocietyOne is Australia's only active Bitcoin uses peer-to-peer technology to latest smartphone, the iPhone 6, and will peer-to-peer lender. They claim to be operate with no central authority or support it with a service called Apple Pay. able to offer borrowers cheaper loans banks; managing transactions and the The iPhone 6 and iPhone 6 Plus have an and investors access to a new asset issuing of bitcoins is carried out NFC antenna and a Secure Element chip class with a lower cost business model collectively by the network. Bitcoin is allowing users to be able to add their that is more efficient than that of open-source and its design is public. The social network is only weeks away from debit and credit card details from their traditional banks. obtaining regulatory approval in Ireland for a iTunes store account. Payment will also service that would allow its users to store be possible via the Apple Watch. money on Facebook and use it to pay and exchange money with others.

Many technology players are focussed on disrupting financial services, with the substantial profits of banks attracting the attention of many of the world’s most innovative companies. Despite these threats, KPMG research reveals that “53 per cent of consumers trust their banks the most when it comes to making financial transactions over a mobile device."

Source: KPMG Desktop Research

Digital disruption is challenging existing business models, with estimates of around 25-30% of current banking industry revenue at risk Technological change is one of the biggest disruptions facing banking since the 1980’s

A$27bn of current banking industry revenue is at risk of digital disruption Banks should try to act like start-up ““ companies if they are to thrive in an era 30 26.8 of sweeping technological change…- 10.3 Westpac is trying to think and act like a 25 200-year-old start-up company.

20 Removes double Counting for 13.2 Brian Hartzer, Westpac (BRW 2014) credit cards ”” 15 The technology is now in place to substantially transform financial services 2.2 ■ 10 6.8 (e.g. cheap IT, widespread mobile penetration, regulation, such as the Financial Claims Scheme requiring Single Customer View, real time 5 payments, internal ratings based models) ■ According to Macquarie, there appears to be A$27 billion of current revenue 0 at risk. The areas of financial services most at risk of digital disruption are Payments Merchant Lending - Lending - Total lending, payments and merchant acquiring. Acquiring P2P SME ■ Regulation is also driving a level of innovation and competition, e.g. the ■ In the near term, it is expected that shorter-tenure, high turnover products like RBA and the development of real-time payments infrastructure. credit cards, loans and payments will see the most digital transformation. ■ The ATO recently highlighted in its Banking and Finance Industry Strategy ■ Looking further ahead, bank accounts and mortgages, which together typically for 2014-15, that digitisation may present issues and risks for the traditional drive more than 50% of many banks’ revenues and usually provide “sticky” retail banking model (e.g. peer to peer lending, trading platforms, electronic annuity streams, will be brought into the fray payment and investment services).

Source: 2014 Macquarie Research: Australian Banks ‘Trust’ in the IT Arms Race; ATO; McKinsey; Business Review Weekly

Institutions are taking a wide range of approaches in trying to keep up with the wave of technology innovation that is threatening to disrupt their sector

■ Announced a venture capital fund ■ HSBC has allocated up to ■ In June, 2014, Barclays ■ UBS has created a system of in July, 2014. US$200m for investment in announced the Barclays internal working groups to work ■ The fund will be based in London, tech start-ups with the aim of Accelerator, a 15-week on specific technology projects. with a global remit. improving the bank’s financial programme for Fintech start- ■ So-called “innovation spaces” ■ Will provide Fintech companies technology. ups. with finance; US$100m have dedicated funds to committed. ■ The bank will invest globally, ■ 10 start-ups will receive up to finance their operations and both in firms that operate in US$50k and be selected to go will comprise individuals from retail and capital markets to London to accelerate their both the IT and the business financial services technology. Fintech businesses. divisions of UBS.

■ BBVA announced the ■ Citi Ventures is Citi's global ■ American Express, ■ Wells Fargo has launched a formation of BBVA Ventures, corporate venturing arm, established Amex Ventures financial technology accelerator a strategic initiative that will chartered to collaborate with which is a US$100m fund. program that combines a cash invest US$100m in start-ups internal and external partners investment (ranging from US$50k ■ Invests in innovative start-ups looking to transform the to conceive, partner, launch, to US$500k) for a minority stake in order to enhance Amex’s financial services industry. and scale new ventures that with six months of coaching and company's core capabilities have the potential to disrupt collaboration. ■ Based in Silicon Valley, it is and accelerate their efforts in and transform the financial establishing ties with start-up digital commerce and ■ The bank has selected three services industry. firms, incubators and venture financial inclusion. companies to pilot the accelerator capital funds. in areas such as artificial intelligence and location and mobile identity technologies. Source: Company websites; Financial Times; Wall Street Journal

Leaders of the world’s largest, most successful financial institutions recognise the emerging threat…and imperative for change

When people ask me: ‘Who do you look to for leadership or who are you impressed with” . . . ”My comments quickly ““ are Amazon, Google, Apple, John Stumpf, CEO, Wells Fargo (Financial Times 2014)”” Tech companies all want to eat our lunch. Every single one of them is going to try”…“We’re going to have ““ competition from Google and Facebook and somebody else. Jamie Dimon, CEO, J.P. Morgan (Financial Times 2014)”” We are stepping up the pace of innovation at the bank The Apples, the Googles, the Samsungs, the PayPals, I run: generating more ideas, implementing them the credit card companies, who can pick particular ““ ““ more swiftly, being quicker to discard the ones that do slivers as a result of the application of technology into not work”…“The upsides are huge, and the downsides financial services and compete”…”We need to be are stark. That is why accelerating technology-driven prepared for that. innovation is a top priority. Ian Narev, CEO, Commonwealth Bank (SMH”” 2014) Peter Sands, CEO, Standard Chartered (Financial Times, ”2013)” Source: Financial Times; Wall Street Journal

This marrying of technology with core financial services has been termed ‘Fintech’ and is seeing exponential growth globally

Simply stated, Fintech is the application of technology (software, hardware and services) to financial services ■ Financial technology (or “Fintech”) ranges from creating software to processes, that enable financial institutions to enhance their customer’s experience and streamline their operations, or by consumers to fulfil their financial needs (saving, investment, make payments). ■ The Fintech sector includes - new start-ups (in financial technology), the activities and investment in technology innovation from established financial services institutions, as well as ICT/technology providers – and collaboration between these parties or ‘disruptive innovation’ by any of them individually. ■ Growth in Fintech is being driven by a convergence of six key trends: 1) digitalisation of financial services (increase in electronic transactions); 2) falling cost of computing and IT services; 3) need for cost reduction; 4) technology innovation; 5) ubiquitous data; and 6) changing customer behavior (proliferation of devices and willingness to adopt new things).

Digitalisation Personal Finance – Tools to help individuals manage their wealth, including stock portfolios, personal budgets and taxes. Falling cost of computing Big Data & Analytics – Application of big data and advanced algorithmic techniques to risk management, fraud detection, credit scoring, calculation of insurance premiums, etc. Cost reduction Areas of Financial Payments – Technology and tools to facilitate transactions of virtual currencies and Technology Technology mobile payments to eliminate processing costs. innovation (Fintech) Front Office – Tools and platforms that drive efficiencies into traditional banking Ubiquitous data operations and practices such as loan origination, fundraising and sales etc.

Changing Capital Markets Technology – Tools and platforms that enable buying and selling of customer behaviour securities such as foreign exchange.

Source: KPMG analysis, Accenture

A more collaborative model of innovation in financial services has emerged, bringing together FIs, Government, technology start-ups and investors This is different to the traditional model, which typically sees financial institutions relying solely on IT vendors, as well as acquiring or funding start-ups to meet their innovation pipeline: Reliance by financial institutions on one or two IT vendors for their technology innovation needs Innovation is critical but risk New Fintech start-ups ready for trade-off is high and often at Traditional approach disruption and brimming with innovation the cost of loss of market and creative ideas; funding and perception and acceptance Acquisitions or mentorship key deterrents Funding Financial institutions Tech start-up

Financial institutions Emerging approach Accelerator/ Government support Incubator programs Tech start-up VC funds Overseas jurisdictions are witnessing an emerging model wherein multiple stakeholders collaborate via a duration-based accelerator program to incubate and nurture a talented tech start-up in the financial space Benefits for financial institutions Benefits for start-ups ■ By introducing other stakeholders in addition to third-parties to manage ■ Tech start-ups benefit from access to funding, working spaces, sector these programs, FIs are able to greatly reduce risk exposure while being guidance, and more importantly a privileged audience for showcasing able to drive innovation and focus on other priorities, e.g. regulation their offering. ■ The opportunity to increase customer satisfaction and engagement ■ Improving their understanding of how FIs operate and leverage the through digital disruption by embracing cutting-edge technology. knowledge gained into building a market-relevant product. ■ FIs are presented with the opportunity to engage with innovative start- ■ The support of an FI to help overcome its funding hurdles for R&D and ups and evaluate options beyond their traditional vendors. innovation continuity – reduces sole reliance on ‘informal’ funding sources or VCs/PE firms.

Source: KPMG analysis

The Fintech sector is experiencing rapid growth globally, with financing activity predicted to rise from US$3bn today to US$6-8bn by 2018 Fintech financing activity has grown substantially from around US$100 million in 2008 to US$3 billion in 2013

Fintech financing activity (US$) ■ Fintech financing activity is currently estimated at US$3 billion which is projected to 500 3500 rise to between US$6-8 billion by 2018. 3000 400 Fintech start-ups in New York have raised 2500 ■ around US$800 million since 2008, with 300 2000 US$450 million only raised in 2013. 200 1500

DealVolume ■ From 2008, the value of Fintech investment in 1000 100 the UK and Ireland increased nearly eightfold

500 Investments (US$M) to US$265 million in 2013. 0 0 2008 2009 2010 2011 2012 2013 ■ The US$346 million invested in Fintech venture deals in Europe in the first six months United States Europe Asia-Pacific Other Global Investment of the year is already more than double what was raised in the whole of 2013 (US$145 Fintech investment areas million). 2008 10% 10% 6% 70% 5% ■ Payments, banking and corporate finance currently represent the fields with the higher 2009 32% 4% 6% 53% 6% investments in Fintech. 2010 26% 11% 7% 50% 6% ■ The upward trend of mobile devices and cloud computing suggests that data analytics 2011 33% 4% 8% 49% 7% and performance financial management will keep growing and attracting investors. 2012 23% 9% 10% 46% 12%

2013 29% 10% 19% 28% 14%

Banking & corporate finance Capital markets Data analysis Payments Personal finance management

Source: Pitchbook; Accenture; CB Insights

The Fintech sector is growing rapidly in profile and awareness globally

Banks Lure Fintech Startups With Banks Playing Larger Role in 2014 London’s ‘Fintech’ start-ups aim high Venture Funds Fintech Funding

Banks are taking a wide range of Corporate venture capital firms have Financial technology start-ups in the UK and approaches in trying to keep up with the been the biggest surprise of 2014 in Ireland raised more than $USD700m from wave of technology innovation that is Fintech, according to experts in the investors between 2008 and 2013. threatening to disrupt their sector. financial technology industry.

Wall Street Journal, August, 2014 Bank Innovation, July, 2014 Financial Times, August, 2014

VC Investment in European Fintech Hits Fintech Investment Boom is an Israeli Fintech start-ups get their Post-Dot-Com High Opportunity for New York to Lead in place in the sun Technology Venture capital investment in European New York is the fastest growing market for This week, Bank Leumi announced that it financial technology companies reached financial-technology ventures in the US; was joining with other financial institutions, its highest level in more than 10 years in investment is set to double by 2018. both Israeli and foreign – such as Citi and the first quarter of this year. Mastercard – to develop new technologies with Israeli Fintech start-ups. Wall Street Journal, April, 2014 Bank Innovation, July, 2014 Times of Israel, January, 2014

An explosion of start-ups is changing finance for the better Is Silicon Valley the Future of Finance?

A wave of financial-technology firms, many of them just a few years Financial start-ups—known collectively as “Fintech”—are spreading like old, are changing the ways in which people borrow and save, pay for kudzu, each with a different idea about how to usurp the giants of Wall things, buy foreign exchange and send money. Street by offering better services, lower fees, or both. The Economist, August, 2013 New York Magazine, June, 2014

KPMG has identified eight key international locations that foster prosperous Fintech eco-systems Three established centres (Silicon Valley, New York and London) command considerable resources and a strong population of innovative companies and entrepreneurs. Emerging centres, including Sydney, have the potential to develop into global or regional hubs for Fintech.

66m

Dublin Berlin 600m London 1.5b Silicon Valley New York Tel Aviv Location and annual Hong Kong Fintech investment USD

Location only Singapore

Sydney

Established hubs Silicon Valley and New York dominate the global Fintech landscape. Each has formidable assets and capabilities. However each has limitations amongst the foremost are restrictive visa requirements. While Silicon Valley is the undisputed Fintech global capital today the lack of a financial services industry may prove a limiting factor in the longer term, as Fintech start-ups seek closer proximity to financial services firm Silicon Valley New York ■ Silicon Valley boasts a vibrant technology sector and is home to many of the ■ New York is the second largest Fintech hub globally, with Fintech investment world’s best known companies. Against this backdrop Silicon Valley has growing rapidly (CAGR 31%), increasing twice as fast as Silicon Valley over the developed a formidable Fintech eco-system. Almost one third of global Fintech past five years. However as deal volumes rise, deal value is diminishing which investment in 2013 went to Silicon Valley companies. may impact the ability of start-ups to attract latter stage funding. ■ Initial government support for the American defence sector in the 1930’s to ■ New York is a world centre for financial services. As a result there is a ready pool 1950’s, as well as strong universities (e.g. Stanford) have played a key role in of financial services skills to feed entrepreneurial Fintech business. Other ‘tech’ establishing the valley. More recently successful repeat entrepreneurs and businesses such as Google, Facebook, Amazon and eBay are growing in New availability of venture capital have played a key role in funding and establishing York which may impact the ability to attract quality engineering talent. new ventures. However Silicon Valley has a relatively small financial services ■ Approximately 43,000 people working in Fintech in New York. sector which may hamper long term primacy. ■ The city’s relatively low Fintech profile affects its ability to attract influential capital. ■ Approximately 11,000 people working in Fintech in the valley. Start-up Environment: Start-up Environment: Government Government Support Support

Private VC Private VC Funding Funding Skills / Talent Skills / Talent Business Business Environment Environment

Funding Availability Profile: Funding Availability Profile:

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Established hubs

London is second only to New York as a global centre for financial services. The UK government is actively trying to foster development of the Fintech sector. This investment has the potential to drive further development and innovation.

London Start-up Environment: ■ London is second only to New York in terms of global financial services. Government The UK government is promoting London as a Fintech hub and actively Support attracting investment and talent. This coupled with reasonable access to Private VC funding, talent and a conducive business environment position the Funding Fintech eco-system in London for growth. Skills / Talent ■ Private funding has been growing strongly (the 5 year CAGR in 2013 was twice the global average). Late stage funding/IPO options may Business Environment have been problematic in the past but are less of an issue today.

■ Approximately 44,000 people working in Fintech in London. Funding Availability Profile:

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Emerging centres - Europe Dublin and Berlin are both promising centres with good access to technical skills. However both are challenged in terms of financial services skills. Dublin suffers ‘brain drain’ to London while the financial services sector in Berlin is relatively underdeveloped. Start-ups in Dublin also enjoy better access to capital. Dublin Berlin ■ The Fintech sector in Dublin benefits from strong government support. ■ Berlin has a robust education system and attracts young talented Mechanisms include pro-investment tax settings, to bespoke people. services/support, and actively recruiting foreign talent. It has a good business environment and costs are modest by European ■ It also has a network of angel investors and venture capitalists. The standards. However it lacks a strong financial services sector. government also supports inward investment from foreign investors. Government support for Fintech and entrepreneurship is limited but Latter stage funding is harder to secure. may be growing. ■ There is a strong education sector and a good supply of young skilled ■ Access to private funding and venture capital is also limited as are workers (ranked #1 for the availability of skilled labour). sophisticated investors who can help guide entrepreneurs towards success. This may present an opportunity for foreign investors.

Start-up Environment: Start-up Environment:

Government Government Support Support

Private VC Private VC Funding Funding

Skills / Talent Skills / Talent

Business Business Environment Environment

Funding Availability Profile: Funding Availability Profile:

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Source: IMD World Competitiveness Yearbook 2014

Emerging centres - Asia Singapore and Hong Kong are both vibrant financial services centres. Singapore is aggressively pursuing Fintech development. Hong Kong’s proximity to China represents significant opportunities for financial services. Access to private sector VC investment remains a key hurdle for both cities. Singapore Hong Kong ■ The Singapore government has invested heavily in the ■ There are a range of government incentives and services. The government is also promotion of an innovation eco-system through direct active in attracting foreign entrepreneurs however the visa process can be an investment, tax incentives, and measures to make impediment and tax structures are less favourable than some other centres. Singapore an attractive destination for entrepreneurs. ■ The local pool of venture capital is small but growing and foreign investors are ■ Singapore’s strategic location, conducive cultural and legal becoming more active. factors, developed financial services sector and ICT The financial services and ICT sectors are well developed. Additionally, Hong capabilities provide a fertile environment for Fintech. ■ Kong has a strong entrepreneurial pedigree and a supportive business However, early stage funding is not matched by funding environment. available later in the cycle. ■ Hong Kong is also a key gateway to the Chinese mainland which represents significant a opportunity for financial services. Start-up Environment: Start-up Environment: Government Support Government Support Private VC Funding Private VC Funding

Skills / Talent Skills / Talent Business Environment Business Environment

Funding Availability Profile: Funding Availability Profile:

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Emerging centres – Middle East Tel Aviv has spawned several successful technology ventures. Its strong technical capabilities are underpinned by skills developed during military service. The incentives for Foreign Direct Investment (FDI) though the Yozma Fund are amongst the most generous seen globally.

Tel Aviv Start-up Environment: ■ The Yozma Fund has been offering generous incentives to attract foreign Government investments for over 20 years. Tax breaks also exist for research and Support development and the government supports entrepreneurs through events Private VC Funding and provision of shared working spaces. Skills / Talent ■ A good education system and technical skills developed during mandatory military service contribute to a strong skills base. Changes to make it easier for foreigners to start a business in Israel are also under Business Environment consideration. ■ Almost 300 venture capital firms are active in Israel. Seed-stage funding Funding Availability Profile: is a relatively small proportion of aggregate investment.

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Comparison of government programs With the exception of Silicon Valley (where the start-up eco-system is self sustaining) all centres had government programs to incentivise ■ Start-up loans for seed capital and support innovation. ■ Broad based 100% investment matching across early stages of start-up lifecycle Government support can be segmented into Direct assistance and funding: four broad areas: ■ Support for development of VCs ■ Direct assistance and funding London ■ S$100 million early stage start-up funding Singapore Up to 85% government investment in incubators ■ Concessional tax structures ■ Tel-Aviv ■ SPRING ‘Networking’ assistance from multiple agencies ■ Visa and immigration policies Relative to best-in-class ■ Plans to scale back once eco-system is self sustaining ■ Other measures. Start-up grants for seed capital (repayable via royalties) Within these categories there are a variety of ■ approaches and policy settings and no clear ■ Tnufa Program provides a grant for up to 85% of approved leader. expenses (capped at US$50k per venture)

■ Entrepreneurs Relief – 10% Concessional Capital Gains ■ EIS/SEIS - income tax relief and cap gains exemption (until 2014) Concessional tax structures: ■ Start-up partial tax exemption (3 years) London ■ Corporate tax exception for 15 years (qualifying profits only) Singapore ■ Up to 400% deduction for innovation investment (S$400k cap) Tel-Aviv Relative to best-in-class ■ Low tax environment ■ Tax breaks for VC accelerators and angel investors ■ Moves to simplify criteria for start-ups under three years old (2015)

Comparison of government programs With the exception of Silicon Valley (where the start-up eco-system is self sustaining) all centres had government programs to incentivise and support innovation. ■ Entrepreneur Visa scheme ■ Global Entrepreneur Programme to attract early stage Government support can be segmented into Visa and immigration policies: companies four broad areas: ■ Direct assistance and funding London ■ Open Immigration Policy – easy access to Permanent Singapore Residence ■ Concessional tax structures Tel-Aviv ■ EntrePass flexible Visa for foreign entrepreneurs Visa and immigration policies ■ Relative to best-in-class ■ Other measures. Within these categories there are a variety of ■ Currently reviewing Visa policy approaches and policy settings and no clear leader.

■ Recent relaxation of IPO requirements – able to list only 10% equity Technology Strategy Board to oversee innovation programs Other measures: ■

London ■ I-Class innovation accreditation for financial service Singapore organisations Tel-Aviv ■ Government focus on key sectors Relative to best-in-class ■ Start-Up Week (1,500 participants) ■ Go 4 Israel: the 12th edition of “go 4 Europe” conference ■ MIXiii: ‘Mix Israel Innovation International” – Israel innovation conference

What we can learn from the global leaders

Our analysis of the global Fintech landscape has identified a number of leading and emerging hubs. From this we have identified a set of common characteristics that can “enable” the development of a thriving Fintech sector in Sydney. There is a window of opportunity for Sydney to position itself as the leading regional Fintech hub.

Our analysis of the different Fintech hubs (Silicon Valley, New York, Another key finding is that in some locations, notably Tel Aviv and London, Dublin, Berlin, Tel Aviv, Singapore and Hong Kong) demonstrate Silicon Valley, there is also a strong cultural drive to innovate and that in order to develop a strong Fintech ecosystem the following factors that risk taking is not only acceptable but desirable and are important enablers: encouraged. ■ available and accessible early stage funding for Fintech start-ups and a It is clear that policy makers at city (or municipal) levels are closer strong pipeline of opportunities for investors/VC funds; to the sources of innovation than those at a national level (in most of the jurisdictions included in the analysis). For example, Berlin ■ depth of financial services and technology talent and close proximity of these has developed a vibrant ecosystem in the past few years without talent pools to each other (in city locations); systematic government support. ■ a robust financial services industry, with a vibrant technology start-up Fintech start-ups and technology start-ups generally suffer from a community with mentoring, networking and high visibility; lack of access to the relevant government agencies, often hampered and delayed by having to deal with many stakeholders ■ Government commitment and regulatory support for the Fintech sector this creates the potential for bottlenecks. Clear start-up contact specifically, and technology start-ups generally; and, points in government and regulatory agencies can greatly assist Fintech start-ups throughout their development. ■ business backing for a Fintech hub, with high levels of collaboration and a As the competition for investment and entrepreneurial talent strong culture of knowledge-sharing and entrepreneurship. reaches global proportions, city/municipal support for nascent One conclusion from the analysis is that those locations that perform strongly entrepreneurial clusters becomes a must-have, especially for large across three or more of these factors we see clear evidence of strong Fintech metropolitan areas. ecosystems. Silicon Valley, New York and London are notable examples of this. There are a number of implications for Sydney and NSW in terms of the future competitiveness of the financial services industry. In addition, there also needs to be aligned activity and coordinated action across There is also a window of opportunity for Sydney to position itself each of them. For example, the UK in particular have accelerated the as the leading regional Fintech hub, as Hong Kong and development of London as a Fintech hub over the past 18 months through a Singapore, have not aligned efforts within their respective concerted effort by the government, regulators, the City of London, technology jurisdictions around Fintech nor promoted themselves start-ups and industry. internationally.

Australia has examples of start-ups and successful businesses across key areas of the Fintech spectrum Activity started picking up in 2007 with Australia boasting ~1,500 tech start-ups by 2013 Mapping Sydney’s MappingBarangaroo Sydney’s Fintech Hubs ■ Sydney is the leader among Australian cities as a key hub for tech start-up Fintech Hubs activity with over 950 businesses, followed by Melbourne (350 businesses)

■ Fintech makes up a small proportion of these businesses “The Australian Equitise/MacroVue/Debt tech start-up Stockspot to 10K/Simply Wall St^ ■ Venture Capital is limited with two funds taking a direct interest in Fintech: sector has the AWI and Reinventure. AWI Ventures runs the only dedicated Fintech potential to AWI Ventures Accelerator contribute A$109 accelerator in Australia Sydney CBD billion or 4% of Innovyz ■ As well as emerging players (e.g. SocietyOne and PocketBook), there are GDP to the Australian Reinventure established Fintech businesses too (e.g. OzForex and Tyro Payments) economy and 540,000 jobs by There is limited participation from established firms in Fintech through ■ 2033 with a either accelerators or venture capital (Westpac being a notable exception) concerted effort from ■ Whilst back office support has moved to other parts of Sydney (e.g. entrepreneurs, Darlinghurst Kogarah and Parramatta) Fintech activity is mainly located in and around educators, the the CBD government and corporate Pocketbook No. of tech start-ups in Australia* Australia.” LEGEND 1000 VC Fund Surry Hills 800 Fintech start-up 600 950 400 Accelerator

200 350 105 30 Note: *Represents approximate figures; ^Fintech start-ups operate out of Sydney CBD as part of the AWI Ventures 0 Accelerator Source: “The start-up economy - How to support tech start-ups and accelerate Australian innovation “, Sydney Melbourne Brisbane Perth Google Ventures & PwC (April 2013) accessed July 2014; Industry reporting; KPMG analysis

Note: *Represents approximate figures; ^Fintech start-ups operate out of Sydney CBD as part of the AWI Ventures Accelerator Source: “The start-up economy - How to support tech start-ups and accelerate Australian innovation“, Google Ventures & PwC (April 2013) accessed July 2014; Industry reporting; KPMG analysis

The Australian start-up ecosystem is still in its nascent stages, with most companies being one or two person start-ups, although activity is picking up

Australia has an emerging Fintech start-up landscape across the full spectrum of Fintech areas, with many new emerging start-ups, as well as more established successes

Personal Finance Big Data & Analytics Front Office Capital Market Technology

■ Quantium allows businesses to ■ Equitise is a new start-up that ■ Pepperstone and OzForex are capitalize on the value of their provides crowd-funding both Australian online retail data and employs talent from exclusively for SMEs in foreign exchange brokers the best statisticians around Australia specialising in foreign Australia exchange trading ■ Flamingo is a vendor ■ Pocketbook provides personal relationship management financial management solutions Payments platform that interfaces with an ■ SocietyOne is Australia’s first organisations CRM platform, peer to peer lending network and provides tools for customers to manage their ■ StockSpot acts as an online vendors advisor, assessing a consumer’s investment goals, risk tolerance ■ Tyro Payments offer an and recommends an appropriate alternative merchant acquiring portfolio solution and is Australia’s only ■ Nimble allows consumers to independent EFTPOS provider obtain finance within the hour ■ CoinJar is Australia’s largest and longest running bitcoin company

Source: KPMG analysis; Company websites

More broadly, there are many examples of an emerging Fintech landscape, with most Fintech start-ups originating from Sydney Payments Personal Finance Big Data & Analytics

Accelerators & Venture Capital Incubators

Capital Market Technology Middle and Back Office

Front Office

Source: KPMG analysis; Company websites

This development is supported by a small number of new specialist Fintech venture capital funds and accelerator programs

A critical dimension to the success of Fintech start-ups are venture capital funds and accelerator programs

Reinventure Australasian Wealth Investment & AWI Ventures

■ In February, Westpac established its own limited partnership venture ■ Australasian Wealth Investment (AWI) is an investment company listed on capital fund. It hopes to fund about a dozen companies run by proven the ASX and focused on the financial services sector. AWI will hold equity entrepreneurs with proven business models. Westpac is the largest stakes (up to 100%) in operating businesses in four core thematics: digital investor in the Reinventure Fund. The fund is operated independently by distribution; research and information; funds management; and trustee & the managers, Danny Gilligan and Simon Cant, who are also co-investors super services. AWI will also invest selectively in early stage businesses in the fund. This allows them to fully focus on helping the portfolio through AWI Ventures where these businesses complement its core companies succeed and, with A$50M in committed funds, they have the operating businesses. resources to continue investing and stay engaged with companies as AWI Ventures invests in digital finance industry start-ups with a particular they grow. ■ interest in direct-to-consumer wealth management services. AWI Ventures ■ One area of focus will be companies that offer disruptive technologies holds typically minority stakes in early stage, growing businesses that that might improve the traditional banking customer experience. have the potential to become successful and substantial enterprises and Reinventure makes investments from seed through to Series A and up. potentially valuable partners for core AWI businesses. AWI Ventures is For the right entrepreneur and the right idea, Reinventure will invest at building a portfolio of investments in digital financial services. To foster the company foundation stage. genuine innovation in the digital financial services industry, AWI Ventures has launched a start-up accelerator program. This is the only financial services focused accelerator in Australia and one of the first in the world.

Source: KPMG analysis; Company websites

Sydney also has a fledgling Fintech community

Sydney has an emerging Fintech community with around 450 members that is already holding events (“Meet Ups”)

■ Sydney Fintech Startups Meetup, founded by Kim Heras in 2013. ■ Since its establishment they have held six ‘Meetups’ in Sydney.

Source: Sydney Fintech Startups Meetup website

Our local technology start-ups are gaining attention from offshore Governments, with some, such as the UK targeting them to move to London

There are threats from other Governments, particularly the UK and Singapore in targeting the Australian technology start-up community, to relocate their businesses offshore

■ UK Trade & Investment (UKTI) is the government department that helps overseas companies bring high-quality investment to the UK’s economy. ■ Chancellor of the Exchequer, George Osborne recently announced a It has recently published a document setting out the strengths of the range of measures promoting Fintech: UK’s Fintech sector and the market opportunities for Fintech companies - Consultation on a new strategy for Britain’s digital communications in the UK. infrastructure, to ensure the UK remains a leading digital nation and is ■ The UK’s success indicates that a strong customer base, supportive equipped to harness the emergence of Fintech. regulator, availability of capital and the financial services infrastructure all - A major new review examining how the technology that serves the make the UK offer attractive to Fintech companies. This evidence is financial sector will evolve in the future, to be lead by the Government being used by UKTI to attract further potential Fintech investors to the Office for Science. Industry and academic experts will look at the UK. technologies, enablers and barriers that will shape the future of the ■ UKTI is launching a global roadshow to lure financial technology Fintech sector up to 2025, and the policy implications for the companies to the country, as part of the government’s push to make government. London a global centre for Fintech. - Proposal for a range of new awards and prizes to promote the development of innovative finance solutions that help small ■ Representatives from the business trade body plan to travel to countries businesses access finance, co-sponsored by the British Business including the US, India, Singapore, Germany, Scandinavia and Hong Bank and Innovate Finance (UK Fintech industry association). Kong in a bid to attract Fintech companies to London. UKTI is looking to attract both established Fintech providers and new, innovative start-ups.

Source: KPMG analysis; UK HM Treasury; Australian Financial Review

The key implications for Sydney

Start-up Environment:

Government Support

Private VC Funding

Skills / Talent Sydney

Business Environment

However, there are Australian examples of international success in Fintech most notably in wealth management platforms and foreign exchange (e.g. Funding Availability Profile: Bravura Solutions and OzForex).

This is a significant opportunity for Sydney and Australia. Financial services is the single largest employer in the city and the Australian financial services industry is well developed and mature across banking, wealth management and insurance. Through Fintech, we can export our capabilities to the region Start Launch Build Scale and globally.

Applying the same analytical framework we have used to look at both leading Tax incentives for both start-up firms and investors can play an extremely and emerging Fintech hubs, Sydney has the many of the required elements in important role in building critical mass in a Fintech eco-system. Despite place but underperforms relative to global leaders. reductions, tax is still an area in which Sydney falls behind other cities competing for start-up capital both on a total tax and tax on R&D basis (ranking One area where Australia does no perform as well is in regard to capital 44 compared to other international cities in an index of 51 cities in total). availability, particularly post-GFC. This relative lack of capital available to new firms in Australia is highlighted by the 2013 OECD venture capital statistics Fintech also has the potential to disrupt established businesses and also which show that Australian VC totals just 0.02% of GDP, which can result in challenge Sydney’s place as a leading financial services centre. The need to start-ups that would otherwise operate domestically moving offshore for develop and foster Fintech is as much about responding to the disruptive threat funding. as it is about looking for growth opportunities for the Australian and State economies. Source: Innovation in Australia, Australian Centre for Financial Studies; KPMG Competitive Alternatives (2014)

Building on our foundations

London provides a template for Sydney to follow in terms of taking London is maximising its high concentration of financial services and technology talent as well as an concerted action across a range of established hegemony in financial services. Action is being coordinated across business and government through Innovate Finance and the UK Government (through UK Trade and Investment) is sending a public and private sector consistent message that London wants to lead the world in Fintech. stakeholders to accelerate their Policy settings have also been adjusted to allow for innovation and to support the growing Fintech stated ambition to be the world ecosystem (for example, the promotion of bitcoin and start-up specific regulatory frameworks). leader in Fintech Sydney can learn a lot by looking at London specifically for Fintech but cities like Tel Aviv and Singapore also provide strong examples particularly in terms of government support for technology start-ups. We have strong foundations in terms of financial services and access to skilled and capable resources across financial services, technology, digital and creative industries, as well as a number of leading universities and business schools. For Sydney to have a vibrant and flourishing Fintech eco-system we need to focus on those enabling conditions where we are strong and also seek to develop the areas where we are underweight. This means we must leverage: ■ our concentration of and access to financial services and technology talent; and, ■ our clear leadership position in financial services. Whilst also taking action to: ■ increase the availability of funding at both seed and venture capital stages; ■ build both government and business support for technology start-ups; and ■ foster a more entrepreneurial mind-set.

What Sydney needs to do

For Sydney to lead in Fintech we need to take action that will build We have identified a number of key enabling conditions for a successful Fintech sector in Sydney. These and strengthen the pipeline of are: Fintech business ventures looking to ■ having a concentration of and access to financial services and technology talent; call Sydney home. ■ increasing the availability of funding at both seed and venture capital stages; ■ building government and business support for technology start-ups; This requires concerted aligned ■ having a clear leadership position in financial services; and action from both the public and ■ embracing a more entrepreneurial mind-set. private sector. Maximising each of these conditions is essential to building a pipeline of Fintech business ventures. All play a role to a differing degree in each of the cities included in the analysis. London is consciously acting to take ownership of Fintech and use it to protect and enhance its place as a leading global financial services centre. Similar to London Sydney has a vested interest in maintaining our leadership in financial services. If we are serious about maintaining a leading position in financial services locally and regionally it is imperative we act now. The steps we take to do so must clearly help to maximise our performance against each of the enabling conditions and action must be aligned across the public and private sector. This is not about backing winners and avoiding losers but creating optionality for Sydney and the financial services industry in Australia.

What Sydney needs to do There are six areas that warrant attention in order to position Sydney as a globally recognised, respected, attractive City for the emerging Fintech sector

1. Vision & strategy 2. Commitment 3. Alignment 4. Accessibility 5. Collaboration 6. Promotion

■ Fintech start-up activity ■ It is important for ■ To accelerate the ■ Critical to any start-up ■ A ‘centre of gravity’ or ■ Financial services and tends to occur in large government (and development of the is access to funds and physical focal point Fintech both need a metropolitan areas. regulatory agencies) to Fintech sector, expertise. needs to be established. champion and voice at publicly state their alignment and local and global levels. ■ Establish a coherent commitment to coordination of activity ■ Beyond this there is ■ Fintech requires and supportive supporting the and investment is also a need for access established financial ■ This needs to be at entrepreneurial vision development of the required (government, to regulators, services organisations both an industry level and strategy for Fintech Fintech sector. regulators, start-ups, government and data. and new ventures to and also at a political at a city level (Sydney). industry, academia). come together. level. ■ Maximising the ■ Government providing ■ Consider Fintech in a opportunity will take ■ Explore adjacent a single point of contact ■ Problems need to be ■ Promotion can be used broader global financial strong commitment opportunities and for start-ups to remove shared and safe as an effective tool to services context and from government and benefits across sectors, bureaucracy. environments created to attract capital, particularly Asia as an industry. e.g. financial services, truly foster innovation. investment and the export opportunity. ■ Sydney needs a clear best talent (locally, ICT, professional point of entry for services. regionally and Fintech where various globally). stakeholders can come together.

What Sydney needs to do

Recommended actions Rationale 1. State Government to continue working with partners in the ■ Provides an aligned vision and goals for the development of the Fintech sector, as private sector and the Committee for Sydney on the development of part of the State Government’s support for financial services a comprehensive Fintech vision and strategy for Sydney, providing a ■ Articulates the importance of and commitment to Fintech as a sector focal point for the alignment of effort across the public and private sector ■ Establishes the critical pathway and actions for success and articulating a clear commitment to the Fintech sector

2. Explore the establishment of a not-for-profit Fintech hub in the ■ Creates a critical mass and local ‘centre of gravity’ for Fintech in Sydney heart of the city that co-locates technology start-ups, venture ■ Provides low cost services, e.g. working space and expertise for start ups capital and established financial services firms ■ Provides access to low cost capital for start-ups, as well as a pipeline of opportunities for venture capital and established financial services firms ■ Drives collaboration between start-ups, established financial services firms, as well as regulatory agencies

3. Government (local, state and Commonwealth) to promote ■ Establishes a platform to promote Fintech in Sydney and globally Sydney as the leading Fintech centre in the ASPAC region and ■ Raises awareness for Fintech start-ups to export their capability offshore establish a series of events in the city, regionally and globally, to ■ Attracts funding and venture capital to Sydney showcase Fintech in Sydney, in line with our leading financial services ■ Attracts entrepreneurial talent to Sydney position

4. Form an independent Fintech focussed industry association, ■ Helps to prioritise the needs of the sector (liaising with Government and regulatory based in Sydney, to give the sector a strong voice and champion agencies) and provides a representative voice for the Sydney Fintech community ■ Promotes Sydney as the ‘centre of gravity’ for Fintech in Australia and regionally ■ Drives collaboration between financial services firms and Fintech start-ups

5. Work with the Federal Government and regulatory agencies, to ■ Provides a regulatory and tax framework that supports innovation enhance the current regulatory, tax and business incentives ■ Helps to broaden the entrepreneurial culture base available to the start-up community, as well as introduce measures ■ Attracts funding and venture capital to Sydney to target foreign entrepreneurs, attracting them to Sydney ■ Attracts entrepreneurial talent to Sydney 6. Engage the university sector and leverage research institutes, ■ Develops ideas and business opportunities for commercialisation such as the Centre for International Finance and Regulation (CIFR) ■ Connects the university sector, the Fintech start-up community and business to research key Fintech themes and explore business opportunities for ■ Leverages existing infrastructure, such as CIFR commercialisation

Strategic imperatives for financial institutions and evolving consumer behaviours, in part driven by new technology, has been a catalyst for innovation

Post-GFC, financial institutions globally have recognised the need to work smarter and be more customer-centric, while the consumer ■ Financial institutions realised that they needed to cope with a space was seeing a disruptive change of its own challenging business environment, and in parallel, the advent and proliferation of mobile devices led to users to demand advanced financial solutions 1 For Financial institutions… ■ Technology acted as the key enabler, and bridged the gap between the ■ Driving revenue steams while lowering costs was a priority: FI’s current state and the customers’ need Financial institutions (FIs) realised that by using innovative technology solutions, they were able to not only achieve scale, but also be more efficient. Use of automated procedures and the introduction of non- ■ During the GFC, there was a mass exodus of branch channels drastically cut employee costs, while allowing financial banking and finance employees who had the institutions to grow their customer base. know-how, funds and an entrepreneurial mind- ■ Improving the customer experience was also key: Technology was The Catalyst set to try new things a means to develop innovative financial solutions. FIs began to record ■ These ex-employees began to focus on customer data to gain deeper insight into their clientele. They were able technology to try and solve some the industry’s to drive loyalty by predicting customer behaviour, anticipating the need biggest challenges for new products and risk of attrition. This allowed FIs to improve the customer experience. I think the City of London has a large part to play in the UK's 2 For Customers… ““ dominance in Fintech. Banks were shedding staff during the recession, but we're seeing people who were experts in a big bank and had nice bonuses, some savings and strong expertise. ■ The digital revolution was in full steam: As streaming data and cloud storage rapidly replaced CDs and DVD, the need for personal They've come out with interesting plays that leverage cloud banking and payments emerged as a strong consumer and business infrastructure and their own knowledge. They've become need. experts to the sector, rather than one particular bank. It's the ■ Mobile device proliferation: The ubiquity of mobile devices further best type of spinout really. fuelled this need and changed the financial and transactional Alex McCracken, Director – experience (and expectations) of consumers. Venture Services, Silicon Valley Bank”” Source: KPMG analysis (UK Branch)

Disruptive innovation has created new ways of doing business, which destroyed or severely damaged old existing giants

Innovation plays an integral role in growing a nation’s economy, employment and standard of living through the development of new products, processes and fledgling industries. Business leaders know that the speed of development is such that they have to keep innovating and changing faster to remain competitive

■ “Thomas Edison performed 9,000 experiments before coming up with Average number of years a company spends in the S&P 500 index a successful version of the light bulb”. ■ The US has proved to be more entrepreneurial than Europe in large part because it has embraced a culture of “failing forward” as a common tech-industry phrase puts it: in Germany bankruptcy can end your business career whereas in Silicon Valley it is almost a badge of honour. ■ Companies must recognise the virtues of failing small and failing fast, like placing “little bets”. ■ Placing small bets is one of several ways that companies can limit the downside of failure.

Source: The Economist, April 14, 2011

Companies such as Google see investments in start-ups as a core part of their strategy to remain at the forefront of innovation

Active Investors in Silicon Valley Fintech companies: 2009-2013 Google Ventures was established in 2009 to help entrepreneurs through investment and support, starting off with an initial US$100 million per year Rank Investor Type in the US which has increased to US$300 million invested in over 250 companies. Up until recently Google Ventures has focused its investments 1 Google Ventures Corporate Venture on Silicon Valley companies, however, it is now expanding globally, recently 1 Andressen Horowitz Venture Capital announcing a US$100m European based arm of Google Ventures. 3 First Round Capital Venture Capital 4 SV Angel Venture Capital 5 True Ventures Venture Capital 5 Crosslink Capital Venture Capital 5 Felicis Ventures Venture Capital 5 DAG Ventures Venture Capital 9 Citi Ventures Corporate Venture 9 Sequoia Capital Venture Capital 9 Redpoint Venture Venture Capital 9 Khosla Ventures Venture Capital 9 Dill Capital Management Venture Capital 9 Kleiner Perkins Caulfield & Byers Venture Capital Global financial institutions are recognising that new business models are 9 Lightspeed Venture Partners Venture Capital developing and that they don’t often fit inside their current operating model - 9 Greylock Partners Venture Capital and see investing in start-ups as a way to position themselves against the threat of digital disruption 9 500 Startups Venture Capital

Source: KPMG Desktop Research

Australian financial institutions have been amongst the most innovative globally, adopting a range of strategies and initiatives

Australian financial institutions are seen as leaders in embracing innovation and have launched a number of strategic initiatives over the past five years, particularly in mobile banking, payments and online

NAB launch of UBank CBA launch of Pi, Albert and Leo

■ UBank was launched in 2008 as banks were really ■ CBA launched a range of offerings in 2012 for starting to come to terms with digital disruption. small businesses with new point-of-sale (POS) This was a way for NAB to test and learn with capabilities (Leo), enabled through a new software digital. platform (Pi) and a new omni-commerce device (Albert)

ANZ launch of goMoney Westpac investment in Reinventure

■ ANZ’s goMoney mobile app was launched in 2010 ■ In 2014, Westpac invested A$50 million in a and now has more than 1.4 million users, has hit venture capital fund, Reinventure and through this A$100 billion in transactions and a million logins a making investments in early stage start-ups. For day. example, Westpac made a A$5 million investment in peer-to-peer lender, SocietyOne.

Source: KPMG Desktop Research; Company websites

The UK is leading efforts globally to support the development of Fintech and has made substantial progress over the past 18 months…

A strong commitment has been given by the UK Government to the advancement and support of the Fintech sector

Government

£100 million extension of the British Business Bank’s successful I’m here today because I want the UK to lead the world in ■ Investment Programme, which addresses long-standing gaps in the ““ developing Fintech. That’s my ambition – short and sweet… finance market for smaller businesses and promotes a greater choice in their supply of lending, including in the Fintech sector. The British …There is fierce international competition for this growing Business Bank has already committed over £100m to Fintech firms industry. And you need the right support from government to through the complete range of its programmes. win this global race – you need the best investment ■ The UK Government will allow peer-to-peer lending in Individual Savings environment, the right tax system, the appropriate regulatory Accounts. rules, the best infrastructure, and a government that gets out The Small Business Bill will require that large banks provide the details there in the world and sells your products and services. ■ of SMEs that are rejected for lending by promoting alternative lenders. ■ British Business Bank and Innovate Finance will collaborate in a joint George Osborne, ”” effort to increase SME lending by promoting alternative forms of funding, Chancellor of the Exchequer including peer-to-peer and equity crowd-funding. ■ The UK Government will explore the opportunities, risks and potential regulation of virtual currencies and digital money. ■ Have established a Financial Services Trade and Investment Board, bringing together government and industry to attract inward investment, promote external trade and remove restrictions of the UK’s financial services sector.

One of the key features of the UK’s success, has been the strong alignment of effort across various stakeholders

The UK have achieved a strong alignment of efforts, across Government, Regulators, Fintech start-ups and industry Trade and Investment Hub ■ UKTI has set a clear focus on increasing the export of UK financial ■ Level39 was established by the Canary Wharf Group and opened on services technologies, as well as attracting more foreign and domestic 2013 by Boris Johnson, Mayor of London, quickly becoming Europe’s investment into the sector. largest accelerator space. ■ Fintech is one of the top priorities for the UK’s recently established ■ It provides a space for early-stage Fintech businesses that have Financial Services Trade and Investment Board. potential for high-growth. It plays host to innovation and accelerator ■ Have developed a strategy to ensure the UK is the destination of choice programmes – these are short programmes that aim to boost a young for companies that want to establish a global presence in Fintech. company’s growth over a concentrated period of time. ■ Have personnel ‘on the ground’ in Australia promoting the UK to local ■ It boasts a 250 seat event venue, four hi-tech sandboxes and an Fintech start-ups. executive boardroom. Regulatory Fintech Trade Body ■ The Financial Conduct Authority (FCA) has recently announced ‘Project ■ Innovate Finance, an industry body established to promote the interests Innovate’, an initiative to support industry innovation by smaller start-ups of the UK’s rapidly growing Fintech sector, was launched in August, through to established firms with new business models. based in London. ■ The FCA’s policy unit is engaging with firms developing innovative ■ The body aims to be the voice of a new Fintech movement and has over approaches not explicitly covered by regulation, or for which application 50 founding members. It will provide a single point of access to key of regulation is ambiguous. industry influencers, clients, technologies, talent, finance and ■ Will be launching an ‘incubator’ to support innovative small financial international marketplaces. businesses as they prepare for regulatory authorisation. ■ It is supported by the City of London Corporation, as lead sponsor. Education Industry ■ In late 2014 coding will be introduced to the school timetable for every child ■ UK banks are launching Venture Capital funds and/or accelerator aged 5-16 years old, making the UK the first major G20 economy in the programs targeting Fintech start-ups, e.g. HSBC, Barclays. world to implement this on a national level. ■ Fintech Innovation Lab was launched in 2013 supported by Accenture ■ This is a landmark policy change that will arm a generation of school- which provides a 12-week mentorship program, bringing together young leavers with the skills for the 21st century. Fintech start-ups with senior executives from 13 of the world’s leading ■ Year of Code is an independent, non-profit campaign in the UK to banks. Innovation Labs exist in London, New York and ASPAC. encourage people across the country to get coding for the first time in 2014.

The Australian financial services industry contributes the highest share of sector gross value added to the economy and employs 420,000 people

Annual GVA and share of the top two contributors – “Financial and Insurance Services” and “Mining” (A$ billion)

GVA at current prices, A$ billion

■ The Australian economy has shown robust growth with GVA increasing at 6.8% CAGR over the past 13 years. During this time, financial and Financial 1,423 Services 1,392 insurance services sector has grown at a CAGR of 7.1% (amongst the 9% CAGR 1,313 8% top two growing industries), constantly maintaining its share of around 8- 7.1% Total GVA at 11% 9% of the total GVA since 2000. 1,205 9% 9% current prices 1,175 10% 1,089 9% 10% ■ As of June 2013, Financial and insurance services, along with mining, CAGR 6.8% 9% are the highest value-adding industries in the economy, accounting for 1,002 8% 9% 10% over 9% each of the nation’s value added numbers. 919 9% 8% 847 8% 8% ■ The financial services industry employs 420,000 people, with the 786 8% 7% overwhelming majority in high skilled, high wage occupations. 730 8% 5% 690 8% 4% ■ According to the ATO, there are 2,965 tax payers in the banking and 608 644 8% 5% 8% 5% finance industry, who paid A$11.5 billion in tax, and this contributed to 8% 6% 5% approximately 23% of the Public Groups and International income tax collections for the 2013 tax year and around 18% of total corporate tax 87% 86% 87% 87% 88% 87% 85% 84% 84% 81% 83% 81% 82% 82% receipts in Australia. ■ Treasury’s Economic Roundup confirmed that the average tax rate for the financial services sector has been higher than most other industries for at least the past six years.

June June June June June June June June June June June June June June 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Financial and insurance services Mining Others

Source: Australian Bureau of Statistics, Cat. No. 5204.0 Australian System of National Accounts, Time Series Workbook, Table 5 (last updated 1 Nov 2013); Australian Taxation Office, Banking and Finance Industry Strategy for 2014-15; FSC Submission to the 2014-15 Federal Budget; Treasury, Economic Roundup Issue 2, 2011).

Australia has a mature, well regulated and World’s top 25 banks by market capitalisation (US $billion) diversified financial sector Wells Fargo $261 J.P. Morgan $229 ICBC $196 HSBC $191 Total financial sector assets Bank of America $181 100% = A$5,237 billion China Construction Bank $160.8 Citigroup $144 Securitisation Other managed vehicles Agricultural Bank of China $126.4 funds 3% Bank of China $115.9 5% Commonwealth Bank of Australia $115 Life offices and Banco Santander $110.5 superannuation Allied Irish Bank $100 funds 28% Westpac Banking Corporation $99.2 BNP Paribas $96 Authorised Royal Bank of Canada $95.1 deposit-taking Lloyds Banking Group $90.1 institutions – Registered Banks Toronto Dominion Bank $86.5 Financial 60% Australia New Zealand Banking Group $83.2 Corporations 3% Mitsubishi UFJ Financial Group $78.4 US Bancorp $78.1 UBS AG $78 Authorised deposit- taking institutions – National Australia Bank $75.5 Other Goldman Sachs $74.1 1% Bank of Nova Scotia $70.5 Itau Unibanco $70.4 ■ Australia has a sophisticated profitable banking sector and a well established ■ On the global stage, the World Economic Forum rates Australia as one of the regulatory environment. The four major banks are all in the World’s largest world’s best performing global financial centres. It is ranked number one in banks by market capitalisation, all rank in the top 20 of the World’s 50 safest Asia and number two in the world - above places like Hong Kong and banks, and are amongst the most profitable banks globally. Singapore. This is in large part due to our performance, efficiency, stability and low-risk profile. ■ Australia has favourable economic fundamentals and a strong and growing financial services sector that has demonstrated resilience and outperformed ■ Australia has the fourth largest pool of investment fund assets in the world other advanced economies during and post the Global Financial Crisis (GFC) and the largest in Asia. As a result of compulsory superannuation (pension) period. fund contributions, total consolidated funds under management grew to almost A$1.6 trillion as at 2013, up by more than 60% on five years ago.

Source: RBA Statistical Tables, B1 Assets of Financial Institutions (latest Sep 2013), updated 2 Dec 2013; RBA Statistical Tables, D2 Lending and Credit Aggregates (Oct 2013), updated Nov 2013; Bankscope; Bank for International Settlement – 83rd Annual Report`; World Economic Forum; Market capitalisation of global banks at March, 2014

Sydney is home to most of the Australian and foreign-owned financial institutions, as well as the financial regulators, central bank and stock exchange

Summary of Branch and Head Office (HO) Locations in Australia

Major Domestic Banks NSW VIC QLD WA SA NT ■ Two of the four major banks, CBA and ANZ ü ü(HQ) ü ü ü ü Westpac, are based in CBA ü(HQ) ü ü ü ü ü Sydney, with NAB and ANZ also having ü ü ü ü ü ü NAB (HQ) significant operations in WBC ü(HQ) ü ü ü ü ü Sydney. Macquarie ü(HQ) ü ü ü ü û ■ All of the foreign-owned subsidiary banks and Foreign Subsidiary Banks NSW VIC QLD WA SA NT most foreign bank branches have ü ü û û û û Arab Bank Australia Ltd (HQ) established head offices Citigroup Pty Ltd ü(HQ) ü ü ü ü û in Sydney. ING Bank Australia Ltd ü(HQ) û û û û û ■ 9 of the 10 largest Australian fund Rabobank Australia Ltd ü(HQ) ü ü ü ü ü management groups are headquartered in Bank of Sydney Ltd ü(HQ) ü û û ü û Sydney. ü ü ü ü û û Bank of China (Australia) Ltd (HQ) ■ Sydney is also the head HSBC Bank Australia Ltd ü(HQ) ü ü ü ü û office location for financial services Foreign Bank Branches NSW VIC QLD WA SA NT regulators, APRA and Head Office distribution (42 in total) 92% 5% 3% - - - ASIC, as well as the central bank, the Other Major Financial Institutions NSW VIC QLD WA SA NT Reserve Bank of Australia and stock AMP ü(HQ) ü ü ü ü û exchange (e.g. ASX). IAG ü(HQ) ü ü ü ü ü

QBE ü(HQ) ü ü ü ü ü

Sources: APRA; Company website; Factiva news database

The Financial System Inquiry has recognised that the catalyst for technological innovation often starts outside of the industry

The Financial System Inquiry (FSI) Interim Report acknowledged the importance of technological innovation to the continued growth and efficiency in the Australia economy, benefiting consumers and businesses

Observation Policy options ■ Technological innovation is a major driver of efficiency in the financial ■ Establish a central mechanism or body for monitoring and advising system and can benefit consumers. Government and regulators need to Government on technology and innovation policy and to promote balance these benefits against the risks, as they seek to manage the innovation in Australia’s financial system. Consider, for example, a flexibility of regulatory frameworks and the regulatory perimeter. public-private sector collaborative body or changing the mandate of an ■ Financial services boundaries are shifting as technology enables new existing body to include technology and innovation. competitors from inside and outside the sector, new business models ■ Developing a comprehensive Government strategy, in consultation with and new services. Trends, such as the increasing adoption of cloud industry, to ensure the regulatory framework supports technological technology and financial institutions using growing amounts of data, innovation, while managing risks. provide opportunities for increasing financial system efficiency. ■ Over the medium term, technology will increasingly affect the level of competition in the financial system. In some ways, technology is improving competition. It enables consumers to compare and switch between products, making new business models, such as online-only banks and peer-to-peer lenders, viable. Many technological developments adopted by financial ■ Technology, including automation and ‘mass customisation’ techniques, provides an opportunity to offer consumers more cost-effective advice. It ““ institutions start life outside the sector…In many ways, this may also enable new business models, such as scaled or automated pattern of taking up new, but tested, technologies benefits the online advice. sector: it lowers the risk of innovation, while taking advantage of ■ Government is well-positioned to facilitate innovation through its benefits. . coordinated action, regulatory flexibility and forward-looking FSI Interim Report mechanisms. ””

Source: Financial System Inquiry Interim Report (2014)

Given the rising importance of developing digital economies, Fintech could be an enabler to greater exporting of Australia’s financial services capability

The FSI and the ‘Johnson Report’ (Australia as a Financial Centre) highlight that Australia has not been able to generate significant exports of our financial services capabilities to other markets and we need to more effectively promote the strengths of our financial services sector internationally

Observation

While Australia’s financial sector as a proportion of its economy is large ■ Given the anticipated development in Asian financial markets in by international standards, financial services exports only represent a small proportion of Australia’s trade, accounting for around 4.5% of total ““ coming decades, and the strength and significance of trade in services at the end of 2013. Australia’s trade relationships with the region, opportunities will ■ A key finding of the Johnson Report (2009), Australia as a Financial increasingly arise to access capital from Asia, for Australian Centre, that Australian exports and imports of financial services are low and Asian financial services firms to expand into each other’s by international standards. Fintech offers the opportunity to boost our markets and to grow financial services exports and imports… trade in financial services, given the rising importance of developing . ”” digital economies throughout the region and globally. FSI Interim Report ■ Another finding was that Australia needs to more actively and effectively promote the strengths of its financial sector and Fintech could provide a platform for this (regionally and globally). ■ UKTI has announced a significant new push in overseas markets to …Australia has arguably the most sophisticated and advanced promote Britain as the best place in the world to set up and develop a financial sector in the region. However, Fintech firm, and attract inward investment to the sector. ““ while Australia is a very open trading economy overall, our There are examples of successful Australian Fintech companies ■ exports and imports of financial services expanding internationally, including Bravura Solutions who started their operations in Sydney in 2004, and Oxforex, who started their operations as a percentage of GDP are, by international standards, low. in Sydney in 1998. The opportunities for leveraging off our financial services skills and expertise, in the region and beyond, are potentially enormous . ”” Johnson Report

Source: Australian Financial Centre Forum (2009); Financial System Inquiry Interim Report (2014); Company websites

SocietyOne (Peer to peer lender)

When Matt Symons was asked about the future of Fintech in Sydney and how Since starting the business in Australia Matt noticed that “it can be quite Sydney could compete he started by talking about his own experience in San lonely (as a Fintech entrepreneur). No-one reached out as a peer. There is Francisco and the cultural differences he observed compared to Sydney: “In no obvious alumni of others to interact with.” Again this was contrasted with San Francisco the starting premise for talented and ambitious individuals is San Francisco where people will reach out to each other. Angel and Super- that if you are still working at Wells Fargo in your late 30’s to early 40’s you Angel investors will look to connect new start-ups with both ideas and will be defensive (about that)”. Matt’s point is that the psyche and attitude in mentors. Whereas “in Australia there is a lack of structured support which at the US is one of “the glass being half full” and that even individuals in the business level can be very isolating”. conservative sectors like financial services have an appetite for risk. One thing that would work towards building a supportive ecosystem in Matt’s “Examples of the possible are held up every day. Paypal is the jewel in the view is attaining a critical mass of Fintech start-ups and venture capital eBay crown. Square is a household name. Either you disrupt or someone across the full range of financial services (banking, wealth management, disrupts you.” insurance, private equity and real estate). Success in one or all will breed And it is this approach to disruption and seeing what might be possible that future businesses because “here Fintech is seen as a career risk. But when led Matt and his business partner Greg Symons to establish SocietyOne. people see disruption occurring and succeeding this becomes a signal that Their company website will tell you that “SocietyOne is Australia's only active Fintech has a future.” To help attain critical mass you need to attract talent. peer-to-peer lending platform – connecting borrowers and investors in a Talent that is “comfortable in unstructured environments, people who can be secure, safe and confidential online environment.” They do this by exploiting productive and lead which is a rare talent.” the limitations within existing consumer credit models for things such as Matt would also like to see the city showcase Fintech. To celebrate the “new unsecured credit on personal loans and credit cards where the lending rate is and different developments in Fintech independent of where it has come from, set regardless of the personal circumstances of the customer. So someone whether its CBA, BT Financial Group or a 3-man shop. Both Google and with a good credit history will pay the same rate as someone with a bad credit Apple focus on what might be, the art of the possible and doing things history for the same product. What SocietyOne does is seek to offer a rate differently in hitherto unimagined ways. It’s time Sydney did the same.” that better reflects the history of the individual by using a risk adjusted pricing model. Funding comes from high net worth investors. Essentially SocietyOne are opening up a section of the financial services market to investors that has been the traditional domain of the banks whilst also offering a better customer experience. In Australia there is a lack of structured support which at the ““ business level can be very isolating. Matt Symons,”” CEO, SocietyOne Source: Company Website July 2014, AFR article 11 March 2013 “ Online Credit fills the gap”, KPMG interview with Matt Symons 11 July 2014

Tyro Payments (Payments provider)

Andrew Rothwell is a founding engineer of Tyro Payments Ltd. A Fintech Nor could Tyro be a member of or participate in the RBA Tier 1 settlement business focussed on disrupting the payments value chain in Australia by aiming system until the license was granted. The other major hurdle was gaining to provide a better end to end customer experience than established players. access to the EFTPOS network. Connecting with EFTPOS member banks Tyro was established in 2003 by Andrew, Peter Haig and Paul Wood to take proved extremely costly and time consuming. The access regime did not advantage of the RBA’s bank licence for merchant acquiring. All three had deep necessarily promote easy access for new entrants. Tyro relied on support from technology backgrounds having worked for technology giants such as IBM and the RBA to battle through many of these problems. “Without their support in the Cisco as well as entrepreneurial backgrounds having run their own companies: early years it is unlikely we would have survived.” Systems Technology, Netlink and Metaplex which was subsequently acquired by An early business plan had the first beta product being launched in late 2004 Cisco. whereas in reality it wasn’t until the latter half of 2006 that the first “super-green” At Cisco they took on business development and engineering roles that meant product was launched after almost A$10m of investment in product they spent a lot of time in Silicon Valley and Research Triangle Park in North development costs, scheme membership costs, EFTPOS access regime costs, Carolina. One consequence of this is what Andrew described as “living in the APRA licencing costs and other regulatory requirements. “Looking back, if we’d Internet whirlwind and experiencing the start-up mentality up close”; providing known about the regulatory hurdles, access regime dramas and cost and time direct exposure to the entrepreneurial culture; and “whatever it takes” attitude of to overcome them we probably would not have tried (to establish a payments the time. Their Cisco lives meant spending a lot of time away from their homes business).” In total it took A$33m and 9 years to be cash flow positive. and families in Sydney. They were “working 16 hour days and living out of a Another key moment was the appointment of Jost Stollmann as CEO. A serial suitcase. After years of this we were getting burned out. We wanted to live and entrepreneur who had established and built his own US$1bn business in work in Sydney with our families.” So they started to think about a new venture Germany (CompuNet Computer AG) brought the experience needed to grow based in Sydney. “We saw (merchant) acquiring as an activity that could be the business, much needed capital and also the ability to attract a high quality disrupted using technology: combining Internetworking with inexpensive board, including Paul Rickard (ex-CBA) and Mike Cannon-Brookes (Atlassian). commodity server hardware and leveraging the emergent open source software Today Tyro employ 130 people and in the last year carried some $5.3bn of movement meant we could build a much lower cost platform, with better speed, transactions and have over 10,000 merchants as customers. The Tyro story scalability, security and resilience, than was available by the legacy platform shows the importance of perseverance, the willingness to innovate and need for providers. We believed marrying such a platform with an acquiring bank licence the regulatory environment to support new business ventures in Fintech. would enable us to provide great value to Australian merchants.” However, Andrew and his fellow founders had underestimated the regulatory environment and challenges to be overcome in terms of the financial risk We believed marrying such a platform with an acquiring bank management, operational risk management, governance, security and other ““ licence would enable us to provide great value to Australian needs mandated by APRA, APCA and PCI in the payments space. At the time merchants Visa and Mastercard required prospective members to hold a bank license, Tyro could not become a member of either until the specialist bank license was Andrew Rothwell, granted. ”” Founding Engineer, Tyro Payments Source: Company Website July 2014, KPMG interview with Andrew Rothwell 5 August 2014

Reinventure (VC fund)

Danny Gilligan and Simon Cant are the co-founders of Reinventure, a corporate Longer term the ambition is “for Reinventure to be the preferred Corporate venture capital fund backed by Westpac. Danny describes the fund as “creating Venture capital fund for great entrepreneurs pursuing market leading long term strategic options for the bank as well as a near term opportunity to Fintech ventures.” partner with innovative companies to leverage new technologies and know-how”. The Reinventure model is about “doing Corporate VC in a way that is attractive to Locally they see a great opportunity for Sydney and Australia in Fintech and good entrepreneurs.” believe “the critical first step (to drive the industry) would be establishing a Reinventure operates as an independent corporate venture capital unit in Fintech hub.” Australia has and is continuing to lose significant national partnership with the bank. Established as a fully registered Early Stage Venture income in media and retail as global technology companies increasingly Capital Limited Partnership (ESVCLP) Reinventure is regulated under both the take market share from traditional domestic media companies and retailers. Venture Capital Act 2002 and Income Tax Assessment Act 1997. The structure However, what we have learned from media and retail is that while some ensures that Reinventure can operate autonomously from the bank, which provides models are inherently global (Google, Facebook, Twitter, etc), others are entrepreneurs with comfort that, as an investor, Reinventure will not subsume the inherently regional and have to be developed geography by geography (e.g. interests of the venture to those of the bank. At the same time, the exclusive seek.com.au, realestate.com.au, carsales.com.au, etc). Financial services, partnership with Westpac ensures that they are able to facilitate a relationship of due to its significant regulation tends to be inherently regional. This deep trust between their ventures and Westpac over time. creates a great opportunity for Australia, and Sydney in particular, to build The operating model for the fund is underpinned by a number of core business a significant start-up eco-system around Fintech. They point to the UK and principles designed to enable Reinventure to “de-risk corporate venture capital.” Level39 in Canary Wharf as the model for establishing a hub in Sydney. The first is to focus on proven models. These can be either proven in terms of Part of the reason for this is that the “key to getting the best talent is raising demonstrated traction with customers or by a model that has gained traction in the profile of Fintech and creating a centre of gravity and a hub would another market. The second principle is to “work with proven entrepreneurs, facilitate this by co-locating venture capital funds, and Fintech ventures people who have built businesses before.” The final ingredient for success is looking for “where Westpac can provide a material advantage, we will never invest physically close to one another and within the financial services heart of the just cash.” This means they are focussed on how Westpac can help the start-up to city.” grow as opposed to how the start-up can fill a gap in Westpac’s corporate strategy. Sydney, in their view, has all the ingredients to be a Fintech centre of The first investment the fund made was into SocietyOne and clearly fits with the excellence including “financial services being the number one employer in above principles in that it has a “proven business model, proven entrepreneurs and the city, two of the big four banks being headquartered here and all four Westpac can provide a material advantage”. Australian major banks being in the top 20 globally.”

The critical first step (to drive the industry) would be establishing ““ a Fintech hub ”” Danny Gilligan, Co-founder, Reinventure Source: Company Website July 2014, AFR article “Westpac innovates disruptively with SocietyOne” 10 March 2014, KPMG interview with Danny Gilligan and Simon Cant 17 July 2014, AusIndustry website for background on ESVCLP July 2014

Australasian Wealth Investments (VC fund and accelerator)

Ben and Toby Heap are brothers and the driving force behind Sydney-based, For both this is an important point as one big success story creates not only a AWI and AWI Ventures respectively. Ben is the managing director of AWI, a proof point to the local industry but also often leads to the creation of venture listed investment company, that has a clear focus on the digital wealth segment capital, angel and super angel funding for other start-ups as successful and targets “self-directed investors across every product suite through digital entrepreneurs look to invest into new ventures themselves. Ben describes this distribution.” AWI looks to innovate and challenge the traditional advisor focus of as the “multiplier effect, we need one or two of these businesses to really fly.” the industry by focussing on distribution direct to the customer. This is an area The other key ingredient for Fintech in terms of drawing in venture capital is to “where traditional players struggle to innovate as the business case isn’t there” have a healthy pipeline or “funnel of opportunities” for investors. For both Toby due to large investments in advisor networks to distribute product. and Ben the bigger the funnel the better as this means more competition for AWI Ventures is another move to disrupt the financial services industry by funds, more potential collaboration between start-ups and industry and a providing a Fintech accelerator focussed on providing early stage seed funding to greater chance of success. When asked about how Sydney and key players in new business ventures. Toby Heap oversees AWI Ventures, has an it could best support a growing funnel of opportunities Ben was clear in pointing entrepreneurial background mainly in consumer based internet ventures and he out that he is “not a fan of government funding Fintech.” This is a role for the has personally invested in a number of start-up businesses. AWI Ventures is an private sector, investment managers, corporates, high net worth individuals and off-balance sheet business separate to the core AWI business which is itself cash entrepreneurs. generating and profitable. Where government and the city more broadly could play a role is in creating the AWI Ventures borrows its model from Y Combinator in Silicon Valley who invest right conditions to expand the funnel. Ben and Toby see three things that early (US$20k) and run a 3 month curriculum designed to accelerate the success would make a real difference in this sense: “More talent in the funnel, therefore of each of the start-up businesses it supports. A key learning from this for Toby is a visa programme linked to ‘approved’ accelerator programmes to attract talent that “what they back is the person, they look for great people with a bright idea.” and ensure they stay here to build their businesses and keep their visa”; “A AWI ventures tries to do the same. Another thing Toby took out of his studies is curriculum of speakers and events, run by a not-for-profit organisation, would that “you could count on two hands the number of financial services companies be very powerful and that could also link in the universities will be crucial to long through it (Y Combinator), the regulatory barriers in financial services term success”; and “A Fintech ecosystem is crucial, therefore a shared space mean…(you need) more money, more time and mentor specificity is required.” with ‘subsidised’ rental arrangements for early stage growth businesses would be very valuable.” AWI Ventures looks to provide a six month accelerator program and up to A$100k of investment for Fintech specific start-ups. The first round call for applications attracted 86 in total with AWI Ventures’ primary focus being on pre- profitable growth stage businesses. Both Ben and Toby also noted that a single …A curriculum of speakers and events, run by a not-for-profit success could make a big difference to the Fintech eco-system in Sydney ““ organisation, would be very powerful and that could also link in pointing to the success of Xero in New Zealand leading to another 20-30 the universities will be crucial to long term success companies also starting up in Wellington and that “New Zealand is now doing better in early stage Fintech than Sydney or Australia more broadly.” Ben Heap, CEO,”” AWI Source: Company Website July 2014; KPMG interview with Ben and Toby Heap 25 July 2014

What Sydney needs to do

Low

1 3

4 Implementation difficulty

High

Long term Time to implement Short term

What Sydney needs to do

Recommended action Considerations and ideas from stakeholder discussions ■ State Government to continue working with partners in the private sector ■ Commission analysis to build the business case for Sydney and and the Committee for Sydney on the development of a comprehensive Australia in terms of detailed GDP, market size, incentives, financial Fintech vision and strategy for Sydney, providing a focal point for the services leadership, ROI on government investment in Fintech alignment of effort across the public and private sector and articulating a ■ Need to develop an aligned vision and direction for Fintech in Sydney, as clear commitment to the Fintech sector part of broader ambitions to be a leading regional financial service centre Rationale ■ Asia as an export destination for Fintech and Sydney as an Asian Fintech leader ■ Provides an aligned vision and goals for the development of the Fintech sector, as part of the State Government’s support for financial services ■ Important to agree clear targets to measure progress, e.g. jobs growth, new ventures started ■ Articulates the importance of and commitment to Fintech as a sector ■ A 3-5 year timeline with clear actions, supported by a clear commitment ■ Establishes the critical pathway and actions for success to the Fintech sector is required ■ Alignment with the broader Financial Services Knowledge Hub strategy Responsibility ■ Brings together participants at the industry and government level around ■ NSW Government an agreed set of goals

What Sydney needs to do

Recommended action Considerations and ideas from stakeholder discussions ■ Explore the establishment of a not-for-profit Fintech hub in the heart of ■ Subsidised rental model to make working space affordable the city that co-locates technology start-ups, venture capital and ■ Critical for a hub to be located in the heart of the city close to major established financial services firms Refer slide 71 for further details on financial services firms the Fintech hub ■ Operate as a not for profit so as to attract multiple venture capital funds to co-locate

Rationale ■ Run accelerator programs of 3-6 months ■ Hold education sessions focussed on financial services ■ Creates a critical mass and local ‘centre of gravity’ for Fintech in Sydney ■ Hold engagement sessions involving Government representatives, ■ Provides low cost services, e.g. working space and expertise for start regulators and potential investors ups ■ Consider having a high growth space for businesses to graduate into Provides access to low cost capital for start-ups, as well as a pipeline of ■ Sign friendship agreements with similar global accelerators in other opportunities for venture capital and established financial services firms ■ financial services centres, e.g. Level39 (UK) Drives collaboration between start-ups, established financial services ■ Engage established financial services organisations to provide mentors firms, as well as regulatory agencies ■ ■ Encourage financial services firms to use the hub for incubation initiatives, e.g. new product development Responsibility ■ Expand reach and engagement activity across the Asia Pacific region ■ Industry ■ Establish a mechanism to allow start-ups access to regulatory information and advice for regulatory agencies in a timely manner

What Sydney needs to do

3 Considerations and ideas from stakeholder discussions

Recommended action ■ Alignment across local, State and Commonwealth Government is critical ■ Focus not just on the innovators but eco-system at large by engaging ■ Government (local, state and Commonwealth) to promote Sydney as the and showcasing both new and established financial services leading Fintech centre in the ASPAC region and establish a series of organisations and their innovations events in the city, regionally and globally, to showcase Fintech in Involve the tertiary sector and look to draw in participants from adjacent Sydney, in line with our leading financial services position ■ industries such as digital and creative ■ Aim to have 1-2 international key note speakers per annum Rationale ■ Target leading financial services centres in Europe, US and Asia Pacific ■ Establishes a platform to promote Fintech in Sydney and globally to run targeted campaigns promoting Sydney and Fintech (e.g. the Atlassian bus tour) ■ Raises awareness for Fintech start-ups to export their capability offshore Promote the lifestyle of Sydney as part of the Sydney ‘value proposition’ Attracts funding and venture capital to Sydney ■ ■ to attract foreign entrepreneurs ■ Attracts entrepreneurial talent to Sydney ■ Appoint a senior government representative to be the financial services ambassador for Sydney (similar to the role played by the Mayor of Responsibility London) ■ Develop an annual calendar of events in Sydney ■ Commonwealth and NSW Government ■ Leverage Sydney hosting the international SIBOS Conference in 2018 ■ Participate in major global conferences, e.g. Fintechcity in London ■ Hold events in Asia to showcase Sydney Fintech for export and Sydney as a destination to attract Fintech start-ups

What Sydney needs to do

Recommended action Considerations and ideas from stakeholder discussions ■ Form an independent Fintech focussed industry association, based in ■ Operate on a not for profit basis Sydney, to give the sector a strong voice and champion ■ Focus on bringing together Fintech start-ups and established financial services firms to promote collaboration and ensure alignment of activity Aim to provide a single point of access to clients, technology, talent, Rationale ■ finance and international markets ■ Helps to prioritise the needs of the sector (liaising with Government and ■ Work with the tertiary sector to establish Fintech aligned curriculum regulatory agencies) and provides a representative voice for the Sydney Fintech community ■ Sponsor and conduct industry based research and through leadership ■ Promotes Sydney as the ‘centre of gravity’ for Fintech in Australia and ■ Run industry based roundtables and events globally ■ Lobby regulatory bodies to achieve a balance between regulation that ■ Drives collaboration between financial services firms and Fintech start- maintains the sustainability of the financial services system, with new ups business models and innovation that provide better customer outcomes ■ Connect with Innovate Finance in the UK to learn from their experience Responsibility and accelerate the development of Fintech in Sydney ■ Industry

What Sydney needs to do

Recommended action Considerations and ideas from stakeholder discussions ■ Work with the Federal Government and regulatory agencies, to enhance ■ Maximise amount of cash reinvested into early stage start-ups (e.g. the current regulatory, tax and business incentives available to the start- income tax exemption for income reinvested into the business) up community, as well as introduce measures to target foreign ■ Alignment of tax incentives available through various VC fund structures entrepreneurs, attracting them to Sydney and direct investment in early stage high risk ventures (current financial incentives are not provided for direct investment by individuals or Rationale corporations ■ Leverage the Centre for International Finance and Regulation (CIFR) to ■ Provide a regulatory and tax framework that supports innovation research regulatory settings and the potential impact on Fintech ■ Helps to broaden the entrepreneurial culture base ■ Review the current taxation and business incentives to determine their ■ Attracts funding and venture capital to Sydney “fit for purpose” nature ■ Attracts entrepreneurial talent to Sydney ■ Review visa system to identify opportunities to attract repeat entrepreneurs to Australia (e.g. SIV) and link to investment in Fintech start-ups and/or participation in acceleration programs Responsibility ■ Review other jurisdictions to examine how government and business work together to drive Fintech (e.g. the role of UK Trade and Investment) ■ Commonwealth and NSW Government ■ Examine the regulatory framework to identify opportunities to better enable start-up businesses in financial services (e.g. regulation of new technologies such as crypto-currencies, regulatory requirements for start-up ventures) ■ Employee share option plan (ESOP) taxation arrangements to be aligned to the year the option is exercised not the year options are issued ■ Adding VC funds to the list of eligible investments for Significant Investor Visa applicants

What Sydney needs to do

Recommended action Considerations and ideas from stakeholder discussions ■ Engage the university sector and leverage the Centre for International ■ Bring the university sector, the Fintech start-up community (including Finance and Regulation (CIFR) to research key Fintech themes and VCs) and business together to understand the jointly explore industry business opportunities issues and opportunities within Fintech ■ Encourage entrepreneurialism at the university level Explore mechanisms for industry and regulatory to make cleansed Rationale ■ industry data sets available to academics for experimentation ■ Develop ideas and business opportunities for commercialisation ■ Connects the university sector, the Fintech start-up community and business ■ Leverage existing infrastructure, such as CIFR

Responsibility ■ Universities/CIFR and Industry

What Sydney needs to do – Fintech Hub

Corporate incubator Co-working space ■ Corporate partner ■ Early stage innovation start-ups ■ Ability for ■ Venture Capital corporates to run 3-month incubators (e.g. new product development)

Events Growth space ■ 200 person capacity ■ 5-10 person ventures ■ Breakouts 20-30 person Sandboxes ■ ■ ventures

Comparison of government programs

London Singapore Tel Aviv Government funding Government’s focused strategy for developing the tech Government funding start-up eco-system ■ UK Angel CoFund – An early stage matching ■ Yozma Fund [closed to new fund to support the growth of angel ■ Intends to develop the local tech start-up eco-system startups]: The fund was set up to investment sector. without making it a clone of hubs attract foreign direct venture capital investment into Israel. To incentivize ■ Start-Up Loan Scheme – Provides seed ■ Allocated ~S$100 million for early-stage start-ups inward investment, foreign investors capital and mentoring to early stage within the broader S$16 billion scientific R&D budget were offered matched funding at a businesses. ■ Expects the state backed start-up agenda to attract rate of two to one. That is, for every ■ Enterprise Capital Fund Program – more private investors and incubators dollar a foreign investor committed Supports the creation of new early stage ■ Once the local eco-system is established, intends to to an Israeli entrepreneur, the venture capital funds. scale back the level of involvement government committed an additional UK Innovation Investment Fund – Co- two. To provide further up-side ■ ■ Also attracting Australian start-ups (such as Sprooki) invests with private investors in high growth, incentive, the government offered to relocate to Singapore knowledge-based businesses. investors the option of buying out Prominent government programs for tech start-ups the government’s stake in the fund ■ Business Finance Partnership – Enables after a period of five years increased access to finance by providing ■ SPRING – Complete or Co-investment financing for matching funds. sector specific acceleration, commercialising ideas, ■ The Tnufa provides pre-seed networking and assistance from multiple agencies funding to of up to $50k (maximum ■ Future Fifty Program – A matching program of 85% of costs) for early stage for fifty of the most promising high-growth ■ MDA i.Jam – Provides fund up to S$100,000 by activities such as financial feasibility companies with publicly funded schemes and founders or incubators analysis, prototype development, incentives relevant to their stage of growth ■ i.Jam - Interactive Digital Media Program appointed etc. and specific needs. incubators identify, nurture, and administer competent ■ Chief Scientist R&D Development start-ups Fund: This program gives new R&D ■ Technology Incubation Scheme – the government facilities access to grants covering co-invests ~85%. Incubators pitch in the remaining buy 20-50% of a start-up’s estimated out the government's stake after three years R&D costs. In return the Government is entitles to royalties in Incubator for Disruptive Enterprises and Start-ups ■ the range of 3-3.5% of annual (IDEAS) revenues.

Comparison of government programs

London Singapore Tel Aviv

Tax structure and incentives Tax structure and incentives Tax breaks ■ Entrepreneurs’ Relief Program – Offers a ■ Tax exemption for start-ups – Full tax ■ Tax breaks are given to venture capital reduction in capital gains tax rate of 10% for exemption on a specified part of a start-up’s backed accelerators who set up in the city. founders of start-up firms who sell or give taxable income for the first three consecutive The Angel’s Act. (2011) provides tax away their businesses. years incentives to angel investors who invest in seed companies. ■ Enterprise Investment Scheme (EIS)/Seed ■ Pioneer incentive scheme - Businesses that Enterprise Investment Scheme (SEIS) – raise overall industry standards eligible for full ■ Recently, in July 2014, the ministries Encourages investment into early stage, high- corporate tax exemption on qualifying profits proposed simpler criteria for tax incentives to risk businesses and provides an upfront for up to 15 years encourage seed-stage investments (Angels income tax relief of 30 percent and 50 Act 2). Under the new plan (which would ■ Productivity and innovation credit scheme percent, respectively. The scheme also come into effect in 2015), to claim the tax - ~400 percent deduction or allowances on provides capital gains tax exemption and is benefits, one will have to invest in start-ups ~$400,000 expenditure incurred in qualifying valid until the end of 2014. that are less than three years old, earn no innovative activities more than 1.5 million Shekels (~US$0.44 Visa policy & immigration ■ Lower income and corporate tax rates million) in annual revenue, and incur Entrepreneur Visa Scheme – Introduced in ■ ■ Low GST rates (7%) - below global (16.4 expenses up to 3 million Shekels (US$0.88 2008 to attract entrepreneurs from across the percent) and ASPAC (10.6%) averages million). world to establish their business in the UK Visa regime Visa policy ■ Global Entrepreneur Programme – Run by the The government is reviewing its visa policy UKTI to attract high caliber, early stage ■ Open Immigration policy facilitates the ■ with the aim of introducing a “start-up visa” companies and entrepreneurs to set up in the relocation of foreign entrepreneurs regime that would make it easier for skilled UK . Under the program, participants are ■ Singapore has a relaxed immigration policy, foreigners to come and work in Israel. offered bespoke advice and capital raising making it easier to gain Singapore Permanent assistance from a team of experienced Residence (PR) status entrepreneurs. ■ EntrePass, the visa for foreign entrepreneurs is considered to be more flexible than other countries such as the UK and the US

Comparison of government programs

Singapore Tel Aviv Government backed co-working spaces Shared/co-working spaces ■ The Infocomm Development Authority of ■ The city government has converted a number Singapore (IDA)’s IDA Labs serve as co- of municipal facilities such as city libraries into working spaces for the community, industry incubator start-up spaces. and government agencies ■ The Library: The Library in the historic Shalom ■ The labs provide physical lab spaces for Tower provides a shared working space and generating new ideas, developing new hub facilities for teams dedicated to technologies and testing out proof of concepts developing internet start-ups and new technology companies. Teams of start-ups ■ The IDA labs also partner with global IT apply to be based at The Library for a period vendors such as Intel, HP and Redhat for of about four months. In return, start-ups providing R&D resources, enabling teams pay a subsidized rate of US$70 per technologies and best practices from other month for the facilities. geographic markets such as the US ■ In addition, IDA acts an accelerator – expediting the process of commercializing innovation ideas ■ IDA’s accreditation program to help local start-ups position themselves as qualified vendors to potential government and large enterprise buyers ■ This helps start-ups to generate revenue from the early stages and reduce dependency on VC funding

Comparison of government programs

London Singapore Tel Aviv Other initiatives Incentive to banks and financial services Sponsor events to cultivate the start-up ■ The Financial Conduct Authority (FCA) of UK institutions for innovation industry launched ‘Project Innovate’ – aimed to ■ The SPRING program encourages ■ FIN-TECH, Tel- Aviv 2014: It is the 1st ensure that UK financial technology innovation in the country’s key sectors International Conference on Financial companies are supported by the country’s such as banking, along side incubating start- Technology convened by The Israel Export & regulatory environment. ups International Cooperation Institute and Ministry of Economy. The event is planned to ■ In 2013, The London Stock Exchange ■ It has accredited local banks such as the be held in September 16-18, 2014, in Tel introduced changes to IPO regulations by OCBC and Maybank with the Singapore Aviv. allowing high-growth companies to make Innovation Class (I-Class) certification initial public offerings with just 10 percent of the 12th edition of “go 4 Europe” ■ I-Class is national recognition for ■ Go 4 Israel: their stock, compared to a standard conference (http://www.go4eu.com/) organisations that have management requirement of 25%. This move was primarily systems, underlying technologies and ■ MIXiii: “Mix Israel Innovation International” – to enable higher rates of technology company processes in place to achieve excellence Israel innovation conference listings in the UK. through innovation (http://www.mixiii.com/) Established institutions such as the ■ ■ Government programs such as these provide Technology Strategy Board as UK's a fillip for Fintech innovation in the country foremost innovation agency, to oversee innovation programs and accelerate economic growth

Government support (1/2) The Australian government offers funding at both the Commonwealth and state levels to encourage the setting up of start-ups in the country

Extent of Government funding ■ Venture Australia - Announced in February 2013, the scheme offers high- risk capital to Australian 1 Government businesses with high growth potential, from start-up to growth. The package will provide A$378 million support over 15 years. ■ Innovate Australia – Connecting technology SMEs and businesses in key sectors of the NSW economy to develop globally competitive business-to-business (B2B) solutions that address compelling needs. There are three funding elements to Innovate NSW including Minimum Viable Product (MVP), TechVouchers (TV), and Collaborative Solutions (CS). ■ The Entrepreneurs’ Infrastructure Programme – Commenced in July 2014, the scheme offers Australian businesses with value-added advice and support such as business evaluations, ideas for commercializing, in addition to business growth grants

We want the world to know NSW as the place where great ideas are born – ideas ““ that support economic growth and position Sydney and NSW as a global leader in NSW. Innovate NSW will support collaborative projects with the potential to leverage significant investment and unlock sustained economic growth for the State.

Andrew Stoner, NSW Deputy Premier” and Minister for Trade and Investment

Source: “The Entrepreneurs Infrastructure Programme”, Australian government website, “Venture Australia”, Australian government- Department of Industry ; Innovate NSW press release 13 December 2012; Industry reporting; KPMG analysis

Government support (2/2) Encourages investments in start-up enterprises via some incentives and tax exemptions, in addition to attracting skilled migrants

Extent of Tax structure and incentives ■ R&D Tax Incentive: Offers a refundable tax offset of 45 percent for smaller companies investing in 1 Government innovation including some software development. support ■ Innovation Investment Fund co-investment scheme: Government matches funds with private sector fund managers (generally VCs) for investment in early stage companies . As on April 2013, a total of A$644 million in capital has been committed. ■ Early Stage Venture Capital Limited Partnerships (ESVCLPs) - Encourages Australian and foreign residents to invest in early stage venture capital activities/ start-up enterprises by providing them with tax exemptions on their share of income and capital gains from these investments, including from their sale.

Visa policy & immigration ■ Significant Investor Visa (SIV) Program – The SIV program is a special subclass of business migration visa available to high net worth individuals willing to invest A$5 million into Australia. Under this scheme, permanent residency restrictions are also relaxed- from two years to 160 days spread over a four year period ■ Business Innovation and Investment Visa – Available for participants interested in either investing in Australia or owning and managing a new or existing business. Requires nomination of the state/territory government. ■ Skilled Nominated Migration Program – Run by the NSW government to attract skilled professionals across occupations to develop a rich talent pool for the state’s talent needs.

Source: “Visas and Migrations” – NSW Trade & Investment website; “The start-up economy - How to support tech start-ups and accelerate Australian innovation“, Google Ventures & PwC (April 2013), “Early stage venture capital limited partnerships (ESVCLPs)”; NABprivate wealth website accessed July 2014; Industry reporting; KPMG analysis

Access to Funding

Although still in its infancy, activity in Sydney’s venture capital market is picking up with the entry of big names such as Westpac and Telstra

■ Reinventure Group – Launched by Westpac (Feb 2014), the fund seeks to back early stage technology start-ups with a Access to A$50 million in venture capital 2 Funding – The funds’ current focus seems to be on data aggregation and payment system start-ups. Recently invested in SocietyOne – a Fintech provider in the peer-to-peer lending space ■ Telstra has a A$50 million fund to encourage new technology start-ups (less than two years) Australia. – Telstra’s incubator muru-D will aid 10 start-ups with A$40,000 in exchange for a 6% stake in the business along with subsidized or free rent and mentoring and coaching services and technology support. ■ Optus – Innov8 Seed Program – Offers seed funding up to A$250,000 for entrepreneurs in Australia associated with tech-start-ups – The seed program recently relaxed its rigid bi-yearly terms to encourage more applications round the year, resulting in more investments in Australia’s growing tech-start-up ecosystem ■ In March 2013, Blackbird Ventures announced A$20 million in funding with the aim of supporting 25 start-up companies in the mobile, software and digital sectors ■ Of late, Australia is also witnessing a trend wherein individual investors are returning back home to fund potential entrepreneurs and build a thriving start-up ecosystem – Cases include those of technology investor Bardia Housman and some of the wealthiest families such as the Smorgons, Libermans, Packers, Whites and Kahlbetzers

However in 2013, industry group AVCAL, reported a drop in PE and VC investment activity in Australia to A$2,760 million, an 8% decrease from FY2012

Source: “Westpac aims to get ‘disruptive’ with launch of $50 million venture capital fund” –start-up Smart; “Telstra plans to incubate start-ups for $40,000 a pop” – Financial Review; “$30 million technology fund open for business”; “Optus frees up Innov8 seed funding application time frames”– Financial Review; ‘Bardia Housman’ ; “Schooled by success: The start-ups Rich-listers are investing in” – Financial Review, accessed July 2014; Industry reporting; KPMG analysis

Access to skill and talent Sydney enjoys access to a talented workforce owing to NSW’s strong skill pool in the areas of finance & insurance

Availability of talented and skilled workforce Skill and Talent 3 ■ Most global banks have their Australian headquarters in Sydney. ■ Financial services and insurance among the leading employment sectors in the state – 180,000 skilled professionals as of August 2013. Per the government’s recent Skill Shortages, Australia report, the country faces no shortage of accounting and ICT professionals for the next 5 years. ■ Among the working age population, 55 percent hold tertiary qualifications. Skill Development Initiatives ■ In 2013, Google partnered with the University of Sydney to extend its entrepreneurial accelerator program INCUBATE to other universities across the country. Start-ups in the program receive a A$5,000 grant, access to co-working space and mentoring.

I’m really excited about creating a Education and Curriculum national network of students and ■ The Australian government is also in the process of reworking its national curriculum to require children ““ entrepreneurs on campus. That’s to learn programming concepts beginning in kindergarten and how to write computer code beginning in where the potential is: to encourage year 3. more start-ups to launch from ■ Sydney is home to top global universities in finance and accounting and technology per QS World campus. There is a big gap there at University Rankings for 2013 – include University of News South Wales, University of Technology the moment, with too many students Sydney and University of Sydney. leaving universities without being clued up on the start-up scene and how to get going.

James Alexander, INCUBATE program manager , University of Sydney””

Source: “New South Wales Trade & Investment website”; “QS World University Rankings 2013 – Finance & Accounting”; “Skill Shortages, Australia 2013”; “Computer Science Reforms”; Google partners with Sydney University accessed July 2014; Industry reporting; KPMG analysis

Business environment (1/2) Ease of doing business coupled by NSWs strong local economy is an attractive proposition for businesses

Business ■ Ease of Doing Business - Per World Bank, Australia ranks among the top ten countries globally for starting a business – taking just two days and two procedures to register a private limited liability 4 environment company. – Per its latest Entrepreneurship Data – Australia has a high density of businesses being set up in the last decade (2004-2012) with a score of 12.16 and 185,009 new limited liability companies. ■ Strong local economy – New South Wales has been credit rated AAA by both Standard & Poor's and Moody’s, reflecting the local economy's strength in withstanding changing economic circumstances. ■ Encourages a Collaborative Environment – The NSW Government recently established the Centre for International Finance and Regulation (CIFR) in Sydney to assist research and education in the financial sector by fostering collaboration among Australian universities, Government, regulators and industry. ■ Favorable Tax System – Businesses are taxed with a company income tax rate of 30 per cent with no restrictions on capital flow, profit remittances, capital repatriation, transfers or royalties and trade- related payments. Entrepreneurialism needs to ■ Competitive Business Costs - Affordable real estate prices when compared to other financial peers in be done in a tribe and being the region such as Seoul, Tokyo, Hong Kong and even global peers such as London, Paris and ““ in the Hub puts us physically Singapore. closer to where more entrepreneurs are.

Phil Morle, ”” Pollenizer, a start-up incubator, recently partnered with Hub – a provider of co-working spaces in Sydney to Co-founder, Pollenizer offer its “start-up science” curriculum to Hub’s 1000-plus paying members

Source: “Doing Business 2014- Australia” and “Entrepreneurship Data”– The World Bank ; “New South Wales Trade & Investment website”; “Pollenizer to move in with Hub Sydney, create tribe of 5000 entrepreneurs” – Financial Review; “Sydney Australia website” – NSW Government, accessed July 2014; Industry reporting; KPMG analysis

Business environment (2/2) There is a growing interest among stakeholders in developing Sydney into a Fintech hub for the region

Business Of late, Sydney is witnessing a steady surge in activities specific to the 4 environment Fintech sector ■ Yodlee Interactive partnered with BlueChilli, a Sydney based incubator for tech-based start-ups to accelerate Fintech innovation in the city by extending the access of its cross-platform Application Program Interface (API) to BlueChilli members. ■ Launched in March 2014, the AWI Ventures Accelerator Program is focused on Fintech and offers A$100,000 for technology start-ups in the direct-to-consumer wealth management services along with bespoke services such as expert mentoring and series A funding support. ■ Venturetec accelerator programme – A 12-month-long for enterprise technology start-ups in Sydney by the StartmeupHK Venture Forum.

Barangaroo South, a A$6 billion re-development initiative of the New South Wales Government aims to Australia has a very well-proven, position Sydney as a global financial hub, alongside London’s Canary Wharf, Singapore's Marina Bay ““reliable and large-scale financial and Shanghai’s International Commerce Centre services industry and if there was one area in which we could build a real level of expertise in global terms, it is financial services. We would love to see Australia become known for its Fintech sector Ben Heap, ”” Chief Executive, AWI Ventures

Source: “Yodlee Interactive Partners with BlueChilli” – BlueChilli website; “ AWI Ventures Accelerator Program” – Finisia; “Venturetec Accelerator Program” – start-up Daily accessed July 2014, “Barangaroo” - Investordaily Industry reporting, KPMG analysis

Gaps and Challenges (1/2)

Australia invests a fraction of what other ■ Government Funding Cuts - Plans to scrap eight programs from January developed countries do funding tech start-ups, 2015 that provided funding to tech start-ups per the recent budget ““ and the budget has provided no solid proof that the government intends to rectify this. ■ Government schemes do not differentiate start ups and SMEs - The new Entrepreneurs' Infrastructure Programme, to which tech start-up grant Government Steven Baxter, the managing director applicants are now being directed for support, is focused on SMEs rather of start-up accelerator River”” City Labs Support than start-ups. ■ Tax Regime is anti-start-up - Australia’s current regime taxes start-ups on As a business start-up, taxes are high and I wish equity invested even before it makes money. Other unfavorable the brackets were smaller. regulations include the tax treatment of employee share options. ““ Annette”” Coleman, Entrepreneur

Early-stage start-ups instead have to rely on the 3 F’s—friends, family and fools. That’s the only ■ Availability of Limited VC Funding – Easier to source seed funding in ““ funding you get. Australia but limited access to growth capital and advanced funding Access to rounds Steven Baxter, the managing director Funding of ”start”-up accelerator River City Labs ■ Absence of theme based funds – Unlike the US or UK, Australia only has a handful of Fintech focused VC funds

It is hard for a Fintech internet business to get a strong foothold because investors are not sure ““ whether they can trust these people with their money. Ben Heap, Chief Executive, AWI

Source: KPMG analysis ””

Gaps and Challenges (2/2)

■ Cultural Shift Towards Entrepreneurship – Although, a vast The risk culture here [in Silicon Valley] is very different to majority of Australians are pro-entrepreneurship and are Australia’s. Australians are definitely not as risk-taking. One interested in giving it a go, seasoned entrepreneurs with ““ of the things I have noticed about Australian entrepreneurs is that they don’t really share their idea. They think global experience were of the view that chances of their someone will steal it. success at the global stage could be enhanced if they Skill & increased their appetite for risk and were open to sharing Bardia Housman, Australian tech investor ideas. ”” Talent ■ Skill Development – From a Fintech perspective, Australia’s education system needs to improve when it comes to honing Failure is treated very harshly here and it stifles innovation condusive skill sets. For example, by implementing the recent ““ and risk-taking, curriculum rework – which requires children to develop Adrian Turner, co-founder, Mocan programming concepts is at the prerogative of State ”” Governments and not compulsory Banks in Australia, South Korea, and Singapore are doing a lot more innovation than you see in US banks. The ““ dichotomy is that the most innovative banks are in this time ■ Limited start-up Activity – especially in the financial services zone, but not the most innovative start-ups. and banking domain, owing to a complex regulatory structure.

Business ■ The Need for Collaboration – Australia lags when it comes to Neal Cross, chief innovation officer at DBS Environment ”” incubation and accelerator programs focused on Fintech. Also, there are limited instances of collaboration between stakeholders in the sector. If our leaders don't bring Australia in line with the rest of the world when it comes to fostering tech start-ups, we will continue to see many of our most successful start-ups have ““ no choice but to move overseas.

Peter Bradd,”” board member, start-upAUS Source: KPMG analysis

Comparison of global Fintech leaders (1/4)

Fintech Government Private VC Skills/ Business Overall message hubs support funding Talent environment Silicon Despite lacking a § The US government was § Silicon Valley retains the § Entrepreneurial courses § Highest concentration of Valley vibrant FS sector, instrumental in creating highest access to start-up and strong university high-tech workers Silicon Valley conditions that led to the funds in the world support for start-ups § A combination of both dominates formation of the Silicon § In 2013, nearly 1 of every 3 § Tech hub resulting in Fintech accelerators Fintech Valley Fintech dollars went to Silicon significant talent pool such as fin-tech.org and investments § Because the valley has Valley-based companies other tech accelerators are globally. Non- § Since 1930, Stanford become a vibrant economy assisting Fintech start-ups Americans facing § In the first quarter of 2014, the alumni and faculty have in itself, with a healthy mix in the valley stringent visa region saw of skill, VC’s and start-ups, US$376 million in created nearly 40,000 requirements is total Fintech investment companies and 5.4 million § Lack of proximity to there is limited need for seen as the only jobs financial services firms government intervention § challenge for the Fund availability across seed and support sector and growth stages Fintech Government Private VC Skills/ Business Overall message

AMS hubs support funding Talent Environment New New York is the § Strong funding support at § NYC ranks No. 2 in the US § Established and § In terms of absolute size, York second strongest the center (‘Start-up (total VC invested in technology successful applied NYC’s Fintech cluster is Fintech cluster in America’), city (New York start-ups) sciences and engineering second only to Silicon the world. Relative City Entrepreneurial Fund) programs – Applied Valley § 5 year CAGR for Fintech related to the Silicon and at the university level Sciences NYC (initiative to deals grew by 31 percent § Concentration of Financial Valley, its low (Start-Up NY) grow the economy by annually, compared to Silicon institutions, tech start- Fintech profile developing technology § Stringent visa procedures Valley’s 13 percent ups and accelerators affects ability to related skills) impede non-American attract large capital, § § entrepreneurs Absolute number of deals § Engineering talent Worldwide Investor but the city is , however, An accelerator increasing average gravitating to the city: Network: reported to being value of deal in NYC lower program that aims to Google, Facebook, the next most likely than the Silicon Valley discover companies from Twitter, Amazon and to attain the status around the globe and bring § eBay growing New York of an established Seed stage funding available, them to NYC offices and leading Fintech growth stage a challenge hub

Source: KPMG analysis

Comparison of global Fintech leaders (2/4)

Fintech Government Private VC Skills/ Business Overall message hubs support funding Talent environment London With its booming tech § The UK government – via § Steep rise in Fintech deals § Estimated 44,000 Fintech § Hosts three Fintech- and FS sectors, London the UK Trade & Investment – 84 deals took in the UK workers within 25 miles specific accelerator is next most lucrative (UKTI) - The Financial between 2003-13 and $675 of London, compared with programs Fintech destination after Services Organization million in investments 43,000 for New York\ § Four of the world’s ten the Silicon Valley and (FSO), and Her Majesty’s § 5-year CAGR for Fintech § More than 24,000 tech biggest banks with global New York. VC fund Treasury is aims Fintech was twice the global and firms in London, or European headquarters limitations to the ‘seed in London Silicon Valley average in supporting some 48,000 situated in London phase’ and relatively § Schemes such as the 2013 jobs smaller investments are § Proximity to London’s Entrepreneurs’ Relief seen as roadblocks to § However, lack of funding, financial hub and Program are available as growth , is reasonably successful a apart of Tax incentives during the later stages impeding the Fintech accelerator initiatives lead sector progress to a favorable business environment Fintech Government Private VC Skills/ Business

EMEA Overall message hubs support funding Talent Environment Dublin Tax incentives, access § Enterprise Ireland among § Seed funds, VCs, and § Joint government/ § NDRC Fintech, Ireland’s to talent, and an offers government support local business angels - industry efforts to first financial technology engaging pro-business and funding for fledgling over €800 million in promote technology start-up program launched environment puts Dublin start-ups in Dublin– plans funding available courses in May 2014 on the Fintech map. to support ~70 start-ups § Innovation Fund Ireland - § Over 500 financial § NDRC LaunchPad and What may prove costly each year Allows international services firms employing Dublin City University’s to the city’s Fintech § Access to Overseas venture capital funds to 32,700 professionals; Ryan Academy for growth story is its close Capital – government is establish European technology sector employs Entrepreneurship’s Propell integration with encouraging global headquarters in Ireland 1,05,000 professionals er Venture Accelerator London’s Fintech investors and operates a Fund cluster § Limited to range of schemes for start- seed level which are § However, proximity to ups investments fraction of investments in London is also challenge as the US Irish firms are keen to relocate

Source: KPMG analysis

Comparison of global Fintech leaders (3/4)

Fintech Government Private VC Skills/ Business Overall message hubs support funding Talent environment Berlin Berlin is § Government programs such § Germany’s share in the § Largest university § Growing network of small tech operationally viable as Technologiestiftung global Fintech M&A and centre in German- ventures, incubators and when compared to Berlin (TSB) and investment space less than speaking countries accelerators other European Investitionsbank Berlin 0.6% (2012) § Significantly low cost of § Growing job market - a new cities. However, the (IBB) exist to provide § Some private sector funds education for students start-up founded every 20 lack of government incubation to tech start-ups (Point 9 Capital) and § Lack of dedicated minutes and the industry set to funding, incubation § However, limited incubation programs courses for driving produce 100,000 new jobs by programs, government-driven activity (DACH, Smartbootcamps) entrepreneurial culture 2020 entrepreneur related to ‘entrepreneurship’ have emerged – success is § Lower operational costs – education and initiatives limited Lower rent, overheads, etc. private funding are § Red tape and bureaucracy § Interest among international inhibiting its growth § Entrepreneurs without FS/ICT also inhibiting growth investors is growing, as a Fintech hub experience are trying to tap however this is yet to lead Fintech opportunities to strong outcomes

EMEA Fintech Government Private VC Skills/ Business Overall message hubs support funding Talent Environment Tel Aviv Tel Aviv is the tech § Government supports § ~ 70 active venture § Strong tech base due § Geopolitical risk: War and and financial hub of entrepreneurs and start-ups capital funds in Israel, of to mandatory 'tech Israel’s geographic location the region and global through: which 14 international VCs intensive' military pose a significant risk to financial institutions § Investments such as Tnufa § An additional 220 service businesses are opting to move to and Chief Scientist R&D international funds active § Dedicated research § Strong network of small tech Israel. Though start- Development Fund in Israel courses in Israeli ventures, incubators and ups flourish in Tel § Funding co-working spaces § More funding for early Universities accelerators (Leumi bank and Aviv, they often also – The Library stage start-ups as § Nine out of every 1,000 Elevator) get absorbed by compared to matured ones workers engaged in § Major banks setting up global players or § Events focused on start-ups research, nearly 2X the innovation labs and R&D choose to be listed – Fintech, Tel- Aviv 2014 rate of the US and facilities - Citigroup’s on foreign stock § Tax breaks to venture Japan) accelerator program and exchanges capital backed accelerators Barclay’s in-house R&D center is in Tel Aviv

Source: KPMG analysis

Comparison of global Fintech leaders (4/4)

Fintech Government Private VC Skills/ Business Overall message hubs support funding Talent environment Singapore Extensive govt. support § US$80 billion budget for § US$1.4 billion funding § Ready talent pool – 5.5 § Migrant population driving and conducive tech start-ups (2013) – ahead of Hong percent population in FS; business culture environment is § Incentivizing private Kong, Japan and Korea 146,000 tech workers § Ranked #1 (World Bank) attracting VC funding investment and foreign § Mature start-ups attracting § ~74 start-ups incubated by for ease of doing business and foreign ventures in ventures more funding SMU and NFIE § 63% mobile banking tech start-ups. Although § Supportive tax and visa § Banks funding tech § Secondary education penetration the state lacks explicit regime innovation system lacks entrepreneurial Fintech focus, FS and § 3 of ASPAC’s largest inclination tech companies are § Funding co-working spaces § Lack of repeat funding banks HQ in Singapore investing in the sector – IDA Labs due to premium price § Innovation labs by § No particular focus on claimed; ventures less Citigroup and Accenture Fintech receptive to PE sales are driving Fintech

Fintech Government Private VC Skills/ Business Overall message hubs support funding Talent Environment ASPAC Hong Hong Kong’s § State backed InvestHK, § Growing VC and PE capital. § Large number of dedicated § Native entrepreneurial Kong government’s Fintech hub Cyberport and ITC offering Average funding in H1 2014 courses on culture agenda is backed by co-work spaces, incubation (~US$6 million) exceeding entrepreneurship across § Ranked #2 (World Bank) growing levels of VC and acceleration full year 2013 Hong Kong and Mainland for ease of doing business funding, rolling out of China § Incentivizing foreign start- § Funding via both home § Full 4G and fibre entrepreneurial ups to relocate to Hong grown and foreign VCs, § Emerging career broadband coverage universities and a Kong and crowdfunding development platforms supportive business § 70 of the top 100 global § Collaborating with Israel platforms offering hiring solutions to environment. banks present in Hong for Fintech opportunities § However, the market is tech ventures The market however, is Kong still small, particularly for § However, not many still small and in its growth § Complex tax and visa § Global IT vendors seed funding specialized Fintech stage regime compared to (Accenture, Google) driving courses though Singapore Fintech § Market continues to be small

Source: KPMG analysis

Introduction Despite lacking a vibrant FS sector, Silicon Valley dominates Fintech investments globally. Non-Americans facing stringent visa requirements is seen as the only challenge for the sector

Macro parameters San Francisco

■ #4 in ease of doing business (Doing Business report, 2014) Silicon Valley’s start-up ecosystem spans #2 among G-20 nations on the e- across San Francisco, ■ Redwood City, Palo trade readiness index (EIU report, Alto, and Mountain View 2014) San Francisco attracts ■ #12 globally on the 2014 Economic the highest VC in the Freedom Index Silicon Valley region Redwood City ■ US$ 17 trillion GDP in Q1 2014 Portero Hill and Rincon Hill , large swathes of 2.1 percent inflation (CPI) in May San Francisco's Mountain View ■ waterfront, running 2014 south from the central Palo Alto financial district have been strong tech hubs State of the Fintech sector since the dot-com boom ■ ~20 Fintech deals in 2014; CAGR growth of 13 percent between 2009-14 ■ $376 million in total Fintech investment for Q1 2014 ■ 11,000 Fintech professionals in the San Francisco – Silicon Valley

Source: Doing Business 2014 – The World Bank; “The G-20 E-trade Readiness Index” - article by ZDNet;’ “2014 Index of Economic Freedom” – The Heritage Group; “GDP of the United States of America” – Bureau of Economic Analysis; “Why San Francisco May Be the New Silicon Valley” – City Lab

Government support (1/2) While the government in the US has multiple schemes to support start-ups, the expansive private funding options in the Silicon Valley drastically overshadow any government funding initiatives

Extent of Government funding 1 Government ■ Today, Government funding in the Silicon Valley to support start-ups is not comparable to the volume and value of deals supported by privately managed funds. However, it is important to analyse the government’s role is setting up support its most important start-up yet: the Silicon Valley itself ■ In the 1930s, the venture capitalist was the US military (which was investing in R&D), and the role of the tech start- up was played by America’s engineering schools in the region Right now in one of those ■ By the mid 1960s, three-quarters of all the graduate thesis in the engineering department at Stanford were classrooms there are students classified. The institution used state funds to fuel research and ultimately business ventures that created the Silicon ““ wresting with how to turn their big Valley idea -- their Intel or Instagram -- into ■ This government funding played a key role in developing experts in applied sciences, who would go on to create a big business. We're giving them semi-conductors, capacitive sensors, solid state memory, cellular communications, and protocols such as TCP/IP. all the skills they need to figure that These elements form the core of what is today an icon of American corporate innovation – the iPhone out, but then we're going to turn around and tell them to start that So while private capital is focused on creating the next Facebook, government funding can focused on higher goals, business and create those jobs in such as – driving a country’s competitiveness, increasing its people’s standard of living, or perhaps, creating the India or China or Mexico or next Silicon Valley someplace else. That's not how you grow new industries in America. That's how you give new industries Visa policy & immigration to our competitors. ■ In June 2013, the Senate proposed Start-up Visa (or EB6). Venture capital investment firms and entrepreneurs from abroad are currently disappointed as this is not been enacted yet Barack Obama, ■ However, the US already has viable visa solutions to encourage start-ups. And although not perfect, these visas President, United States of America”” have long been available and used successfully. Examples are – O-1 and EB1A Extraordinary Ability Visas, E-2 and EB5 Investor Visas, H-1B and EB2 or EB3 Professional Visas, L-1A and EB1C Multinational Manager/Executive Visas etc.

Source: SSBCI – US Treasury website, Whitehouse - Startup America Factsheet – Official website of The White House, US Visas - Coming to America – The Startup Visa – Forbes; KPMG analysis

Government support (2/2) The Silicon Valley’s healthy mix of skill, private funding and start-ups has made the location a vibrant economy in itself. One which requires minimal government support. In fact, most business view government intervention as an inhibitor to innovation

Other initiatives ■ Small Business Development Centers (SBDCs) provide a vast array of technical assistance to small businesses and aspiring entrepreneurs ■ SCORE, supported by the U.S. Small Business Administration (SBA), is a non-profit association dedicated to helping small businesses across the US grow and achieve their goals

GAPS & CHALLENGES ■ Stringent visa/immigration procedures: Proposed ‘start-up Visa’ act has not been enacted yet. And while non-American entrepreneurs do get visas, the process is described to be complex and “something to worry about”

Source: SBA.gov – SBA.GOV website, SCORE – Official website, StartUpNY – Startup.NY.GOV website, The Startup Visa – Forbes, US Visas - Coming to America KPMG analysis

Access to funding Despite lacking a vibrant FS sector, Silicon Valley dominates in technology investments globally.

Access to Funding Tax structure and incentives 2 ■ The region has consistently taken over 40 percent of VC deals and over 50 percent of funding to tech start-ups across seven major US venture hubs including New York and Massachusetts ■ Silicon Valley dominates Fintech investments globally; in 2013, nearly 1 of every 3 Fintech dollars and 1 of every 5 deals went to Silicon Valley-based companies. In the first quarter of 2014, the region saw US$376 million in total Fintech investment ■ Other than VC funds, several large banks have also set up Fintech venture funds based in the Silicon Valley. An example is BBVA

VC financing trends in Silicon Valley (tech)

GAPS & CHALLENGES 2,847 3,000 2,602 300 267 2,260 Silicon Valley lacks the close 2,500 2,120 251 250 ■ 1,935 2,005 226 1,875 218 2181,831 1,727 208 2,000 199 1,610 200 coexistence of Fintech start-ups 1,513 184 1,529 180 1,386 178 163 1,247 1,266 162 1,500 144 1,157 152 150 and their customers, i.e., financial 1,020 137 1361,060 133 1,000 107 100 service institutions. However, the 513 start-up environment is so positive 500 45 50 that this does not seem to act as a 0 0 deterrent for the sector in the

region Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q411 Q111 Q211 Q3 11 Q4 11 Q1 12 Q2 12 Q312 Q412 Q113 Q213 Q313

Investment dollars No. of deals

Source: CB Insights – Venture Capital: Silicon Valley – CB Insights; KPMG analysis

Access to skill and talent A strong network of pro-entrepreneur Universities along with ready availability of talent drives the skill base in Silicon Valley

Skill and talent Proximity and availability of skilled workforce 3 ■ In Silicon Valley and the adjacent Bay Area, 45 percent people are undergraduate compared with 28 percent for whole of the US ■ More than 60 percent of the college graduates working in science and engineering fields in Silicon Valley were born outside the US ■ Culture of recruiting school students as interns. Helps in developing future workforce with an entrepreneurial focus

Strong network of academic institutions GAPS & CHALLENGES ■ Close ties with the top tier educational institutions in the US such as the Stanford, MIT and Yale ■ The alumni and faculty of Stanford University alone have created nearly 40,000 companies and 5.4 million ■ Job growth slowing. The jobs since the 1930s, which collectively generate annual revenues of US$2.7 trillion unemployment rate in the San Jose While Stanford has a dedicated entrepreneurial culture, others such as Harvey Mudd focus on specialized metro area levelled off at 6.3 ■ skills percent in 1Q 2014. Most jobs were concentrated in lower-paying ■ Harvey Mudd produces a huge amount of science and engineering PhDs, and the school has a reputation service occupations, rather than for turning out graduates who excel in the humanities as well as math and science, a uniquely broad the professional services skillset required in Fintech start-ups

Source: SBA.gov – SBA.GOV website, SCORE – Official website, StartUpNY – Startup.NY.GOV website, The Startup Visa – Forbes, US Visas - Coming to America KPMG analysis

Business environment Silicon Valley continues as the global leader as a tech start-up hub, which is supported by a legacy of funding firms

Business Continues as the global leader among tech start-up hubs 4 environment ■ Highest concentration of high-tech workers, and the largest number of high net-worth individuals on a per-capita basis of any major metropolitan area in the US ■ Presence of global tech vendors with noted records in promoting Fintech - Apple, Cisco Systems, eBay, Google, HP, etc. ■ Well developed start-up ecosystem. Accelerators and incubators as well as prominent investors have democratized resources, knowledge and created synergies. Standard investment terms are now publicly available and crowdsourcing resources are accessible for both investors and entrepreneurs ■ Continues to remain the centre of tech innovation, while the start-up eco-system is spreading into other parts of the US (NYC, Brooklyn, San Francisco Peninsula)

GAPS & CHALLENGES ■ Low work-life balance. Working marathon hours is part of Silicon Valley’s DNA due to the drive, excitement, and intensity of the start-up culture ■ Regional hubs (Singapore, Hong Kong) as well as London’s position as a global Fintech hub challenging Silicon Valley’s monopoly in the start-up space

Source: SBA.gov – SBA.GOV website, SCORE – Official website, StartUpNY – Startup.NY.GOV website, The Startup Visa – Forbes, US Visas - Coming to America KPMG analysis

Introduction The concentration of financial institutions, skilled workers, start-ups and Fintech accelerators catapults New York into the top global Fintech contenders. However, the city’s relatively low profile as a Fintech area is a key concern that limits its ability to attract influential capital when as compared to Silicon Valley

Macro parameters

■ #4 in ease of doing business (Doing Business report, 2014)

■ #2 among G-20 nations on the Flatiron District e-trade readiness index New York’s Fintech ecosystem is (EIU report, 2014) concentrated within Lower Manhattan, Flatiron District, and Brooklyn ■ #12 globally on the 2014 Economic neighborhoods Freedom Index In recent years, several Fintech Lower Manhattan ■ US$ 17 trillion GDP in Q1 2014 accelerators (Fintech Innovation Lab and Barclays Accelerator ) and Fintech focused ■ 2.1 percent inflation (CPI) in VCs ( such as the Fintech Collective, Inc.) May 2014 have been set up in New York City

State of the Fintech sector Brooklyn ■ 31 percent growth in deal volume annually, in the past five years ■ 17 Fintech deals and $151.4 million in total investments in Q1 2014 ■ 43,000 Fintech professionals with 25 miles of New York City

Source: Doing Business 2014 – The World Bank; “The G-20 E-trade Readiness Index” - article by ZDNet;’ “2014 Index of Economic Freedom” – The Heritage Group; “GDP of the United States of America” – Bureau of Economic Analysis; “The Rise of Fintech - New York’s Opportunity for Tech Leadership” - Accenture

Government support (1/2) Fintech businesses in New York benefit from government funding at the center, city and university level

Extent of Government funding ■ ‘Start-up America’ – a White House initiative launched in 2012, aims to accelerate high-growth entrepreneurship 1 Government throughout the nation by brining together entrepreneurs, corporations, universities, foundations and experts support ■ State Small Business Credit Initiative (SSBCI): In 2010 President Obama signed into law which was funded with $1.5 billion to strengthen state programs that support lending to small businesses and small manufacturers. ■ New York State’s Innovative NY Fund: Right now in one of those - Seed stage business equity fund with up to $45 million to support innovation, job creation, and high growth classrooms there are students entrepreneurship ““ wresting with how to turn their big - Supported with $35 million in State funds and $10 million from Goldman Sachs idea -- their Intel or Instagram -- into a big business. We're giving them - Expected to leverage over $450 million in additional private investment for small businesses all the skills they need to figure that ■ start-up NY – provides major incentives for businesses to relocate, start up or significantly expand in New York State out, but then we're going to turn through affiliations with public and private universities, colleges and community colleges around and tell them to start that business and create those jobs in ■ NYCEF (New York City Entrepreneurial Fund): The City created the $22 million fund – the first of its kind outside Silicon Valley – aimed at providing New York City-based technology start-up companies with early-stage capital India or China or Mexico or someplace else. That's not how you grow new industries in America. Visa policy & immigration That's how you give new industries to our competitors. ■ In June 2013, the Senate proposed start-up Visa (or EB6). Venture capital investment firms and entrepreneurs from abroad are currently disappointed as this is not been enacted yet Barack Obama, ■ However, the US already has viable visa solutions to encourage start-ups. And although not perfect, these visas President, United States of America”” have long been available and used successfully. Examples are – O-1 and EB1A Extraordinary Ability Visas, E-2 and EB5 Investor Visas, H-1B and EB2 or EB3 Professional Visas, L-1A and EB1C Multinational Manager/Executive Visas etc.

Source: InnocvativeNY – ESD.NY.GOV, SSBCI – US Treasury website, NYCEF – Applied Sciences – NYCEDC website , StartUpNY – Startup.NY.GOV website, Whitehouse - Startup America Factsheet – Official website of The White House, US Visas - Coming to America – The Startup Visa - Forbes, KPMG analysis

Government support (2/2) Tax structure and incentives for start-ups are favorable. And although the govt. intends to relax visa/immigration laws for non-American entrepreneurs, these are still seen as a significant challenge when foreigners are setting up businesses in the country

Extent of Tax structure and incentives Government 1 ■ American Taxpayer Relief Act (ATRA) – At the central level, the Act helps small businesses by providing support tax breaks which include items such as bonus depreciation, deduction on certain acquisitions, R&D tax credit, 100 percent tax-free capital gains on sale of small-business stock etc. ■ Start-Up NY – is the city Governor’s initiative to transform Start-Up NY campuses and other university communities across the state into tax-free communities for new and expanding businesses. This initiative enables business to locate in these zones and operate 100 percent free of tax for 10 years in the following categories: - Income tax. - Property tax - Business or corporate state or local taxes - Franchise fees - Sales tax

GAPS & CHALLENGES ■ Stringent visa/immigration Other initiatives procedures: Proposed ‘start-up Visa’ act has not been enacted yet. ■ Small Business Development Centers (SBDCs) provide a vast array of technical assistance to small And while non-American businesses and aspiring entrepreneurs entrepreneurs do get visas, the ■ SCORE, supported by the U.S. Small Business Administration (SBA), is a non-profit association process is described to be complex dedicated to helping small businesses across the US grow and achieve their goals and “something to worry about”

Source: SBA.gov – SBA.GOV website, SCORE – Official website, StartUpNY – Startup.NY.GOV website, The Startup Visa – Forbes, US Visas - Coming to America KPMG analysis

Access to funding Technology start-ups in New York enjoy access to a combination of VC funded and financial services-sponsored funding initiatives.

Access to Funding Tax structure and incentives 2 ■ Raking: In terms of total VC invested in technology start-ups, NYC ranks No. 2 in the US, only behind Silicon Valley. It has been the fastest-growing tech. start-up ecosystem in the U.S over the past 10 years ■ Growth: Over the past 5 years, the CAGR for Fintech related deals grew by 31 percent annually, compared to Silicon Valley’s 13 percent, and investment grew 45 percent annually, compared to Silicon Valley’s 23 percent ■ Specific examples of VC initiatives in New York: ■ OnDeck, a peer-to-peer lending platform, has advanced more than $1 billion in loans ■ LearnVest, a personal finance platform founded in 2009, added $28 million of VC funding in April 2014 ■ Kickstarter: the largest crowd funding platform for creative projects, has raised $1.1 billion from 6.4 million participants supporting 63,000 projects. It has received $10 million in VC funding

Financial services-sponsored VC GAPS & CHALLENGES Information Technology Venture Capital Invested (Billion US$) will continue to grow as institutions ““ recognize that the go-it-alone ■ Relative to the Silicon Valley, a approach of in-house development low Fintech profile affects ability CAGR = 6.4% isn’t enough. to attract large capital. So while 9.1 the absolute number of deals is CAGR = 13.3% CAGR = -1.7% Jaidev Shergill, increasing drastically, the average 4.9 Capital One, head of digital venture” ” value of each deal in New York is investing and start-up business 2.6 significantly lower than the Silicon 1.6 1.4 development Valley 0.7 2003 2013 NY Metro Massachussets Silicon Valley

Source: CB Insights – Venture Capital: Silicon Valley – CB Insights; KPMG analysis

Availability of skill and talent ; Business environment

3 Skill and talent 4 Business environment Mature and highly successful programs in place to develop The concentration of Financial institutions, start-ups and technical skills; these programs are intended to drive accelerators makes the general business environment in New economic growth of the city York favorable

■ Applied Sciences NYC: Robust initiative in place to grow the economy by ■ Growth developing technology related skills; Projected economic impact over 30 years Cornell University - Fintech in NYC has grown at twice the rate of is over $33.2 billion and our extraordinary the Silicon Valley over the past 5 years ““partner, The Technion- - Jan 2014: Cornell and Israel Institute of Technology to build applied science - In terms of absolute size, its Fintech cluster is Israel Institute of and engineering campus on Roosevelt Island. City provides site and $100 second only to Silicon Valley million Technology, are ■ New York’s Fintech Innovation Lab deeply gratified to - Nov 2013: Fourth applied sciences program announced at Carnegie Melon have the opportunity to University - Currently in its fourth year realize Mayor - Aug 2012: Computer Science Masters of Engineering introduced at Cornell - Has had 18 previous alumni Bloomberg's vision for NYC Tech New York City: to - Raised a combined $76 million - Jul 2012: Columbia University announces new institutes for data sciences and prepare tomorrow's engineering - One start-up was acquired for $175 million expanding talent pool ■ Access to a large potential customer base of tech leaders and ■ May 2012: Google donates 22,000 sq. ft. of its headquarters to Cornell NYC entrepreneurs to work Tech while the university completes new campus - New York is known to have a strong financial with the city's key ■ Google, Facebook, Twitter, Amazon and eBay are growing New York offices. sector and as these potential clients are industries in growing realizing the benefits of having easy access to This is increasing increasingly bringing engineering talent into the city tomorrow's innovation technology resources ecosystem. ■ Worldwide Investor Network: An accelerator program that aims to discover companies from David J. Skorton, around the globe and bring them to NYC President, Cornell University””

Source: Cornell, Applied Sciences NYC, Worldwide development fund, KPMG analysis

Introduction London’s proximity to a thriving financial hub, coupled with access to killed Fintech professionals, favorable government, and a supportive ecosystem elevates it among the big league of global Fintech hubs. However, availability of mid-size funding and a weak IPO market remain key concerns

Macro parameters

■ #11 in ease of doing business (EIU report, 2014) ■ #1 among G-20 nations on the e- East London is a predominant trade readiness index (EIU report, technology cluster for the city 2014) ■ #3 globally on the 2014 Economic Freedom Index Canary Wharf ■ US$ 2522.26 billion GDP in 2013 ■ 2.9 percent inflation (CPI) in Mar The insurance industry is focused around the eastern 2014 side of the city while a secondary financial district exists outside of the city at Canary Wharf State of the Fintech sector

■ 84 Fintech deals took place in the UK between 2003-13 ■ 44,000 Fintech professionals within 25 miles of London ■ $675 million in investments between 2003-13

Source: Doing Business 2013 – World Bank, UK GDP – Trading Economics; 2014 Index of Economic Freedom; The Economist Intelligence Unit - The G20 e-Trade Readiness Index; “Digital tech can give London a $20 billion boost in a decade – study” – Reuters Industry articles and news

Government support (1/3) Fintech businesses in London enjoy support from a government that encourages entrepreneurship to accelerate overall economic growth

Extent of Government funding 1 Government ■ UK Angel CoFund – An early stage matching fund to support the growth of angel investment sector. support ■ Start-Up Loan Scheme – Provides seed capital and mentoring to early stage businesses. ■ Enterprise Capital Fund Program – Supports the creation of new early stage venture capital funds. UK Trade and Investment’s growth ■ UK Innovation Investment Fund – Co-invests with private investors in high growth, knowledge-based acceleration work is best in class in businesses. ““ Europe for entrepreneurs. I have witnessed first-hand their ■ Business Finance Partnership – Enables increased access to finance by providing matching funds. experienced entrepreneurs at work ■ Future Fifty Program – A matching program for fifty of the most promising high-growth companies with and their team of dealmakers is a publicly funded schemes and incentives relevant to their stage of growth and specific needs. hugely valuable addition to our network. William Stevens, International Accelerator Programme, Europe Unlimited ”” UK Trade and Investment (UKTI) The UK government – via the UK Trade & Investment (UKTI) - The Financial Services Organization For us, Financial Technology is a (FSO), and Her Majesty’s Treasury aims to create ideal conditions for a thriving financial technology really unique position here in the UK sector in London ““ – we have the talent, technology, ■ Financial technology is a focus area for the UKTI – aims to attract inward investment as well as and the experience background to support companies, including those in the Fintech sector, expand their operations globally. be a leader in Financial Technology. ■ According to Gavin Cleary, COO of UKTI Financial Services Organisation, UKTI’s ‘commercial diplomats’ across its global network of 103 offices aid ‘indigenous’ Fintech companies to grow Gavin Cleary, COO of internationally and make more money. UKTI Financial Services Organisation””

Source: “Gavin Cleary - COO UKTI Financial Services Organisation at The Fintech50 2014” – YouTubeGOV.UK website: “Crossroads - An action plan to develop a vibrant tech start-up ecosystem in Australia” – start-upAus (April 2013), accessed July 2014, Industry reporting, KPMG analysis

Government support (2/3) The government provides relevant tax relief to new businesses and also stimulates the inflow of entrepreneurs into the city

Extent of Tax structure and incentives Government 1 ■ Entrepreneurs’ Relief Program – Offers a reduction in capital gains tax rate of 10 percent for founders of support start-up firms who sell or give away their businesses. ■ Enterprise Investment Scheme (EIS) / Seed Enterprise Investment Scheme (SEIS) – Encourages investment into early stage, high-risk businesses and provides an upfront income tax relief of 30 percent and 50 percent, respectively. The scheme also provides capital gains tax exemption and is valid until the end of 2014.

Other initiatives ■ Entrepreneur Visa Scheme – Introduced in 2008 to attract entrepreneurs from across the world to establish their business in the UK Global Entrepreneur Programme – Run by the UKTI to attract high caliber, early stage companies and Many of these entrepreneurs will ■ entrepreneurs to set up in the UK . Under the program, participants are offered bespoke advice and have been attracted to some of the capital raising assistance from a team of experienced entrepreneurs. ““ UK's fastest-growing business sectors, such as the UK's rapidly expanding IT start-up sector, which The country’s inability to ‘cope up with immigration’ - with increasing pressure on public services has is centered around 'Silicon resulted in the UK government taking a cautious stance on influx of skilled foreign nationals over the Roundabout' in London. years. Recently, the Home Office tightened the "entrepreneur" visa scheme after checks revealed a Simon Horsfield , scam involving potentially thousands of bogus applications. Immigration Expert, Pinsent Masons””

Source: “Entrepreneur Visa Scheme”; “Global Entrepreneur Program” – GOV.UK website; “Entrepreneurs Relief Program” – Howlader & Company ;“Enterprise Investment Scheme/Seed Enterprise Investment Scheme”, 'Entrepreneur' visa scheme tightened after new scam uncovered” – The Telegraph, “Crossroads - An action plan to develop a vibrant tech start-up ecosystem in Australia” – start-upAus (April 2013), accessed July 2014, Industry reporting, KPMG analysis

Government support (3/3) Amidst an overall positive environment, the relatively weaker IPO market in the UK poses some challenges to the start-up ecosystem

Extent of Other initiatives Government 1 ■ The Financial Conduct Authority (FCA) of UK launched ‘Project Innovate’ – aimed to ensure that UK support financial technology companies are supported by the country’s regulatory environment. ■ In 2013, The London Stock Exchange introduced changes to IPO regulations by allowing high- growth companies to make initial public offerings with just 10 percent of their stock, compared to a standard requirement of 25 percent. This move was primarily to enable higher rates of technology company listings in the UK. ■ Established institutions such as the Technology Strategy Board as UK's foremost innovation agency, to oversee innovation programs and accelerate economic growth

We are competing in a global race and I am absolutely determined to make GAPS & CHALLENGES ““ Britain the best place in the world in which to start and grow a business. ■ Most Fintech ventures in the UK are still in their infancy. The world of business is changing ■ The UK has a relatively weak IPO market (compared to the US); start-ups believe that higher valuations rapidly and one of the most promising and better exit options are available elsewhere opportunities for new jobs and growth lies within a new wave of high growth, highly innovative digital businesses. David Cameron, British Prime Minister ””

Source:; “LSE changes rules to boost tech companies in Britain” – The Telegraph; “Fintech sector to launch new industry body” – start-ups.co.uk, “Economic Secretary on new financial technology” – GOV.UK, accessed July 2014, Industry reporting, KPMG analysis

Access to funding London Fintech start-ups have increased access to funding, especially early stage funding. However, the lack of late stage funding is hindering businesses from scaling up

Access to ■ Crowdfunding - Crowdfunding companies in the UK issued £480 million (US$803 million) in loans and 2 Funding bought £28 million in unlisted securities in 2013– up 150 percent from 2012 - However, entrepreneurs and industry analysts view FCA’s new regulations on crowd funding (Apr ‘14) that restrict investments by inexperienced investors in unlisted business as a hindrance to funding efforts The determination and tenacity of ■ Financial services firms showing interest; accounted for 6 percent of venture investments in Fintech in the those driving crowdfunding in the UK and Ireland in 2013, up from 3 percent in 2012. ““ U.K. - despite a lack of clear ■ London has been witnessing a steep rise in Fintech activity, especially in the past decade regulation and heavyweight incumbents – has made it work. - According to research firm CB Insights, 84 Fintech deals took place in the UK between 2003-13 grossing ”” US$675 million in investments - Between 2008-13, the CAGR for Fintech financing in the UK was twice the global average and twice that Simon Devonshire, of Silicon Valley; partly due to a string of dubious events in the past year such as mis-selling and rate- Director, Wayra Europe fixing scandals, rogue trading

There’s a very clear message coming from banks…they are GAPS & CHALLENGES ““ interested in opening up their supply ■ Venture capital investments focused on Fintech in London are still mostly first round chain. RBS and Lloyds are doing a ■ Availability of funding remains scarce compared to the US - Companies in the UK and Ireland netted less lot in this space and recognising the than US$785 million since 2004 while Fintech companies in Silicon Valley received ~ $950 million in opportunities of having a more funding in 2013 alone efficient supply chain. London and Europe are becoming more competitive at the early stage – with a number of seed and Gavin Cleary, COO of Series A funds being created. But what they are missing is the C, D and E rounds, so we think the UKTI Financial Services Organisation”” ““ opportunity is moving to the expansion stage. ”” Matt Harris, Bain Capital Ventures Source: CB Insights – Venture Capital: Silicon Valley – CB Insights; KPMG analysis

Availability of skill and talent (1/2) Proximity to London’s financial services hub ensures ready access to skilled professionals

Skill and talent Proximity and availability of skilled workforce 3 ■ According to research by South Mountain Economics (published in June 2014), there are an estimated 44,000 Fintech workers within 25 miles of London, compared with 43,000 for New York and only 11,000 for San Francisco-Silicon Valley - London boasts of superior Fintech credentials – Per Financial News’ Fintech 40 power list for Europe, three-quarters of the people named as industry influencers are based in the British capital. - Four of the world’s ten biggest banks with global or European headquarters situated in London. - 135,000 financial-services technology workers in the UK ; ~40 percent of London’s workforce is employed in the financial services or tech sector’s. - More than 24,000 tech firms set up shop in London, supporting some 48,000 jobs

Financial services are a major component of the British ““ economy, so there's expertise in the market place. That's why many Fintech businesses are choosing London.

Claire Cockerton, Deputy Head of Level39 ””

Source: “The Boom in Global Fintech Investment- A new growth opportunity for London” – Accenture, “Digital tech can give London a $20 billion boost in a decade – study” – Reuters; “London flexes Fintech muscle in Financial News list”-TechCityNews, accessed July 2014, Industry reporting, KPMG analysis

Availability of skill and talent (2/2) The education system provides considerable fillip to entrepreneurial studies; however, UK entrepreneurs face soft skill drawbacks –such as the ability to commercialize new ideas

Skill and talent Proximity and availability of skilled workforce 3 ■ Education and Curriculum - In March 2014, launched ICS Entrepreneur - a volunteering scheme that nurtures young entrepreneurs aged 18-25 years to hone their business skills, confidence and knowledge of overseas markets - The Department of Education(DoE) introduced a technical baccalaureate (Apr ‘13) targeted at college students interested in developing skills and pursuing careers in areas such as information technology and digital media. - DoE also recently mandated a ‘programming ‘curriculum in all primary and secondary schools. The curriculum is designed with input from the Royal Society of Engineering, and industry leaders such as Google and Microsoft and also offers a £500,000 fund to train teachers in software coding.

Britain was built on the - Several institutions of global repute such as University of Oxford, University of Cambridge, London dynamism and graft of its School of Economics and Political Science are based in and around the city. ““ entrepreneurs and our country’s future will be no different. That’s why we’re investing in the skills and energy of young people, no matter where in the UK they’re As the global centre of financial services and a tech GAPS & CHALLENGES from or what their background, hub, London gives Fintech entrepreneurs access to ““ an unparalleled pool of talent, from developers to ■ Entrepreneurs less focused when it so that we continue to be product managers to compliance officers to sales comes to commercializing new ideas competitive and successful. ■ Fintech start-ups lack the expertise, ”” access, and resources to effectively Justine Greening, International ”” Ismail Ahmad, Fintech entrepreneur Development Secretary (WorldRemit) sell to and collaborate with banks

Source:“'Tech Bacc' aims to boost status of vocational courses”; “Year of Code and £500,000 fund to inspire future tech experts launched”: ICS Entrepreneur scheme – GOV.UK,” Europe’s Mid-Size Fintech Firms Stuck in Funding Gap “ - Wall Street Journal, accessed July 2014, Industry reporting, KPMG analysis

Business environment A strong tech sector and a thriving FS sector give London the right business environment for becoming a Fintech hub

Business Continues as the global leader among tech start-up hubs 4 environment ■ A thriving financial services sector : London is counted among the leading financial services hubs in the world ■ A growing tech sector: The UK technology industry experienced high growth in the final quarter of 2013, marking some of the biggest performance increases in the sector in nearly a decade ■ FS firms opening up to tech start-ups : Financial services and banking institutions in London are willing to partner and collaborate with financial technology firms to transform their traditional offerings - Santander launched a US$100 million Fintech fund that will initially focus on digital delivery of financial services, online lending, e-financial services, and big data analytics ( July 2014) - Five major UK financial services firms: HSBC, First Direct, Nationwide, Santander and Metro Bank partnered with Zapp, mobile payments technology provider to enhance its existing phone and tablet banking apps ( January 2014) ■ Growing support for Fintech - London has been recently hosting the inaugural Fintech Week, a series of mini conferences, exhibitions and networking events for the sector’s main players – and those who hope to join them - Interest from London’s entrepreneurs in Fintech has also risen dramatically during the last 18 months. Per Eddie George, founder of Fintech network NewFinance, the network’s London membership tripled in 2013 - Two new Fintech accelerators in 2014 – The Barclays Accelerator, in partnership with Techstars and startup bootcamp, backed by MasterCard, Lloyds Banking Group and Rabobank ■ UK’s financial technology sector is expected to officially launch an industry body in July 2014 together representatives from leading Fintech start-ups and large banks onto a common platform - Innovate Finance, previously Fintech UK will start with about 50 member companies and has won £600,000 backing from the City of London Corporation and Canary Wharf Group. The body will be based in Canary Wharf.

Source: “The Boom in Global Fintech Investment- A new growth opportunity for London” - Accenture, Barclays Fintech Accelerator Program and start-upbootcamp, “UK banks sign up to Zapp mobile payments” “New Industry Body to be based in Canary Wharf”; Santander Fintech fund, accessed July 2014, Industry reporting, KPMG research

Introduction Israel’s high innovation quotient and the surge in interest among global and local banking players in the city is driving the Fintech sector in Tel Aviv. However, support from other Fintech hubs- notably London and Hong Kong is also driving entrepreneurs to expand beyond Israeli borders

Macro parameters Rothschild Boulevard - also known as the Silicon Boulevard, houses the offices of many ■ #35 in ease of doing business (Doing start-ups in Tel Aviv Business report, 2014) The growth in Fintech in the city is driven by ■ #44 globally on the 2014 Economic several banks setting up R&D centers (Barclays Freedom Index & Citi ) and incubators (Bank Leumi ) ■ US$ 305.7 billion GDP in April 2014 ■ 0.1 percent inflation (CPI) in Apr-May 2014 Rothschild Boulevard

State of the Fintech sector

■ Emergence of Fintech accelerator programs, driving increased interest in Fintech among Tel Aviv start-ups ■ 9 start-ups as part of Israel’s recent Fintech delegation to Hong Kong

Source: Doing Business 2014 – The World Bank ’ “2014 Index of Economic Freedom” – The Heritage Group; “GDP of Israel” – International Monetary Fund; Israel Inflation – Inflation.EU, Israeli Fintech Delegation-Hong Kong, accessed July 2014, Industry reporting, KPMG analysis

Government support (1/2) Tel Aviv’s government proactively supports entrepreneurs and start-ups through funding and tax breaks

Extent of Government funding 1 Government ■ Yozma Fund (closed to new startups): The fund was set up to attract foreign direct venture capital investment into Israel. To incentivize inward investment, foreign investors were offered matched funding support at a rate of two to one. That is, for every dollar a foreign investor committed to an Israeli entrepreneur, the government committed an additional two. To provide further up-side incentive, the government offered investors the option of buying out the government’s stake in the fund after a period of five years ■ The Tnufa provides pre-seed funding to of up to $50k (maximum of 85% of costs) for early stage activities such as financial feasibility analysis, prototype development, etc. ■ Chief Scientist R&D Development Fund: This program gives new R&D facilities access to grants covering 20-50% of a start-up’s estimated R&D costs. In return the Government is entitles to royalties in the range of 3-3.5% of annual revenues

Tax breaks ■ Tax breaks are given to venture capital backed accelerators who set up in the city. The Angel Act (2011) provides tax incentives to angel investors who invest in seed companies. ■ Recently, in July 2014, the ministries proposed simpler criteria for tax incentives to encourage seed-stage investments (Angels Act 2). Under the new plan (which would come into effect in 2015), to claim the tax benefits, one will have to invest in start-ups that are less than three years old, earn no more than 1.5 million Shekels (~US$0.44 million) in annual revenue, and incur expenses up to 3 million Shekels (US$0.88 million).

Source: “Fintech brochure 2014” Israel Export Ministry; “Magnet cities – Tel Aviv” – KPMG: “Israel to expand tax breaks to boost investment in start-ups” – Reuters/Al-Arabiya (16 July 2014), KPMG analysis

Government support (1/2) The government also supports start-ups through events and shared workspaces. A start-up friendly visa policy is being considered

Extent of Sponsor events to cultivate the start-up industry 1 Government ■ Yozma Fund (closed to new startups): FIN-TECH, Tel- Aviv 2014: It is the 1st International Conference on Financial Technology convened by The Israel Export & International Cooperation Institute and Ministry support of Economy. The event is planned to be held in September 16-18, 2014, in Tel Aviv. ■ Go 4 Israel: the 12th edition of “go 4 Europe” conference (http://www.go4eu.com/) ■ MIXiii: “Mix Israel Innovation International” – Israel innovation conference (http://www.mixiii.com/)

Shared/co-working spaces The city government has converted a number of municipal facilities such as city libraries into incubator start- up spaces. ■ The Library: The Library in the historic Shalom Tower provides a shared working space and hub facilities for teams dedicated to developing internet start-ups and new technology companies. Teams of start-ups apply to be based at The Library for a period of about four months. In return, start-ups teams pay a subsidized rate of US$70 per month for the facilities.

Visa policy ■ The government is reviewing its visa policy with the aim of introducing a “start-up visa” regime that would make it easier for skilled foreigners to come and work in Israel.

Source: “Fintech brochure 2014” Israel Export Ministry; “Magnet cities – Tel Aviv” – KPMG: “Israel aims to grow from start-up nation to scale-up nation” – Financial Times (January 2014), KPMG analysis

Availability of skill and talent With a robust education system, and a strong technology base rooted in mandatory military service, Tel Aviv has a considerable skill pool

Skill and talent Robust education infrastructure… ..and a strong tech base 3 ■ Four universities and several colleges offer a stemming from mandatory 'tech wide range of programs with special focus on intensive' military service… research delivered in English. Well regarded institutions include Tel Aviv University and ■ All Israelis must spend two (women) or three Technion (Israel Institute of Technology) (men) years in the Israeli Defense Force (IDF). The IDF is very technology oriented and ■ Tel Aviv University, the largest university in following service many Israelis use this Israel, is reputed for its research courses and knowledge to develop new communications and programs. The University has: web-based technologies. - 130 research institutes and 400 labs ■ This military-trained alumni base also become - 30,000 students (of whom 14,000 are Master’s recruitment targets by global technology and Doctoral candidates) companies such as IBM, Cisco, Microsoft and Google. - Filed 2,400 patents till date

…gives Tel Aviv a considerable skill pool ■ One-third of the Israeli population is in the productive age group of 18 to 35. ■ 135 out of every 10,000 workers in Israel are scientists and engineers; in the US, this number is only 85 ■ Nine out of every 1,000 workers are engaged in R&D, nearly double that in the US and Japan.

Source: “Magnet cities – Tel Aviv” – KPMG: Tel-Aviv Municipality website accessed on 17 July 2014; Israel Institute of Technology website accessed on 17 July 2014; Tel Aviv University website accessed on 17 July 2014

Business environment A positive business environment is attracting global FS institutions to Israel despite the high degree of geo-political volatility

Business Global banks are setting up innovation labs and other R&D facilities in 3 environment Israel Global Rankings: ■ Citibank set up a technology innovation center in Israel in 2011, followed by a data intelligence lab in 2013 EIU’s business environment rakings ■ Barclay’s has established an in-house R&D center in the city 2014: 21st position ■ Local banks are also realizing the opportunity and investing in Fintech: ■ Global ease of doing business rankings 2014: 35th position ■ Leumi has partnered with Elevator (Israeli investment fund focused on start-ups) in the establishment of an accelerator program. ■ Global financial centers 2014: 21st position ■ Bank Hapoalim is planning to invest US$23 million in Fintech “to turn Bank Hapoalim into a home for technology companies that are developing products for the financial industry,”, according to Bank Hapoalim Chairman Yair Seroussi

While Israel is at the forefront of technology and has great ““ experience in creating successful Several accelerator programs in the city help startups. An example is startups, this move is intended to grow and enhance the country's Junction involvement and participation in the The Junction is an accelerator that was set up by Genesis Partners, an Israeli Venture Capital firm, in development of financial technology southern Tel Aviv. On average 150 companies compete for one of the coveted 20 places on a three month around the world. wave. The aspiring entrepreneurs work together in a modern loft-style space, coding prototypes and writing business plans. Partners and Directors from Genesis Partners coach the aspiring entrepreneurs as they Lyron Wahrmann, Head of Citi develop their propositions, business and funding plans. Innovation Lab, Tel” ”Aviv

Source: “FinTech brochure 2014” Israel Export Ministry; “Magnet cities – Tel Aviv” – KPMG: “Citi Launches the First Financial Technology Accelerator Program in Israel” – Citi Group (31 July 2013); GFCI - Global Financial Centers Index report, March 2014; EIU business ranking, July 2014; World Bank, Ease of doing business report, 2014

VC funding Israeli high-tech companies have adequate access to funding, mostly from VCs. However seed-stage funding makes up a low proportion of total funding

Access to ■ Crowdfunding - Israeli high-tech companies raised US$1.6 billion in the first half of 2014, an increase of 81 percent 2013, making it the strongest capital raising period on record for the Israel's high-tech 2 Funding industry, according to the Israel Venture Capital (IVC) Research Center. ■ Currently, around 70 venture capital funds are active in Israel, of which 14 international VCs with Israeli offices and additional 220 international funds which actively invest in Israel. ■ Several leading US and European VC funds have Israeli branches, namely Alta Berkeley Venture Partners, Battery Ventures, Bessemer Venture Partners, BlueRun Ventures, Blumberg Capital, Bridge Capital Fund (BCF), Canaan Partners, Defta Partners, Lightspeed Venture Partners, and more.

GAPS & CHALLENGES ■ Seed-stage funding is a small proportion of total funds raised by Israeli high-tech companies (5 percent of the US$ 1.6 billion raised in H1 2014, down from 7 percent in H1 2013)

Source: Venture Capital in Israel, EIPA accessed 17 July 2014, “FinTech brochure 2014” Israel Export Ministry; “Magnet cities – Tel Aviv” – KPMG: EIU Viewswire accessed 17 July 2014; Worldbank website accessed on 17 July 2014

Introduction Berlin has locational and operational advantages over other European cities. However, the lack of robust government efforts, the limited success of private funding and incubation programs and the absence of entrepreneur education is inhibiting growth of the Fintech hub

Macro parameters

■ #21 in ease of doing business (Doing Mitte Business report, 2014) ■ #6 among G-20 nations on the e- trade readiness index (EIU report, 2014) ■ #18 globally on the 2014 Economic Freedom Index Berlin’s Mitte and Kreuzberg neighborhoods among the ■ US$ 3.6 trillion GDP in 2013 preferred locations for start- ■ 1.04 percent inflation (CPI) in June up activity 2014 The Factory is a campus for Kreuzberg start-ups and tech companies in Berlin Mitte, at the heart of State of the Fintech sector a growing ecosystem Berlin's Tempelhof Airport ■ English becoming more widely being touted to be the city's spoken in Berlin, resulting in more next start-up and tech hub VCs and entrepreneurs from the US eliciting interest ■ Over 20 Fintech start-ups in Berlin

Source: Doing Business 2014 – The World Bank ; “The G-20 E-trade Readiness Index” - article by ZDNet;’ “2014 Index of Economic Freedom” – The Heritage Group; “GDP of Germany” – Trading Economics; “Inflation in Germany” – Trading Economics; Fintech Forum DACH

Government support Traditionally, the extent of government support in spurring a vibrant start-up landscape in Berlin has been low. This, however, is now changing.

Extent of Berlin has traditionally received little government support in building a 1 Government start-up hub… ■ Berlin has a robust tech start-up landscape; however, government initiatives in encouraging an support entrepreneurship culture have been sparse ■ Since the city’s key industries are centred on tourism and culture, most of the government focus has been on these areas and not on start-ups – Start-up initiatives (such as The Factory) have been almost completely void of government involvement – Some degree of bureaucracy and red tapism surrounding startups in Berlin – Lack of government funded co-working spaces or accelerator programs

…however, this is now changing, with the government trying to incubate start-ups through several programs such as the following: ■ Technologiestiftung Berlin (TSB) Innovationsagentur, a government agency is helping tech start-ups by building a network of researchers, policy-makers and established companies ■ Investitionsbank Berlin (IBB) provides dedicated funding for tech start-ups ■ The German government’s business start-up portal that helps ventures understand legal and tax processes, and register their companies and

Source: Berlin builds businesses, McKinsey; Germany's Fintech rising stars- and their investors; Starting a Business; The Fintech Forum; Fintech – London, Berlin, Europe; Start-up boot-camp Berlin; European start-ups in Berlin

VC funding and skill availability VC funding and skill availability Some private VC funds and incubation programs have emerged, though their While Berlin has the right prerequisites for a success has been largely limited. skill pool, cultural factors have stymied entrepreneurship 2 Access to Funding 3 Skill and talent ■ Some private sector funds and incubation programs have emerged – however success has ■ With over 165,000 students, Berlin is the largest been limited university centre in German-speaking countries ■ Fintech Forum DACH emerged as the first event focused on Germany, Austria and and offers significant potential for recruiting new Switzerland, with an aim to identify innovators and disruptors in the FS sector talent ■ Start-up bootcamp has been trying to push Berlin as the start-up capital of smart cities and ■ Berlin attracts a lot of young, talented people innovation which is important for building up an international team ■ Betahaus is a private accelerator and provider of co-working space in the city ■ Significantly low costs for students ■ Point 9 Capital invests in early-stage start-ups across Europe who are looking for initial seed or Series A funding

GAPS & CHALLENGES GAPS & CHALLENGES ■ Germany’s share in the global Fintech M&A and investment space was less than 0.6 percent ■ Low interest among students and graduates in in 2012 starting businesses, particularly in the technology ■ Structural shortage exist in securing follow on financiering space ■ While the interest among international investors is growing, it has not yet translated into ■ Lack of entrepreneurial culture/education sufficient action ■ There is a need to educate the investors in Berlin. They are still new to investing heavily in tech start-ups

Business environment Though Berlin has some locational and macro-economic advantages over other European hubs, it still has not been able to fully monetize the opportunities

Business Slowly emerging Fintech start-up eco-system ■ Berlin does not have a very strong banking sector, which can hinder the growth of Fintech start-ups 4 environment ■ With English becoming more widely spoken in Berlin and the German economy remaining robust, more VCs and entrepreneurs from the US are considering investing in Berlin’s Fintech start-ups ■ Also, an increasing number of entrepreneurs without significant FS or ICT sector experience are trying to tap Early successful entrepreneurs Fintech opportunities (turned business angels) now pump ““ their back capital into a burgeoning ■ Considerable growth in accelerators and incubators, such as Axel Springer's Plug & Play, Berlin start-up scene. New Berlin entrepreneurs Academy, The Factory and initiatives from companies such as Mozilla, Microsoft and Google, as well as an share their know how and increasing number of events and ¬conferences experiences among each other, but lack significant support from advisors ■ A growing job market. A new start-up is founded every 20 minutes in Berlin and the industry is set to produce and mentors. In terms of living cost 100,000 new jobs by 2020 and lifestyle, Berlin might be the best ■ Lower operational costs. Berlin is cheaper than several other European cities. Office overheads and the price place to start a company right now. However, for scaling it, Berlin start- of living are cheaper, which gives entrepreneurs more to spend on innovation ups might consider relocating as the ■ Growing network within the city’s tech start-up community ecosystem is not mature enough in terms of capital, support infrastructure, and mind-set GAPS & CHALLENGES

“The start-up Ecosystem”” ■ Red tapism and bureaucracy related challenges Report” by start-up Genome, ■ Start-ups in their growth phase lack a centrally located co-working space 2014 ■ Start-ups lack a robust network with established companies and government agencies

Government support (1/2) The Hong Kong government has rolled out several funding, incubation and acceleration programs, as well as provides critical infrastructure aimed at developing the territory as a Fintech hub. It is also aggressively attracting foreign start-ups to set up tech ventures in the territory

Extent of The Hong Kong government’s focused strategy for developing a Fintech eco-system 1 Government ■ Intends to leverage the strong FS sector in the country by developing Hong Kong as a financial tech innovation hub ■ State backed programs such as InvestHK or the ITC are funding co-work spaces and incubators across the territory support ■ The government is proactively trying to attract start-ups from India and other Asian cities. Also luring Silicon Valley companies such as Humdinger to shift their R&D and innovation to Hong Kong ■ Further, the government is collaborating with Israel to explore Fintech innovation opportunities Prominent government programs for tech start-ups Government agencies ■ InvestHK focuses on developing Fintech efforts by funding wide network of co-work spaces and incubators ■ The Innovation and Technology Commission (ITC) promotes R&D, and facilitates tech infrastructure development ■ Steering Committee on Innovation and Technology co-ordinates the formulation and implementation of innovation and tech policies and ensure synergy among different elements of the innovation and tech program Funding ■ The Innovation and Technology Fund (ITF) finances projects that contribute to innovation and IT. In Feb 2014, ~3,779 projects were approved, of which 2,206 are R&D projects ■ R&D Cash Rebate Scheme that incentivizes the research culture among enterprises Infrastructure and Enablers ■ The Hong Kong Science and Technology Parks Corporation (HKSTPC) supports provides incubation, physical spaces for applied R&D activities, as well as land and premises in the industrial estates for production ■ The Hong Kong Applied Science and Technology Research Institute Company Limited (ASTRI) supports start-ups in commercializing their R&D

Source: Hong Kong government factsheet; Fintech – leveraging Hong Kong’s strengths, Bloomberg; Israeli Fintech delegation to Hong Kong; Why should Hong Kong be your global launch pad

Government support (2/2) Cyberport is a government-funded program that provides co-working spaces to local start-ups as well as partners with global accelerator programs such as Accenture Fintech Labs, Microsoft Ventures, and StartX

Extent of Government funded co-working and GAPS & CHALLENGES acceleration space 1 Government Complicated visa process ■ The government funded Cyberport is a co-working Securing a visa to live in Hong Kong took six months and support community with a cluster of more than 250 tech ■ cost ~US$5,000 for the services of a visa consultant and digital tenants If Hong Kong wants to attract entrepreneurs they need to ■ The program has funded 63 projects, organized ■ make the visa process fast, simple, and cheap. That means and participated in 29 collaborations and 55 the entire process needs to go online Cyberport, Hong Kong’s showcases, reaching over 3,000 mainland and ‘creative digital community’ overseas entrepreneurs Tax structure relatively higher ““ has been drumming up a lot ■ Cyberport has also partners with global tech giants of support for start-ups in the for co-sponsoring acceleration programs ■ Though Hong Kong has one of the lowest tax rates globally, past while, the latest being a yet Singapore’s net effective personal income tax rate is partnership with Microsoft – In June 2014, teamed up with Accenture for Ventures. Besides teaming up providing the physical space for the Fintech much lower with a tech giant to give start- innovation lab ■ In Hong Kong, corporate tax is set at 16.5 percent of ups an opportunity at global – In May 2014, Cyberport, partnered with exposure, Cyberport has also assessable profits for corporations and 15 percent for announced a complimentary Microsoft Ventures to give local start-ups an unincorporated businesses. existence of corporate tax is an opportunity of global exposure accelerator support inhibitor for start-ups programme and is now ■ Further, Cyberport rolled out an accelerator accepting applications for support programme and a seed fund to sponsor ■ In addition, Hong Kong unlike Singapore does not have their seed fund. creative and innovative ICT start-ups or related many industry-specific tax incentives to encourage foreign business concepts investment Herman Lam, CEO”” of Cyberport, May 2014

Source: Hong Kong government factsheet; Cyberport Partners with Microsoft Ventures for New Accelerator Program with Seed Fund in Hong Kong; Accenture, Top Banks in Asia Launch ‘Fintech Innovation Lab Asia-Pacific’; Cyberport annual report; Cyberport teams with Accenture

Access to Funding

The VC landscape is emerging in Hong Kong with considerable funds pouring in through private equity as well as crowdsourcing. However, lack of scale is an inhibitor

Access to Private VC funding is growing GAPS & CHALLENGES in Hong Kong 2 Funding ■ Venture capital funding is gaining traction in Hong Kong, though the absolute ■ The Hong Kong VC and Private number and size of deals are miniscule when compared with those in the US Equity Association (HKVCA) ■ Most technology start-ups still need help to strike deals with "angel" investors Private VC funding in Hong indicates that considerable funding Kong (by deal volume) for seed financing and venture capital firms for larger investments to expand is pouring in for local start-ups their businesses 11 9 11 8 7 6 – The average size of VC ■ Though crowd funding has gained traction, yet progress is slow and success in investments was ~US$6 million sourcing funds appears harder than initially anticipated. 2009 2010 2011 2012 2013H1 2014 in H1 2014, compared to US$4 Further, unlike banks in California's hi-tech hub of Silicon Valley, those in million for the whole of 2013 ■ Hong Kong lack the expertise to fund technology start-ups Ask Hong Kong start-up ■ Foreign funding is also increasing in founders about the the territory. US VC firm Sequoia ““ challenges facing their Capital recently joined the Tom ecosystem and you are likely Group and other investors to invest Equity crowdfunding platform for start-ups to hear one answer over and US$14 million in the Series A ■ An increasing interest in tech start-ups have led to several platforms over again: the lack of funding connecting companies with potential investors funding opportunities. ■ These include NEST, a Hong Kong incubator, has launched Investable.vc, Because Hong Kong’s start- an accredited equity crowdfunding platform for start-ups. It also serve as up industry is so new, What is more important, we have begun mentors and advisers to witness a re-emergence of home- companies are still seen as – Another venture, fund2.me is also facilitating crowd funding for local risky investments and many ““grown venture firms that not only start-ups. Investors get various forms of discounts (instead of direct high-worth individuals turn to demonstrate sophistication in investing regionally or globally, but also have an equity in the start-up) for the product once it is launched the property and banking appetite for domestic investment sectors instead Hong Kong VC and Private Tech Crunch, June 2014 Equity Association , June 2014 ”” Source: Venture capital showing more”” money for Hong Kong's tech start-ups; Hong Kong crowd funding site looking for momentum; How Venture Capital and Private Equity have provided Vitality to the Hong Kong Economy post Global Financial Crisis, June 2014, HKVCA; Venture capital showing more money for Hong Kong's tech start-ups

Availability to skill and talent Proximity to Hong Kong’s financial hub and a growing culture of tech entrepreneurship ensures ready access to skilled professionals

Skill and Talent Proximity and availability of skilled workforce 3 ■ The financial service industry employed ~230,000 people in 2013, representing 5.9 percent of the city’s entire workforce ■ In the banking sector, Hong Kong is one of the largest banking centres in the world with 70 of the world’s top 100 present in the city ■ The IT sector employed 33 percent of Hong Kong’s workforce in 2012 with the majority employed in software development ■ Universities offering specialized courses in entrepreneurship - Universities across Hong Kong (Chinese University of Hong Kong, HKUST, The Hong Kong Polytechnic University) offer dedicated programs ranging from full time MBA to short time focused courses on incubating, start-up modelling, etc. ■ Career development platform that helps connect employers with young talent - Platforms such as LIBBLER provide an interface between Hong Kong’s start-ups and the local talent pool

GAPS & CHALLENGES ■ Gaps in management and marketing skills, in spite of strong technical knowledge ■ Lack of dedicated Fintech courses

Source: start-upHK; Hong Kong advantage, Washington Post;

Business environment Hong Kong’s native entrepreneurial culture, ease of setting up business and highly developed financial and ICT sectors and increasing push by global tech vendors provides a ripe ground for Fintech innovation

Business ■ Native entrepreneurial culture that supports new ventures. It is socially 4 environment acceptable to fail in a venture and move on to another ■ Strategic location – Hong Kong is in the same time zone as Beijing, Shanghai, Singapore, Taipei, Manila, Kuala Lumpur and Perth. All Asia’s key markets are Google and Accenture boosting Hong Kong’s less than four hours’ flight away. Hong Kong is also the gateway to Mainland tech start-up space China ■ In June 2014, Accenture launched the Hong Kong chapter of ■ Ease of doing business –Hong Kong scores in terms of procedures for starting a Fintech innovation lab that creates an interface between the business, getting bank loans or other credit, applying for an electricity supply, prominent banks in ASPAC and 7 local start-ups transferring properties and the ease of cross-border transactions. ■ Earlier, in 2013, Google had announced plans to tap Hong Kong’s ■ Preferred location for foreign trade and investment – Contributing factors include natively entrepreneurial culture and help incubate start-ups in the strategic geographic location, synergies from Mainland China, and connected partnership with the Chinese University of Hong Kong. Google planned to offer mentorship to young entrepreneurs and sponsor networks with the rest of the world trips to Google’s headquarters in Mountain View, Calif. ■ Well developed communications infrastructure includes complete 4G and fibre broadband coverage overhauled by 9 submarine cable systems, 17 overland cable systems and eight satellites for external communications GAPS & CHALLENGES ■ Well established financial services industry - Hong Kong is one of the largest ■ Smaller size of software industry banking centres in the world with 70 of the world’s top 100 banks having a ■ Lack of risk-seeking, early-stage funding presence in the city. Hong Kong ranked #3 in the Global Financial Centres Index ■ High property prices ■ High levels of IT spending, particularly in mobile, analytics and cloud computing

Source: Paul Orlando on Hong Kong start-ups; InvestHK website; WorldBank data bank

Introduction Singapore is an emerging Fintech hub, backed by a conducive business environment, the government’s aggressive strategy for growing the tech start-up ecosystem and active participation by the country’s developed financial sector and foreign investors. However, it still remains a smaller hub with some short-term macro-economic challenges

Macro parameters Concentration of start- ups, incubators and ■ #1 in ease of doing business (EIU investors in the report, 2014) Central district and Marina Bay ■ #3 in the world for foreign trade and investment (Globalisation Index 2012) ■ US$297.9 billion GDP in 2013 Marina Bay - the emerging FI and start-up ■ 2.7 percent inflation (CPI) in May destination 2014 ■ S$1.24 trading per USS

State of the Fintech sector

■ ~200 banks with a total asset size of almost US$2 trillion ■ ~S$1.4 trillion assets under management in insurance Central district – the traditional FI hub ■ S$26.2 billion in IT spending, up ~4.4 percent y-o-y ■ Innovation in cashless payments, analytics and digital

Source: Worldbank databank; Singstat (Government of Singapore website), Futuregov.com, Techinasia, MAS website, Singapore Venture Capital & Private Equity Association website and reports; Infocomm Development Authority of Singapore website and reports; The National Framework for Innovation and Enterprise website and reports;

Government support (1/3) The government provides significant support in attracting more private investors and eventually developing the local start-up eco-system.

Extent of Government’s focused strategy for developing the tech start-up eco-system 1 Government ■ Intends to develop the local tech start-up eco-system without making it a clone of hubs support ■ Allocated ~S$100 million for early-stage start-ups within the broader S$16 billion scientific R&D budget ■ Expects the state backed start-up agenda to attract more private investors and incubators ■ Once the local eco-system is established, intends to scale back the level of involvement ■ Also attracting Australian start-ups (such as Sprooki) to relocate to Singapore

Prominent government programs for tech start-ups Funding ■ SPRING – Complete or Co-investment financing for sector specific acceleration, commercialising ideas, networking and assistance from multiple agencies We’ve been talking to government ■ MDA i.Jam – Provides fund up to S$100,000 by founders or incubators agencies and they are very Incubation ““ excited to be able to connect with this network of start-ups and ■ i.Jam - Interactive Digital Media Program appointed incubators identify, nurture, and administer competent talent. This programme is bridging start-ups what government needs and what ■ Technology Incubation Scheme – the government co-invests ~85 percent. Incubators pitch in the remaining the community is interested and buy out the government's stake after three years can provide ■ Incubator for Disruptive Enterprises and Start-ups (IDEAS)

Lee Wan Sie, Deputy Director of IDA Labs, April” 2014” Source: Worldbank databank; Singstat (Government of Singapore website), Futuregov.com, Techinasia, MAS website, Singapore Venture Capital & Private Equity Association website and reports; Infocomm Development Authority of Singapore website and reports; The National Framework for Innovation and Enterprise website and reports;

Government support (2/3) The government provides critical enablers such as a conducive visa and tax regime and incentives to financial institutions for innovating Extent of Tax structure and incentives ■ Tax exemption for start-ups – Full tax exemption on a specified part of a start-up’s taxable income for the first three 1 Government consecutive years support ■ Pioneer incentive scheme - Businesses that raise overall industry standards eligible for full corporate tax exemption on qualifying profits for up to 15 years ■ Productivity and innovation credit scheme - ~400 percent deduction or allowances on ~$400,000 expenditure incurred in qualifying innovative activities ■ Lower income and corporate tax rates ■ Low GST rates (7 percent) - below global (16.4 percent) and ASPAC (10.6 percent) averages

Visa policy & immigration The Singapore government ■ Open Immigration policy facilitates the relocation of foreign entrepreneurs is also actively considering a pro-crowd funding legislation – Singapore has a relaxed immigration policy, making it easier to gain Singapore Permanent Residence (PR) status – EntrePass, the visa for foreign entrepreneurs is considered to be more flexible than other countries such as the UK and the US

Incentive to banks and financial services institutions for innovation ■ The SPRING program encourages innovation in the country’s key sectors such as banking, along side incubating start-ups ■ It has accredited local banks such as the OCBC and Maybank with the Singapore Innovation Class (I-Class) certification ■ I-Class is national recognition for organisations that have management systems, underlying technologies and processes in place to achieve excellence through innovation ■ Government programs such as these provide a fillip for Fintech innovation in the country

Government support (3/3) State-backed co- working spaces provide a platform for networking, incubation and acceleration. However, the government policies on the whole lack Fintech focus

Extent of Government backed co-working spaces 1 Government ■ The Infocomm Development Authority of Singapore (IDA)’s IDA Labs serve as co-working spaces for the community, support industry and government agencies – The labs provide physical lab spaces for generating new ideas, developing new technologies and testing out proof of concepts – The IDA labs also partner with global IT vendors such as Intel, HP and Redhat for providing R&D resources, enabling technologies and best practices from other geographic markets such as the US ■ In addition, IDA acts an accelerator – expediting the process of commercializing innovation ideas – IDA’s accreditation program to help local start-ups position themselves as qualified vendors to potential government and large enterprise buyers – This helps start-ups to generate revenue from the early stages and reduce dependency on VC funding

GAPS & CHALLENGES ■ Most incentives focus on the overall tech start-up eco-system without any specific focus on Fintech (when compared to other hubs such as London) ■ The government routing taxpayers' money to fund foreign entrepreneurs, instead of developing the local ecosystem ■ Recent changes in labor laws inhibiting employment in start-ups

Access to Funding

Significant volumes of private equity, VC funding and bank financing are flowing in; however, lack of funding across the start-up life cycle and start-ups being less receptive to PE sales pose challenges

Access to Significant VC funding with participation from local as well as foreign entrepreneurs 2 Funding ■ ~$1.71 billion VC funding in tech start-ups in 2013. This puts Singapore ahead Hong Kong, Japan and South Korea ■ Deal flows for local VCs are varied – Encompass wide range of technologies and attract entrepreneurs across ASPAC. This leads to complex deal evaluation and due diligence ■ Deal syndication is common due to the relatively small number of VCs in the country and the lack of a sizeable VC pool that can take great risk ■ Mature start-ups attract more foreign investments than early stage ventures ■ Exits are primarily made through trade sales with foreign companies or IPOs at the local stock exchange ■ Singapore banks actively engaging in funding tech innovation ventures. Banks such as the OCBC provide funding for start-ups as old as 6 months. Do not need collateral or audited statements

GAPS & CHALLENGES ■ Lack of funding across the venture’s life-cycle. Many start-ups failed after their initial funding was depleted ■ Singapore’s status as a highly developed ﬁnancial hub acts as an inhibitor for private funding, as local ventures carry a premium price compared to other Southeast Asian countries ■ Start-ups less receptive to private equity sales and unwilling to give up management control

Source: Singapore Venture Capital & Private Equity Association website and reports; Guidemeinsingaproe

Availability to skill and talent Proximity to Singapore’s financial hub and a growing culture of tech entrepreneurship ensures ready access to skilled professionals

Skill and Proximity and availability of skilled workforce 3 Talent ■ Three of ASPAC’s largest banks (DBS, OCBC, United Overseas Bank) situated in Singapore ■ 5.5 percent of total workforce employed in the financial services sector ■ 146,700 people employed in Singapore’s ICT sector ■ 11.6 per cent residents either had set up a business in the past 3 years or were in the process of starting a venture ■ The Banking & Financial Services sector is the only sector to have seen an increase in positive hiring intentions in 1Q 2014, up 7.4pp to 50 percent, its highest result since Q2 2011

GAPS & CHALLENGES Skill development ■ Changing labour laws particularly ■ The National Framework for Innovation and Enterprise (NFIE) supports universities and polytechnics related to the employment of foreign to translate their research into commercial products for the market workers is likely to impact inflow of foreign ventures ■ The SMU along with other Singapore universities such as the Nanyang Technological University have dedicated courses in entrepreneurship ■ The secondary education system still needs to foster a spirit of ■ SMU has also used its academic backbone for incubating 74 start-ups that has raised funding worth entrepreneurship S$3.1 million ■ Greater need for knowledge exchange programs inviting students from other geographies

Source: MAS website, Infocomm Development Authority of Singapore website and reports, The National Framework for Innovation and Enterprise website and reports;

Business environment (1/3) A strategic geographic location, conducive cultural and legal factors, a highly developed FS sector and significant technology spending give Singapore a well-rounded Fintech environment

Business Favorable business environment driving investment in start-ups 4 environment ■ Strong entrepreneurial culture – There is a growing ecosystem to support entrepreneurship in Singapore, which gives it a hub position in the region. Socially too Singapore is considered to have an entrepreneurial culture, particularly due to large percentage of migrant population ■ High investment potential – With no restrictions on the repatriation of profits and the import of capital, along with the favourable operating conditions and strong diplomatic ties, Singapore offers an ideal investment environment ■ Network and tech readiness – Singapore has one of the most developed network infrastructure (high speed mobile network, under sea fibre optic infrastructure) in Asia. There are also high levels of business and government readiness and usage of technology ■ Preferred location for foreign trade and investment – Contributing factors include the strategic geographic location, connected networks with the rest of the world, strong legal system, ease in setting up new business and attractive tax system. Is also considered to have low levels of corruption and high government efficiency

Developed financial services sector and high levels of IT spending driving Fintech innovation ■ Well established financial services industry - ~200 banks with a total asset size of almost US$2 trillion have operational headquarters ins Singapore. Also with 800 companies listed on the SGX, the country’s equity market is also booming. Further, with assets of S$1.4 trillion, Singapore is also a top tier insurance and asset management location ■ 63 percent mobile banking penetration. 71 percent Singaporeans use Intelligent Personal Agents (avatar-based web interfaces) ■ High levels of IT spending - The total IT spending in Singapore in 2014, is likely to exceed S$26.2 billion, up by almost 4.4 percent y-o-y ■ Increased spending on Fintech - ~60 percent banks and financial services companies in Singapore are increasing their spending on cyber-security. Other critical spend areas include analytics, digital and IT transformation

Source: Worldbank databank; Singstat (Government of Singapore website), Futuregov.com, Techinasia, MAS website, Singapore Venture Capital & Private Equity Association website and reports; Infocomm Development Authority of Singapore website and reports; Facts and Rankings about Singapore, EDB (Govt of Singapore)

Business environment (2/3) Co-working spaces and innovation labs backed by banks as well as IT vendors are emerging. These help commercialize Fintech ideas – particularly in mobile, web and analytics

Business Citi group’s innovation lab – partnering with the industry, government universities 4 environment ■ Citi's Global Transaction Services (GTS) business has set up the Citi Innovation Lab in Singapore that The Fintech Innovation Lab is a comprises a Client Experience Center and a Client Collaboration Center highly accessible way for banks to ■ The Innovation Lab uses web, mobile, supply chain and analytics technologies to engage Citi's institutional ““ put their foot in the water and clients more innovatively and to create the most effective solutions and products for them experiment with start ups, which is what really attracted me to this ■ The Innovation Lab is fully interactive and globally-linked, allowing Citi to connect with clients, global colleagues program. Start ups have a level of and experts for discussions on future needs and collaboration with the bank's clients opportunity and innovation that a bank would like to utilize and the ■ Partners for the new lab include the National University of Singapore (NUS) and the IDA for fostering innovation bank has massive scale, a huge in web, analytics and mobile with an end objective of serving clients innovatively customer base and the ability to scale out. DBS hopes to find start ups which will help it improve the life of its customers. We are already Global tech giants drive Fintech innovation in Singapore working with IBM to bring Watson into a program focused on cognitive ■ Accenture launched the Fintech innovation Lab in Hong Kong with a view to covering banks across the ASPAC computing and artificial intelligence. region, including Singapore What innovation can we bring to The Development Bank of Singapore that is already working with IBM to bring Watson on cognitive computing that. I hope to find start ups that can ■ plug into that strategy. It will be and artificial intelligence, aims to leverage the Fintech lab for identifying and working with niche start-ups in the around the customer experience analytics domain and customer touch points, less on data and more about the actual interaction with customers Banks in Singapore are doing a lot more innovation than you see in US banks. The dichotomy is that the most innovative banks are in this time zone, but not the most ““ innovative start-ups Neal Cross, chief innovation officer ”” Neal Cross, chief innovation officer at at DBS, Singapore, June 2014 DBS, Singapore, June 2014 ”” Source: Citibank launches innovation lab; DBS Bank Engages IBM’s Watson to Achieve Next Generation Client Experience; Accenture’s Fintech lab launches in Asia

Business environment (3/3) In spite of a conducive business environment, recent macro-economic challenges have affected Singapore’s viability as a Fintech hub

Business GAPS & CHALLENGES 4 environment Sluggish GDP growth in recent quarters ■ Singapore’s GDP, valued at US$297.9 billion in 2013, unexpectedly contracted in 2Q 2014. – On a q-o-q basis, GDP stayed nearly stagnant (0.8 percent decline), compared to a 1.6 percent gain in 1Q 2014. On a y-o-y basis, growth was 2.2 percent, against a 2.4 percent estimate ■ The sluggish GDP growth was largely due to a decline in electronics, primarily driven by a significant fall in semiconductor production – The fall is also due to tighter rules for foreign labour that have pushed up costs – In addition, the services has not been able to offset the manufacturing slump Rising inflation ■ The consumer price index (CPI) rose 2.7 percent in May 2014, the highest since March 2013. The core inflation is likely to stay at 2-3 percent in 2014, with headline inflation easing out in the later parts of 2014 ■ The Monetary Authority of Singapore (MAS) indicates that domestic cost pressures, particularly due to the tight labour conditions are likely to remain the primary source of inflation Appreciating currency but vulnerable to changes in US interest rates ■ The MAS which uses the exchange rate rather than borrowing costs as its main policy tool, is likely to let the Singapore dollar stay on a modest and gradual appreciation path, as it seeks to curb inflation while supporting economic growth ■ However, it has emerged as Asia’s most-vulnerable currency to prospects of higher US interest rates, and the instability is likely to challenge start-ups looking out for overseas VC funding

Introduction Tax incentives, access to talent, and a conducive business environment are some factors adding to Ireland’s business appeal.

Macro parameters

■ #15 in ease of doing business (EIU report, 2014) #9 globally on the 2014 Economic ■ NAMA, Dublin’s development Freedom Index authority planning ‘Canary ■ #1 for the availability of skilled labor Wharf’ like re-development of (IMD World Competitiveness the Docklands area Yearbook 2014) ■ US$ 217.82 billion GDP in 2013 ■ 0.39 percent inflation (CPI) in Jun 2014

State of the Fintech sector Majority of Dublin’s start-up activity focused around the Grand Canal, Ranelagh, and ■ 53 percent of Europe’s Fintech deals Ringsend areas represented by Ireland and UK ■ Citi Innovation Lab- among the first ‘Fintech’ R&D facilities . Focuses on banking and payment technologies ■ NDRC Fintech- Ireland’s first financial technology start-up programme launched in 2014

Source: Doing Business 2014 – World Bank; Ireland GDP – Trading Economics: Ireland Inflation – Inflation.EU; “Financial start-up accelerator Fintech launched by NDRC” – Silicon Republic; 2014 Index of Economic Freedom – Ireland – Heritage Group

Government support (1/2) The government is pro-investment and offers tax incentives and easy immigration options to Irish as well as non-Irish entrepreneurs Enterprise Ireland among the foremost authority offering government support and funding for fledgling start-ups in Dublin or Ireland – plans to support ~70 start-ups each year

Extent of Government funding 1 Government § Pre-Investment Support – Offers accelerator programmes for start-ups, wherein they receive grant funding to cover living costs. Certain accelerator programmes also provide a funding in the form of an equity investment support for a small stake (about 6 percent) in the company. § Enterprise Ireland International Start-up Fund – The €10 million fund is aimed at encouraging overseas entrepreneurs from North America, UK, Europe and Australia to set up businesses in Ireland. The fund targets projects in sectors such as financial services, cloud computing, and Internet and offers funding between €200,000 and €500,000

‒ Under the program, Enterprise Ireland has also sought the support of high profile successful Irish entrepreneurs such as Dylan Collins to support the marketing of the fund overseas. 118 The number of trade § Mentorship and Other Bespoke Services – Enterprise Ireland also provides bespoke services to aid start-ups events planned by in getting their businesses off ground. These range from workshops, mentoring and incubator space to Enterprise Ireland introductions to potential investors and marketing support to enter overseas markets. globally in 2014 § Priming Grants –Business start-up grant offered by the Local Enterprise Office to fund small businesses in Dublin within their first 18 months after start up. What the Irish Government is saying very clearly today to the international § Competitive Start Fund - To accelerate the growth of start-up companies that have the capability to succeed ““technology community gathered in globally Dublin is – come and start your company in Ireland, we are open for business, and we will support you. “Stimulating the flow of new High Potential Start-Ups and supporting their growth are fundamental building blocks in Enterprise Ireland’s strategy for economic growth and job creation. We want mobile entrepreneurs to locate their Richard Bruton TD, Minister for Jobs, ““businesses in Ireland and to see Enterprise Ireland as their dedicated partner.” Enterprise and Innovation, Ireland”” Frank Ryan, Chief Executive, Enterprise ”Ireland” Source: “Support for start-ups” - Enterprise Ireland website; “Bruton launches new €10million International Start-Up Fund to draw overseas entrepreneurs to Ireland” – Enterprise Ireland website; “Government support through Enterprise Ireland”, accessed July 2014; Industry reporting; KPMG analysis

Government support (2/2) The government is pro-investment and offers tax incentives and easy immigration options to Irish as well as non-Irish entrepreneurs

Extent of Tax structure and incentives 1 Government ■ Research and Development (R&D) Tax Credits – Offers a 25 percent tax credit for incremental expenditure on R&D activities and on buildings and structures over the 2003 base year spend, although offering a full 25 support percent tax credit on the first €300,000 of qualifying expenditure.

■ Employment Investment and Incentive Scheme (EII) - Provides tax relief up to 30 percent to a maximum of €150,000 to Irish investors willing to invest in start-ups under certain eligible industries.

Visa policy & immigration ■ Start-up Entrepreneur Programme (STEP) - Allows a non-EEA nationals/ high-potential start-ups to set up The number of business in Ireland with a minimum funding of €50,000 (was €75,000) to come and set up a business in international Ireland. entrepreneurs From March 2014, non- Irish entrepreneurs are also eligible for a 12-month immigration permission under this obtaining STEP ■ programme in case they are attending incubators or innovation bootcamps in Ireland. 23 visas in 2012-13 ■ Immigrant Investor Program – Provides a range of investment options (minimum €450,000) for non-EEA investors and their immediate family enter Ireland on multi-entry visas and remain there for up to 5 years.

Among low tax rates, what appeals to many tech entrepreneurs to Ireland is the availability of Irish officials ready to GAPS & CHALLENGES help foreign companies set up — ■ Low turnout for governments STEP program – Only 23 international entrepreneurs have set-up businesses in usually with Ireland's Industrial Ireland via STEP Development Agency (IDA)

Source: “R&D Tax Credit Scheme, “Employment Investment and Incentive Scheme”, “Citizens Information”; “Bruton launches new €10million International Start-Up Fund to draw overseas entrepreneurs to Ireland” – Enterprise Ireland website accessed July 2014; Industry reporting; KPMG analysis

Access to Funding

Dublin’s robust network of local angel investors and VC’s promise seed funding to budding entrepreneurs – However availability of growth funding remains a challenge

■ A growing and robust network of seed funds, venture capitalists, and local business angels - over €800 million in Access to funding is available ; €645 million under management in EI-supported SVC funds. 2 Funding ■ In October 2013, Fenergo, a Dublin based fin-tech start-up secured €4 million in new equity funding from Investec Ventures. The start-up develops client-on boarding, enterprise compliance and data-management software solutions for investment banks ■ Access to Overseas Capital – The government is pro-investment from global investors and operates a range of schemes via which they can participate. In recent years, over 35 overseas VCs have invested in Irish start-ups or early stage companies, attracted by the quality of the start-ups. – Innovation Fund Ireland - Allows leading international venture capital fund managers to establish their European headquarters in Ireland and access entrepreneurs and innovative companies. ■ In June 2013, the government launched a new €175 million Seed and Venture Capital Scheme aimed at providing additional funding for high-growth businesses. The government is also targeting the private sector VCs to pitch with an additional €525 million in funds ■ The Dublin Business Innovation Center actively invests in scalable early stage and high growth businesses across sectors via the €53 million AIB Seed Capital Fund

GAPS & CHALLENGES The Dublin BIC also assists Reports suggest that entrepreneurs in Ireland are still dependent on “informal” VC funds from local business angels and start-ups become investor ■ from family and friends. ready and guides them through the fundraising process ■ Availability of second-stage funding remains scarce - Per Dr. Ciara Leonard, programme manager NovaUCD, a Dublin based business incubator, availability of second stage funding is not of the same level of VC available at the seed stage.

Source: “AIB Seed Capital fund” – The Dublin BIC ; “New €175 million Government Seed and Venture Capital Scheme targets high-growth Irish companies” – Enterprise Ireland; “Fin-tech firm Fenergo nets €4m from Investec Ventures: eyes up global growth” – Silicon Republic website, accessed July 2014; Industry reporting; KPMG analysis

Access to skill and talent A young, educated population coupled with proximity to leading European financial centers ensures ready access to skilled professionals

Skill and Availability of skilled labor 3 Talent ■ Thriving financial services and technology sectors – over 500 financial services firms employing 32,700 professionals; technology sector employs 1,05,000 professionals across various disciplines, including ICT – Dublin is a hotbed of financial activity in the region, alongside London – Per the Global Financial Index (September 2013), Dublin houses over 50 percent of the world’s leading financial services firms ■ Ireland is ranked #1 for the availability of skilled labor, flexibility and adaptability of workforce and attitudes towards globalization (per the IMD World Competitiveness Yearbook 2014) ■ Young and skilled workforce – With a median age of 35 years, Ireland has the youngest population in Europe. Over 50 percent of Irish 30 -34 year olds have a third level degree - higher than any other country in the EU. Education and Curriculum ■ Robust higher education system – 90,000 students across Dublin’s various higher education institutions. Several Dublin-based universities also offer business development programs for budding entrepreneurs We selected Dublin ■ Joint government/industry efforts to promote technology courses because it’s home to – The ‘Smart Futures’ campaign has lead to a significant uptake of computer science courses in universities and ““ several top colleges and institutes of technology. universities, offering us a significant base from which – Enterprise Ireland runs the Student Entrepreneur Awards, a competition that aims to spurn entrepreneurship to cull top talent. This is one among students by helping them turn their entrepreneurial ideas into commercial businesses. of the primary reasons that we based our international GAPS & CHALLENGES headquarters here. ■ The Global Entrepreneurship Monitor 2012 reports that aspiration to set up a new business remains low in the country, lower than across the OECD and EU. Ryan Smith, CEO, Qualtrics”” Source:“IDA Ireland”; “Minister Perry launches Enterprise Ireland Student Entrepreneur Awards” – Enterprise Ireland; “The Global Technology Hub – Report by the Irish Software Association”; “Six Reasons Your start-up should be in Ireland” - Enterprise Ireland - accessed July 2014; Industry reporting; KPMG analysis

Business environment A favorable business environment, coupled with start-up support fosters innovation and entrepreneurship in Dublin

Business Start-up friendly environment 4 environment ■ Ireland is a low bureaucracy, low tax environment supportive of entrepreneurs. Low corporation tax (12.5 percent) combined with favorable double tax agreements. Tax depreciation is available to businesses on intangible assets and intellectual property We’re very close to the Per the Heritage Foundation, Ireland currently has the freest economy in the entire Eurozone. European and UK ■ ““ markets, and at the same time, close to the US east Access to accelerator and incubation programs coast. ■ Ireland has a network of both state and privately owned start-up accelerator programmes.

Dr John Holt, Chief ‒ NDRC Fintech, Ireland’s first financial technology start-up program was launched in May 2014. The five- Operating Officer, Waratek”” week program seeks to recruit ten early stage financial services start-ups initially ‒ Other notable technology sector focused accelerator programs in Dublin include NDRC LaunchPad and Dublin City University’s Ryan Academy for Entrepreneurship’s Propeller Venture Accelerator Fund GAPS & CHALLENGES Other Advantages ■ Being closely integrated with London, Location - Well connected to most European financial and venture capital centers, notably London. most Fintech ventures look to ■ London’s large financial centre in ■ Access to skilled talent – With a thriving ecosystem of businesses and R&D centers across ICT, life-sciences pursuit of customers, talent, and financial services sectors, start-ups have easy access to skilled staff, experienced entrepreneurs, partnerships and funding. investors and other support services with deep expertise. ■ Barring the NDRC Fintech, there is ■ Competitiveness – Per the latest IMD World Competitiveness Yearbook 2013, Ireland ranks in the top three no theme-based Fintech accelerator across categories such as availability of talent, investment incentives and attractiveness for foreign investors, for start-ups in Dublin etc.

Source:“Financial start-up accelerator Fintech launched by NDRC” – Silicon Republic;“The Global Technology Hub – Report by the Irish Software Association”; “Six Reasons Your start-up should be in Ireland” - Enterprise Ireland; “Entrepreneurship Propeller Venture Accelerator Fund” – Ryan Academy ; accessed July 2014; Industry reporting; KPMG analysis

List of key Fintech start-ups across various global hubs

Fintech start-up Ecosystem – New York Fintech start-up Ecosystem – Silicon Valley

Accelerators/Incubators Fueled Collective Accelerators/Incubators Yodlee Interactive - Incubation Thinknum Kasisto LMRKTS LLC Revolution Credit StockTwits Standard Treasury Xignite Personal Capital QuartetFS Moneyworks Dwolla Fintech start-ups Lending Club Fintech start-ups Tradier Robinhood IQ Sociogramics markit on demand Upside Zipmark Endurance Lending Network Venmo Openfin VC firms FT Partners estimize VC firms Founder Collective

Note: The list is indicative and a detailed list of Fintech start-ups across the world can be viewed at Angel List - https://angel.co/finance-technology Source: Industry reporting; KPMG analysis

List of key Fintech start-ups across various global hubs

Fintech start-up Ecosystem – London Fintech start-up Ecosystem – Berlin

Level39 Accelerators/Incubators GrunderTaxi Start-up bootcamp Accelerators/Incubators Mambu Fintech Innovation Lab Payeleven Barclays Accelerator iZettle Azimo BarPay Liquity Epiphyte Barzahlen/Cash Payment Digital Shadows Fyber FinGenius twingle Tradable Fintech start-ups RatePay TransferWise VexCash AG Derivitec Companisto GmbH ClauseMatch Fintech start-ups Zencap Deutschland GmbH Market IQ Open Bank Project Open Gamma Number 26 Aire rethink finance Moni Technologies Refined Insurance Nutmeg Rplan Blue Speck Financials Funding Circle Zopa

Note: The list is indicative and a detailed list of Fintech start-ups across the world can be viewed at Angel List - https://angel.co/finance-technology Source: Industry reporting; KPMG analysis

Level 39 Facilities Europe’s largest technology accelerator space for finance, retail and 2 future cities technology companies. ■ Level39 plays host to innovation and accelerator programmes – these are short programmes that aim to boost a young company’s growth over It is a space for early-stage businesses that have potential for high- a concentrated period of time. Due to Level39’s partnership with Pivotal growth. Members are looking to create, test, market and deliver Innovations, innovation programmes can be created and crafted in- scalable world-class financial, retail and future cities technology house. products and services. ■ Members of Level39 can work from drop-in space, hot-desks, fixed- The accelerator is rare as it does not take equity in member desks and private office spaces. companies, instead Level39 helps members to grow into its ‘High ■ Set in the middle of one of the world’s premier business and shopping Growth Space’, a 15000 square-foot area for larger companies districts, Level39 is well connected to Canary Wharf’s working population of 100,000 and over 240 cafes, restaurants, bars and shops. situated on the 42nd floor of the same building. ■ Within six months of launch, Level39 opened the High Growth Space on the 42nd floor of One Canada Square. The High Growth Space is a The concept further 15,000 square feet of office space that is designed to suit graduates of Level39 and larger technology companies, with teams 1 between 8-100. ■ Level39 is Europe’s largest accelerator space for technology businesses innovating in the financial services sector ■ Occupying the entire 39th floor of the iconic One Canada Square Add-ons building, and established by Canary Wharf Group plc, Level39 was 3 opened on 18th March 2013 by Boris Johnson, Mayor of London ■ Space39 is a 220 seat event space that hosts regular industry events ■ The space has become an important part of Tech City- having hosted and boasts some of London’s best views. over 200 events, including hackathons, skunkworks and demo-days. ■ Level39’s Sandboxes are think-spaces that welcome tech experimenters and policy makers. Software engineers from large-organisations can refine, test and showcase transformative technologies in a safe, ring- By the time Level39 completed one year, it had worked with over 80 high fenced environment. growth potential technology companies after receiving 682 applications for membership. The 44,000 square feet space facility at One Canada Square ■ The ‘FutureMinster’ Sandbox regularly plays host to politicians and welcomed over 30,000 visitors and convened 182 hours of mentoring think-tanks.

Source: Company website, General Internet Search, KPMG analysis

Level 39 + Snapshot - Members

■ ACE Consensus is a digital platform that provides very high ■ Crowd funding Magic works on platforms which act as valuable quality information on market expectations for listed resources to colleges and universities. The company aims to companies. organise entrepreneurial students and start-ups on campus and get them connected to mentors, advisers and resources such ■ Advanced Merchant Payments (U.K.) Ltd. (AMP) is a that they have a support system. financial technology company which enables banks and other institutional lenders to provide loans to micro-small- ■ Derivitec is a UK ISV focusing on cloud based analytics for the medium sized enterprises (MSMEs), with reference to the financial industry. It is currently a team of two ex-Goldman borrower’s electronically verifiable cash flow, such as credit quants and one ex-Schroders IT professional. The company has card payment activity, and other available data points. been in business since December 2011 and are just entering early adoption testing with a selection of users from the hedge ■ Apply Financial serves banks and corporates across the fund and investment management space. globe with their innovative cloud based real-time. Payments Validation solutions. ■ Big Noodle creates multi-channel solutions in a customer driven world. The company builds and implements solutions allowing ■ Digital Reasoning enables the automated understanding of banks and enterprises to predict customer behaviour and human communication. Digital Reasoning’s award-winning engage them in conversation in their preferred way. machine learning platform, Synthesys, identifies threats, risks and opportunities by transforming information into a ■ Cayman Atlantic Investment Management is a boutique private Knowledge Graph. investment management company based in the Cayman Islands. ■ Asset Mapping has platforms which gather data from the software packages used to design, install, and operate city ■ Cloudsoft provides enterprises with software solution related to wide systems. The company combines real time information modelling, monitoring and management of applications, such as CCTV video feeds, air conditioning date and live enabling application migration, accelerating the development of readouts of Energy meters to provide meaningful insights to cloud first applications; and delivering policy-based application stakeholders and engineers. elasticity, scalability and portability. ■ Fingenius is a global supplier of Artificial Intelligence (AI) and ■ Ringpay is a payments technology company which, through its Natural Language Processing (NLP) solutions for the finance platform and mobile apps, provide a strategic and versatile industry. Their proprietary technology enables financial communication channel, from brands to their customers, organisations to answer questions from customers and enabling one-to-one relationships and conversation possibilities. employees instantly without employing help desks or call centres.

Source: Company website, General Internet Search, KPMG analysis

Level 39 + Facts and figures

Source: Company website

Level 39 + Fueled Collective Partnership

The friendship agreement unites the world's Fintech capitals

■ On 27th March 2014, Eric Van der Kleij, Head of Level39, launched Day 4 of Fintech Week by announcing a new partnership with New York-based Fueled Collective. ■ The move was designed to open a two-way door into the transatlantic market for Fintech start-ups and high growth companies. The friendship Agreement with New York's Fueled Collective enables members of both incubators to use each other's space + when doing transatlantic business.

During Level39′s first year as Europe’s New York and London are two of the world’s leading centre for Fintech innovation, we ““ leading cities for tech startups, and this is just ““ the first step in a partnership that we hope have learnt that our companies have the potential to transform the financial services can be an example to other accelerator sector on a global scale. As we enter our spaces in the US and UK, and around the second year, we will focus on shining a light world. The digital economy is one of the on the Fintech sector, and better connecting fastest growing spheres of the market – and our companies internationally. Fintech Week we need to nurture this growth to stay ahead is the ideal platform for Level39 to announce of the curve its new partnership agreement with the - Rameet Chawla Fueled Collective of New York. This gives our ””Founder – Fueled Collective Fintech members an important transatlantic gateway through which to expand their businesses into the global financial community, and offers US startups a route into Europe. - Eric Van der Kleij ”” Founder – Level39 Source: Company website, General Internet Search, KPMG analysis

Disruptive innovation

■ Disruptive innovation specifically refers to technologies that “disrupt” current market norms and processes and are typically designed for niche markets before being adapted by a market as a whole. ■ A famous example is the personal computer. Originally designed for scientists who required on demand data processors (as opposed to punch hole main frames) PC’s became steadily adapted by the market as a whole when its utility for information storage and processing (initially a by-product of

What is it? the invention) were found to have numerous use in other areas such as financial services, education and manufacturing. ■ Unlike bolt-on innovations which add productivity to current technologies (such as a personal computer with a faster processor), disruptive technologies are “game changers” in that they revolutionise an industry value chain.

Venture/Seed Capital ■ Sydney is the lead venture capital centre of Australia. The internet and subsequent innovations such as crowd funding has also catalysed this as Australian start ups are now able to access capital globally. Tapping into local capital is just as important and requires mitigation of information asymmetry amongst un-deployed capital in Australia. Apple computer for example received nearly US$1m in todays money. Disruptors ■ Disruptive technologies are the capstone of innovation. They require an entrepreneur to form a contrarian view on the status quo. Significant R&D is required as usually there is no foundation to build upon or precedent to inspire. What is required? ■ Human capital is extremely important. Typically disruptors have come from two branches: university students and seasoned executives. ■ Mark Zuckerberg, Sergey Brin and Larry page were star university students who had the capacity to experiment with new technologies that led them to “stumble on” Facebook and Google. Marc Benioff on the other hand was a successful executive at Oracle when he realised that CRM can be done better in the Cloud and founded Salesforce.com. ■ These entrepreneurs flourish in a diverse learning environment, typically surrounded by educational institutions that promote experimentation and research through well funded programs. Silicon Valley for example is in proximity to Stanford, UCLA and Berkeley. The Stanford Graduate School of Business is tailored towards the start up space and graduates many technology executives and entrepreneurs. Safe To Fail ■ Whilst ‘failing quickly’ is ideal, some technologies take years to develop. From both the perspective of experienced and inexperienced entrepreneurs, this attempt cannot be made in vain. ■ In the case of Salesforce.com’s Marc Benioff, working at Oracle as an executive meant that he could at will abandon his start-up and move into another company in Silicon Valley where there are nearly 400,000 jobs in the technology sector compared to 60,000 in Sydney. ■ This is a major challenge of financial technology in Australia in particular as financial technology executives in Australia operate in a niche market due to FI consolidation. Motivating them to leave their secure jobs to attempt an idea is a hurdle that must be overcome.

Collaboration and Business improvement

■ Collaboration is a vital catalyst for disruption. From the side of the established firms, shifting to more innovative business models and process is not a choice, rather an evolution. It is only a matter of time before firms with embedded and inefficient processes begin to fail in light of disruptive innovation. The decline of car manufacturing in Australia and the USA is a notable example of this. This ‘survival of the fittest’ characteristic of the market makes a play into technology a defensive one as much as it is aggressive. What is it? ■ Business improvement occurs when established enterprises implement new technologies. Large legacy organisations find this task far more challenging than creating the technology. ■ Collaboration occurs when established organisations within the market begin to lift the veil on their process and operations in order to better guide the disruptor’s objective. This commonly occurs when the large established firm ventures into the innovation market. The venture can take the form of a cash investments, provision of resources or release of trade secrets. Some companies such as Optus and Westpac go as far as to establish incubators and venture capital firms in an attempt to gain first mover advantage. ■ Business improvement is when the disruptive technology under the guides of collaboration is ready for implementation.

Co-location ■ In order to facilitate collaboration from established firms, the location of start up technologies within the finance sector must be near to the firms they wish to disrupt. Whilst the modern age allows for decentralised working environment, relationships are forged with direct contact. Level39, a successful Fintech organisation in London is located in Canary Wharf within walking distance to financial institutions. Economic catalysts ■ Events requiring massive leaps in operational efficiency drive technology investment as firms seek more cost effective ways of doing things. The Global Financial Crisis created a push by global financial institutions to explore technology as an effective means of cost cutting and enhancing their productivity. What is required? Willing to take on risk ■ Both collaboration and business improvement have significant risks. For Australia’s largest banks a cash investment in an incubator or start up is miniscule in context of their profits. Far more riskier is implementing new technologies. This is particularly true for banks with outdated legacy systems that requires significant expenditure to migrate to newer technologies, e.g. CBA’s core system modernisation cost an estimated $1.5 billion.

Incubators and Accelerators

Incubators Accelerators Working space Working space ■ Incubators provide a space for companies to set up in such as ■ Accelerators may or may not provide space, sometimes the space is office space rented out whilst other times they are decentralised with entrepreneurs What is it? ■ Collaborative working environments facilitate idea exchange working from home. between various entrepreneurs ■ Accelerators typically have times from which the start-ups enter & ■ Incubators provide modern research equipment and licensing “graduate” ■ Firms typically exist longer within an incubator than they do an Mentorship accelerator. ■ Accelerators provide strong mentoring programs. Mentors stem from C- Mentorship Level executives to go-to-market specialists from management consulting. ■ Incubators do not necessarily provide mentorship. Instead ■ Frequently this is provided for free however is not a necessary. they provide fundamental business support. Funding ■ Typically incubators insert management into start-ups to guide ■ An accelerator takes single digit chunks of equity in externally developed What is required? it through a go-to-market or funding process. ideas in return for small amounts of capital and mentorship Funding International examples ■ An incubator brings in an external management team to ■ The Barclays Accelerator, powered by Techstars, is a three month manage an idea that was developed internally. This is usually intensive start-up programme, with US$20,000 seed funding. reserved for the ideas with the greatest promise and highest ■ Wells Fargo provides small equity investments (between US$50,000 to capital intensity. As such incubators typically take a much $500,000) and six months of mentoring for young companies. larger piece of the pie when compared to accelerators. Local examples International examples ■ AWI Ventures Accelerator is a Fintech accelerator program and runs for 6 Level39 (London) ■ months with 4-6 teams offering A$50,000 cash in return for a minority Local examples (10%) equity share. ■ Venture Incubator Space is a UNSW project available to PushStart is a Sydney based accelerator offering A$20,000 in cash, office successful applicants for up to 12 months. ■ space and services for 8% equity. ■ Founder Institute is a four-month idea stage accelerator program and global launch network.

Referenced sources and additional material List of referenced sources (click on the embedded link)

KPMG Global Services

List of Sources/References The Fintech Startup Ecosystem

Stakeholders interviewed as part of the project

Stakeholders consulted Organisation Ben Heap and Toby Heap Australasian Wealth Investment and AWI Ventures

Danny Gilligan and Simon Cant Reinventure

Andrew Rothwell Tyro Payments

Asher Tan Coinjar

Alvin Singh and Bosco Tan Pocketbook

Mike Wood Westpac

Neil Helm OzForex

Michael Lee Flongle

Remi Bourrette and Christophe Chazot HSBC (UK)

David Sayer and Tim Kay KPMG UK

Richard Hinton and Arthur Broadwater KPMG USA

Eileen Toledano and Nir Donitza KPMG Israel

Tim Dümichen KPMG Germany

James McKeogh KPMG Hong Kong

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