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 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International). Liability limited by a scheme approved under Professional Standards Legislation. Unlocking the potential: the Fintech opportunity for Sydney 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 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International). Liability limited by a scheme approved under Professional Standards Legislation. Unlocking the potential: the Fintech opportunity for Sydney 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. © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International). Liability limited by a scheme approved under Professional Standards Legislation. Executive Summary Unlocking the potential: the Fintech opportunity for Sydney 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