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Financial services

Innovation in Financial Services

Innovation is the current buzz word in Australian media. With our visionary Prime Minister Malcom Turnbull setting the direction, there is a renewed energy.

Australia now has a dedicated minister, Chistopher Pyne for Industry, Innovation and Science. Mr Pyne promises to convert this buzz and energy to tangible Government policies and framework. In his own words, “innovation has to be more than just a collection of buzzwords and good intentions. We need a whole of government approach that will drive a cultural shift.

Our aim is a country with a growing entrepreneurial spirit, a citizenry who are prepared to pursue their ideas, prepared to take a risk and prepared to try again if they fail.” (http://www.smh.com.au/technology/innovation/australia-can-be-the-startup-and-innovation-nation-under-new-prime-minister-malcolm-turnbull-20151022-gkfrff.html)

Certainly the Government commitment sounds promising! It is now up to industry to take up the challenge!
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Financial Services and innovation

Innovation is not new to financial services. Some describe banks as “Technology companies who also sell financial products”. Deloitte report “Short fuse, Big bang”, identifies Financial Services is one of the major sector that will be impacted by digital disruption sooner than later. It also predicted that the impact is going to be “big bang”. Considering the fact that the report was created in 2012, we are now in the middle of the bang.

In this whitepaper paper (and accompanying Youtube video: https://youtu.be/EVAEYsgF0bQ). Deloitte has classified the industries based on the time window and the size of the impact. The “short fuse” indicates that the disruption could occur in less than 3 years. The “big bang” means the impact within the business operating model is more than 15%.

The following table summarises Deloitte’s prediction of Australian market:

Disruption Classification Industries
small fuse, Big Bang Financial services

ICT and media

Financial services

Professional services

Art and recreation

Real estate

Long fuse, Big Bang Education

Transport and post

Health

Agriculture

Recruitment

Cleaning

Government

Utilities

Short fuse, short bang Construction

Wholesale trade

Accommodation and food services

Long fuse, small bang Mining

Manufacturing

Categorising innovation in Financial Services

Let us have closer look at the Financial Services landscape. There are numerous innovations happening on daily basis. At a high level, any of these innovations can be grouped under these following four customer centric categories:

  • Buy
  • Borrow
  • Invest
  • Transfer

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Buy:

Innovations that enable people to research products, make a payment and receive goods. Payment gateways, mobile payment options, card-less ATMs are some of the innovation types in this category.

Example:

Square (https://squareup.com/au/about) focuses on point-of-sale and creating an electronic register to track sales and provides powerful analytics.

SquareReader is a hardware add-on for mobile phone. The reader allows the credit card payments. The card reader in not available at Australia.

However the supporting product, SquareRegister is available at Australia. Square Register is the point of sale that takes care of digital receipts, inventory and sales reports, and provides analytics and feedback.

ApplePay:

The Apple Pay system is made up of an embedded NFC chip, a secure element to store encrypted payment details, Apple’s TouchID fingerprint technology, and its existing Passbook application.

Users swipe their iPhone over a compatible merchant terminal at point of sale to make a payment. The buyer is prompted by their device to choose which credit or debit card (stored within Passbook) to pay with. The transaction is then authenticated using TouchID.

Apple Pay assigns a unique device account number to the card, which is encrypted and stored in the iDevice’s secure element. Transactions are authorised through a one-time unique dynamic security code.

Apple has confirmed its Apple Pay mobile payments service will land in Australia this year through a partnership with American Express.  Read more: http://www.itnews.com.au/news/apple-pay-to-land-in-australia-this-year-411112#ixzz3rVyemZWw

Borrow:

Traditionally banks have been the only place to borrow for financial needs. With technology this paradigm is changing. The emerging areas are peer-to-peer lending and smarter credit assessments. What has been predominantly a manual job, is now taken over by smart algorithms that sift social network sites, spending patterns and provide instant decision about credit worthiness.

Examples:

SocietyOne (societyone.com.au)

SocietyOne connects individual and institutional investors with people who want to borrow, using a more efficient model. Investors get access to a new fixed income product with attractive returns while borrowers receive personalised rates based on their unique credit position.

Kabbage (US Based) – (kabbage.com)

Kabbage helps small businesses get the funding they need to grow. Kabbage is A+ rated by the Better Business Bureau and has provided more online small business loans than anyone in the industry! Kabbage uses your seller history and reviews to figure out how much money it should give you.

Investment, personal finance, accounting:

The traditional role of financial planner/broker is changing. The innovators are exploring ways to provide real time personal advice by analysing the spend. On the investment front, automated investment advice, investment portfolio management, stock analytics, account management are some of the services that are emerging.

Example: Robinhood.com

Robinhood is a stock brokerage that allows customers to buy and sell U.S. listed stocks and ETFs with zero commission. Robinhood was built from the ground up to be as efficient as possible, removing a lot of the human touchpoints that lead to high cost structures at other brokerages.

Robinhood has announced that it will be expanding internationally, starting with Australia.

Another example of personal finance planning innovation is from PocketBook. (getpocketbook.com.au)

Pocketbook is the app to get if you want to be better with your money. It boasts a new tiles interface with more insights, analysis and charts at your fingertips. Pocketbook makes personal finance and budget planning really easy. It is the only popular personal finance app that gives you the option to synchronise with Australian Banks – so no more manual entry.

Transfer:

If you have transferred money overseas, you have experienced the pain of transaction fees. The start-ups in this space promise to reduce that pain.

Transferwise.com

Transferwise promises to say 90% of the bank fees. In fact, it shows in real time where the transactions are occurring around the globe and how much money is saved that an “average bank”. There is a youtube clipping that show how it works – by matching the need of customers at both end.

The company is backed by investors like Richard Branson. You can expect to see growth and other players entering this segment.

In 2014, KPMG released report “50 Best Fintech innovators” that provides an overview of the innovative companies. (http://www.fintechinnovators.com/). The list had only a handful of Australian companies. With industry warming up and Government keen to provide an ecosystem for innovation, let us hope to see more Australian companies entering the list and making a “big bang”.

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About Murali Ramakrishnan

Murali is the Managing Director of the boutique consulting firm "Process-Symphony". Process-Symphony specializes in IT enabled business process orchestration. http://www.process-symphony.com.au http://www.kloudax.net.au

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