From the stump-jump plough and the black box flight recorder, to Cochlear implants and Wi-Fi — Australians have a remarkable record in innovation.
But we are in danger of losing our status if our laws and policy settings do not keep pace with the speed of digital innovation.
The Australian government has a significant opportunity to do more to bolster its policies, processes and funding models so they can support digital innovations.
I point to a quote from the new member for Wentworth, Dave Sharma, who captured the fundamental issues we face in this space in his first speech to Parliament on 24 July 2019:
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“In 1967, the largest US companies by market capitalisation — and the main drivers of US prosperity — were General Motors, Standard Oil, Kodak, AT&T and IBM. Fifty years later, the top ranks of the Dow Jones index are dominated by technology companies: Apple, Alphabet, Microsoft, Facebook and Amazon.
“These companies are about data rather than goods, services rather than products, and spaces rather than places. A quick glance at the ASX20 suggests we’re yet to make this transition.
“We have a lot of good companies which employ technology in their operations; we don’t yet have a lot of good technology companies.
“In Australia, we have a highly skilled workforce, we have great research institutions and universities, and we have deep and sophisticated capital markets…it’s about capturing the jobs of the future, in areas such as quantum computing, cyber, artificial intelligence, space, clean energy, defence technology and automation.
“The nature of value creation is changing, and the Australian economy needs to keep up.”
Capturing new value creation models
There is substantial opportunity in the high export potential of regtech.
Global regtech spending is predicted to exceed $188 billion by 2024, up from $37 billion in 2019 — and Australia already has the potential to be a global player.
There are several initiatives that the current government can do to take advantage of these opportunities — such as taking a leading role in creating an ecosystem to facilitate the transfer of technological innovations across all sectors of the Australian economy.
A percentage of fines imposed as a result of the findings of the Hayne royal commission and other government agencies could be allocated to support regtech innovation dedicated to addressing the establishment of a viable and robust ecosystem.
The challenges in becoming a global player in regtech are significant, and they begin with the problems of domestic investment that are preventing Australian innovation from underpinning the global regtech transformation.
The government’s Accelerating Commercialisation program has a role to play and a reform in current funding allocation would be beneficial to regtech as it seeks to become a national growth sector.
The operating environment for fintech and regtech startups in Australia
The current operating environment for regtech is potential high growth. The shift in dynamics to transparency, trust, economic growth and costs of non-compliance ramped up significantly in 2019.
The operating environment has undergone a significant shift in 2019 as a result of the Hayne royal commission and the increasing interest in regtech from the financial services sector and a range of other industry sectors that seek effective governance of their products.
This interest is not confined to local organisations, as there are growing enquiries from international markets including Europe, the US and Singapore.
Although opportunities are evident and growing, long sales cycles, institutional inertia and lack of meaningful regulatory support will make it challenging to deliver actual value before the current government facilitates significant changes.
1. Acquiring appropriate technical skills for platform development.
Attracting suitably qualified development personnel is challenging enough for well-established Australian businesses. Attracting key professional employees to a startup is even more so. Finding skilled people who are willing to go on the startup journey takes time and can lead to drawn-out development timeframes and delays in getting a product in the market.
2. Finding early-adopter business leaders.
Research shows that less than 5% of business leaders are early adopters of emerging technology. Long procurement processes and outdated IT functions form a barrier to well-established adoption by large corporates and governments in Australia.
Looking ahead, several policy settings and regulatory initiatives — such as the management of non-financial risk in a product lifecycle and the imminent design and distribution obligations and product intervention powers — will be driving regtech in 2020.
However, the adoption of regtech solutions by businesses would be significantly enhanced by regulatory solutions.