Can proptech mixed with fintech save Generation Rent?

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Thanks in part to low interest rates and globalisation, property markets in many urban centres across the world seem to be spiraling out of control. Sydney’s median house price has shot past the AU$1.12M mark, surpassing even that of New York, while across the Tasman New Zealand’s largest city, Auckland, has seen median dwelling prices drift close to NZ$1M.

The market dynamics are similar in the UK, with research from the Resolution Foundation indicating there is a significant ground shift occurring, from owning a home to renting one instead, amongst working-age households. In the year 2000 around 55 per cent of households lived in an owned, mortgaged property, a figure that has since dropped to 41 per cent in 2015. Over the same period, those in private rentals climbed from 11 per cent to 25 per cent. The social ramifications of this shift are profound.

Generation Rent, as they have come to be known, now find themselves stuck between a rock and a hard place, facing a potent mix of stagnant wage growth and skyrocketing house prices. Perversely those that have scraped together a deposit face the risk of long-term low inflation, potentially locking them into a possible debt trap for years to come.

Once, owning a home was considered a safe and sure bet for building long-term wealth for the middle class. However with this asset now out of reach for most, some fintech start-ups have spotted an opportunity to service the appetite for property via a range of more accessible and affordable vehicles.

BRICKX in Sydney is one such fintech (or proptech) startup. Via fractional property investment, the company allows investors to purchase units, or ‘Bricks’ of a home. The investment also entitles investors to a fixed share of any rental income generated.  The upside of fractional investing is that investors can spread their risk across a basket of rental properties, plus cash in on capital gains at any time by selling their Bricks to another buyer.

For those lucky enough to have significant equity stashed away in a home today, fintech startups like Point in the US are providing an alternative to the traditional banks when it comes to accessing stored wealth, specifically for reinvestment back into the property market. Point, an Andreessen Horowitz backed startup, purchase’s a fraction of a homeowner’s dwelling, only collecting this back (plus capital gains) when the original property is sold. Homeowners also have the option to buy out Point at any time.

While Generation Rent might not be able to access services like Point directly, parents, who are increasingly financing children into their first home, could. Data from the Reserve Bank of Australia shows the proportion of first-home buyers borrowing from their parents to finance their first property purchase has more than doubled since the 1970s. With many in the Baby Boomer generation under financial pressure themselves through tech driven workplace disruption, any financial solution that doesn’t impact monthly cash flow is a bonus.

Building societies and small banks have a great opportunity to partner with fintech startups in the proptech sector to propel innovations like these forward, scale and bring them to the mass market. These types of partnerships can have real social impact if executed correctly – there is even scope for government involvement. One thing is for sure, we need to creatively rethink how home ownership works and take this opportunity to address the real long term problems uncertainty and insecurity around housing can cause.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

Embrace uncertainty to give your fintech start-up the edge

If there is one thing I’ve learned during my time working for a growth company, it’s that you have to get comfortable with uncertainty. In start-up and growth-stage land, uncertainty is a place you should actively want to inhabit.

As I write that, it strikes me how counter-intuitive this concept is to the daily rhetoric we are exposed to via our media and business peers. Uncertainty is the destroyer of stock markets, economic policies and sound decision making. Give me road-maps, requirements documents, hierarchies and the three year road-map. Most people crave certainty – it’s human after all.

And while there is some truth to the ripple effect of the downside of uncertainty in particular domains, the negative press the word has received has possibly blinded many in business to its hidden, positive traits. Especially when it comes to creatively outwitting your competition.

While uncertainty with respect to ‘what is the purpose of our company’ is negative, uncertainty at a ‘how do we get from A to B’ can be a healthy thing. Why? Because it forces you to continuously experiment and tinker with your operational model until your growth engine is humming satisfactorily. In fact, continuous innovation requires you to be completely uncertain as to whether your tinkering will make anything any better at all – that’s the point of hypothesis testing. For many people, that’s a really scary place to be. ‘I don’t know if this will work’ is a brave phrase in business.

When you move from a quasi-regulated institution to a fully-regulated institution, as we are at Tyro, plenty of headaches arise. Many fintech’s will encounter this as they move into a more banking-esque world. Lack of consistent data on your customers or systems that don’t interface smoothly is one such headache, creating unforeseen blockages in your growth engine. And, thanks to Murphy’s Law, they usually arise the day before you plan to launch something.

But when you’re still small, you don’t have the luxury of time to fix them over 3 -6 months. You need to think up creative solutions fast, some hacky, some possibly more elegant, to unblock those growth stoppers within days. And you need to have the courage to try the hacks, uncertain as you are as to their effectiveness. They will sometimes surprise you, in a good way. And that’s why I love the phrase, ‘why don’t we test it and see what happens’. Kills it in meetings every time.

People often ask me, ‘what will X look like in 3 months?’, or ‘how will the sales process for Y operate in the future?’ They ask me that because they want to build processes that are future proofed around this. I get it. But when you can’t give this to them, because you’re really discovering as you go yourself, this can be hard for many people. Especially if they are not used to ‘feeling’ their way towards a shared goal.

But if everyone can align around the fact that there are degrees of uncertainty as they collectively march towards that common goal then, as a team, you can achieve amazing things. Not only this but you’ll all somehow feed off each other and become far more open to thinking up more creative solutions to get there. This is because as a team you’re autonomously forging your own path and not following dictated directions.

I like uncertainty. I enjoy continuously being surprised by things no one ever envisaged would work. It’s like a continuous state of discovery, or a learning adventure that never really ends. I believe this mentality, when executed on at a start-up or growth-stage company is a distinct advantage. Even more so in financial services, where your opposition will for a long time to come have unavoidable tissue rejection, right throughout the organisation, to the very word.

But that means you have to choose your teams incredibly carefully. You need to place those that like the cut and thrust of the new in the parts of the engine where there is a high degree of uncertainty, and move the more stable ones to the periphery where the cogs move smoothly against each other and only need a little oiling now and then.

Simon Sinek has a great quote that sums up what I think I’m trying to get at. ‘We crave explanations for mostly everything, but innovation and progress happen when we allow ourselves to embrace uncertainty.’ Couldn’t agree more.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

Xero opens the door for fintech banks to become SME advisors

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Rod Drury, CEO of cloud accounting platform Xero, penned a blog last week discussing the impact Xero’s financial web is, and will continue to have on the small business community. For those of you who aren’t in the know, Xero’s financial web provides banks with access to Xero customer data via a suite of APIs. Use cases include direct bank feeds into Xero, payment instructions initiated out of Xero for AP, payment buttons on invoices for AR and sharing of financial data for lending decisions.

These are only a few financial use cases. The opportunity for banks to innovate around how this data is used is endless. In my opinion, the big opportunity for banks is in tapping into this data to become true advisors to small business, beyond the financials.

Banks realise this, the execution is just extremely difficult. In Australia, CBA is the only bank who has come close to implementing a business analytics function for its customers, as an advisory conversation starter. The product, known as Daily IQ, delivers ‘unique insights about your business and customers, helping stimulate ideas that can enhance success.’

Xero’s success is built for the most part on the back of the accountant and advisory community. So Rod naturally sees accountants and bookkeepers as the natural conduits for SME banking advisory as well. Helping SMEs move from that ‘now what’ moment that occurs once business insights are revealed, to taking action. He sees banks partnering with this advisory channel to deliver the goods, as per the extract below.

“Accountants are an amazing channel for banks. In the majority of situations, a small business owner who is a cloud accounting platform user is connected to an accountant. Across all these accountants and small business owners, there are hundreds of thousands of conversations about financial services happening every month. Banks need to educate accountants on their services, and accountants are open to this training. Accountants want to know how they can take banking services and add value to small businesses.”

He’s not wrong. But it’s also not necessarily the only option all banks have at their disposal. Thank’s to the emergence of fintech, banking is swiftly moving to being more than just a numbers conversation with an SME. Banking is now a technology + numbers conversation.

What will be interesting is if very focused, tech first, SME only banks emerge as advisors in their own right, not necessarily removing the need for a traditional advisor, but plugging a niche hole that exists to day – namely advisors lack of knowledge about fintech services. This will be an extremely natural place for tech banks to play, as given the nature of their business model, forming relationships with tech vendors embedded in the SME community has been critical to their success from day one. They’ve been advising on tech and banking since their inception.

Understanding how technology knits together with banking is not a natural space for an accountant to enter, yet. But for a tech bank to understand the best practice way banking should and can work with cloud accounting is not a stretch at all. So when a business owner calls into to discuss best practice AP and AR practices for their 4 hospitality venues, the tech bank expert can quickly map out the tech add ons and banking plug ins they need to make everything work.

Legacy banks will struggle with this for years to come. It’s just not in their DNA. It’s not impossible an SME could easily equate tech advisor with bank in the near future. Xero has made this possible. It’s up to tech first banks to now grab the opportunity at hand.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

No score, no problem. The lenders opening up access to SME credit in China

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Many of us in the West like to romanticise about our respective ‘underserved and overcharged’ SME markets as being ripe for fintech disruption. The reality is, when compared to their small business peers in China, they have a well-stocked buffet of banking options at their disposal.

Consider for a moment the following. Only 300 million entries exist in China’s centralised credit scoring database. That’s a mere 22 percent of the country’s 1.38 billion inhabitants who can potentially access credit. Now take the US, where some sources have the percentage of the population with some credit history at 86 percent. The difference tells us a lot about the propensity of the market for disruption.

In a market like the US, the motivation remains low for incumbents to innovate for the masses, who for the most part can be adequately assessed. This drives alternative credit scoring to the fringes of the financial system, to smaller fintech’s servicing niche parts of the market. Disruption therefore remains low.

However not so in China. A lack of good quality data on individuals and businesses is just one of the many dilemmas giving rise to a technology driven upheaval across the financial sector. And in today’s data rich environment, China is taking full advantage of the tools at their disposal to build a world first score that maps both financial and social behaviour – the Social Credit System (SCS). For those of you who have watched Black Mirror on Netflix, you might have an idea of what this could ultimately look like.

In the interim, companies like PINTEC spinoff Dumiao are taking scoring into their own hands. At Next Money in Hong Kong, CEO Jing Zhou highlighted the company’s ability to leverage 40 independent data sources to process an SME loan application in under 15 minutes, with finance available in half a day. The company receives over 1 million applications per month. This type of scale is only possible in China, or possibly India. With Zhou’s Chinese bank competitors struggling to turn around a like for like application in under 2 weeks, then it’s relatively clear who has the upper hand.

Alongside Dumiao, the so called ‘Lending Club of China’, Dianrong, is one to put on your radar. In 2014 it struck up a partnership with The Bank of Suzhou targeting small enterprises.

It’s not just speed where fintech startups like these are winning. Innovation and better experiences are translating into small business trusting tech providers over and above traditional institutions. A recent EY report, The Rise of Fintech in China, co-authored by James Lloyd, EY’s Asia Pacific Fintech Leader and Sachin Mittal from DBS pointed to the rapid explosion of users trusting non-banks to manage their finances, up from 35.1 percent of the population in 2007 to 54.5 percent in 2015. As a point of reference, another EY survey found that only 20% of customers globally plan to use non-bank providers in the future.

The market opportunity in China for SME lending and banking solutions is unquestionably huge. With SMEs receiving only 20-25 percent of bank disbursed loans, there will continue to be expansion in the non-banking sector for years to come. Whether non-Chinese originated companies will be able to penetrate this market and take advantage of this is the great unknown. Other non-Chinese tech companies seeking to establish footholds outside of the financial services space have not been great success stories. It seems far more likely that Chinese firms will come to displace incumbent services in the West. And that is when things will certainly get interesting.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

Fintech squarely on the map in New Zealand

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When you come from New Zealand, you get used to being left off the map, quite literally. I kid you not, there is a blog that assiduously documents moments when the world forgot to draw its youngest sibling to the right of its brash and self-assured big brother, Australia.

But despite this regular oversight by the world’s collective cartographers , New Zealand’s tech scene is quietly getting itself onto the global map, in a big, figurative way. Investment and innovation is ramping up year on year and companies like Xero and Datacom are helping shape the country’s  technology narrative.

According to a Technology Investment Network 100 report released late last year, the local tech sector saw a 12 percent lift in revenue generated between 2015 and 2016, jumping to $9.422B from $8.412B. Tellingly, the gap between dairy export earnings and tech earnings is closing, signalling New Zealand’s push towards becoming a true information and innovation economy may be getting real traction.

For an interesting overview of the region’s growth you can also check out Tristan Pollock’s post on Medium here.

To add fuel to this innovation fire, the country has recently announced the launch of its first fintech accelerator, a collaboration between tech companies and the country’s state owned bank, Kiwibank.

On the 19th of January, the Kiwibank Fintech Accelerator announced its first cohort, a line-up of 7 local fintech startups with big ambitions. The accelerator will take a 6% equity stake in each company in exchange for $20,000 in cash and $800,000 in perks. Below is a brief overview of each startup and an extract from their full profile. To learn more, check out the full media release here.

Financial Literacy

AccountingPod

The AccountingPod platform provides each learner with a real life business in a real industry to build their financial literacy.

This is the first business focused financial literacy startup I’ve personally seen. Considering many businesses fail in their first year, it looks like AccountingPod have found a good problem to get stuck into.

Insurtech

Insurely

An online platform to bring clarity and management to small to medium business’ insurance policy management.

This is interesting, I saw something very similar targeted at consumers at Next Money Fintech Finals in Hong Kong last week, a company called PolicyPal.

Wealth Management

Sharesies

An accessible digital platform that makes it easy (and maybe even a little addictive) to invest.

Investful

An affordable, modern wealth management platform that helps people reach their savings goals.

Lending

HealthyAZ

Innovative health savings program to support people from all income groups to participate in a savings and rewards program that promotes healthy lifestyle and timely access to healthcare professionals.

Asset Management

Flatfish

An on-demand platform allowing landlords to manage their property for a fraction of the cost of a property manager.

Thinking of travelling down under?

The accelerator is building a network of mentors, so if you’re keen to get involved and feel like you might have something to offer, you can contact them here. Ideally you’d be able to drop in now and then, which does make it difficult if you live on the other side of the world. But who doesn’t need a great excuse to visit New Zealand anyway? The coffee is great, the people are top-notch and there are no animals that can kill you – unlike its nearest neighbour. Happy travelling!

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

Gazing into the crystal ball of Australian fintech

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As I write this I’m working out of the Brinc co-working space in Hong Kong, in the heart of the trendy SoHo district. The guys very kindly offered me a hot desk for the day,

One side bonus is that when you work out of a hub there is no shortage of people to chat to.

This morning I met Antoine Cote, co-founder of Enuma Technologies, who showed me an early stage prototype for a credit card that could display your latest transactions via a small screen on the card itself.

The company is also working on an app based digital identity solution for consumers that allows users to only release the identity points they want to when requesting access to services.

Exciting and distracting stuff, and not helpful when I’m supposed to be putting the final touches on my presentation on Australian fintech for tomorrow’s Next Money event. In the final slides I’ve been asked to gaze into my crystal ball and try and envisage what the local market will look like in 2020. No pressure.

EY FinTech Australia Census 2016

While past performance is not indicative of future results (excuse the pun), there really is no better place to start than to recap where the local fintech scene has landed after an incredibly active few years. And the EY Fintech Australia Census 2016 is the perfect place to begin.

Late last year the FinTech Australia, the peak body established in 2015 canvassed the sector and compiled a number of great statistics and insights on the local fintech scene. The infographic below is perfect for a quick overview, otherwise you can read the full report here.

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Highlights/Lowlights

It’s heartening to see that out of the 57 percent of companies who claim they are post-revenue, 27 percent have a customer base larger than 500.

However only 9 percent of companies post-revenue generate over $1M per month. The majority, 41 percent to be exact, generate $50K or less on a monthly basis. And only 14 percent of fintech companies are profitable.

It’s interesting to note the average age of fintech founders is 41 – only 10 percent are under 30. Innovating in financial services is not for the faint of heart, and a deep, intuitive understanding of the complexity of the problems in finance, garnered from experiencing them first hand, is no doubt a huge advantage.

Where to next

37 percent of companies surveyed have less than a year to go until cash reserves dry up, so unless the money fairy visits them over the next 12 months, or they crack the biggest external problem listed by startups in the survey – customer acquisition – my crystal ball tells me, as it would most, a few will fold. However this is a short term prediction, and hardly that insightful.

However what could significantly shape the market over a 3 year horizon are a number of legislative and policy interventions by the Australian Government, who have already made a firm commitment to want to position the country as an APAC fintech leader.

Backing Australian Fintech

In what it claims to be a world first, the Australian Securities and Investments Commission (ASIC) announced in late December of last year that it would begin to exempt fintech businesses from requiring an Australian Financial Services Licence (AFSL) before launching their product. Fintech companies now have a grace period of 12 months and the ability to service up to 100 customers. This will go a long way to helping startups validate their business model before an inordinate amount of money is committed to an idea.

Just prior to this, in September the Australian Government also amended the Anti-Money Laundering and Counter-Terrorism Financing Rules to allow for reporting entities to now gather Know Your Customer (KYC) data on their customers rather than directly from. The distinction is significant, as sourcing information on is easier and cheaper than from, and can possibly be done relatively indirectly.

Finally the biggest event on the fintech horizon will be to what degree fintech companies can access an indviduals banking data. A draft report released by Australia’s Productivity Commission has recommended 3rd parties be given access to financial data, and that a future API framework be developed. If the government ultimately supports this recommendation then the game could significantly change.

My crystal ball is pretty clear – policy changes and government support are now required to really drive the fintech agenda forward. While inroads have been made, there is significant opportunity for improvement. Government procurement of fintech services is a great start, and something they have publicly committed to. But that’s a topic for another post altogether.

Next Money Fintech Finals 2017 – The Aussie Finalists

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Next week I’ll be in Hong Kong speaking at the Next Money Fintech Finals 2017. Sponsored by Visa and a host of other technology companies, the event slots in with Hong Kong’s StartmeupHK Festival and showcases the exciting developments happening in the Asia Pacific region.

Hong Kong is quickly turning into a vibrant hub for the fintech community down under. FinTech Hong Kong boasts just under 2000 active members while the SuperCharger FinTech Accelerator is now into its second year, helping launch businesses primarily (but not exclusively) who have an Asia bent.

During the conference 24 shortlisted fintech startups will compete via a six minute pitch for the coveted title of Next Money Fintech Finalist of the year. Three of these finalists herald from Australia – Tapview, Bugwolf and Boundlss.

Tapview

Based in Sydney, Tapview technology allows online media platforms to charge readers on a pay per article basis, circumventing the traditional monthly subscription. Having already landed a partnership with Fairfax Media, one of Australasia’s biggest media empires, the startup is surely a strong contender for the FF17 title.

Boundlss

An insurtech startup based out of Perth in Western Australia, Boundlss is positioning itself as the employers ‘go to’ for staff wellness programs. The app claims its ‘secret sauce’ is its AI powered chatbot come personal coach Loyd, who can recommend handy stretches to alleviate back pain, diet suggestions and workout plans. The platform connects to over 150 wearables and apps already tracking health metrics for a user, which it no doubt leverages to makes its custom suggestions.

Health insurers are making serious inroads into the wellness space, as they look to find ways to reduce future claims. Australian insurer Medibank has partnered with loyalty program flybuys, offering bonus points for fruit and vegetable purchases. In addition bonus points can also be accrued for every 10,000 steps made a day, measured by linking up your Fitbit device.

The insurer has also partnered with local gyms via its GymBetter program, offering a pay as you go model via the app.

Airline Qantas has also made a foray into the health insurance space with Qantas Assure, white labeling an insurance product from NIB. The service allows customer to access bonus Qantas airpoints for switching and additional points for linking health data.

Bugwolf

The third Australian finalist is Bugwolf. The platform allows software developers to access a vetted marketplace of testers and managed tests. Alternatively they can use the platform to bring together testing communities made up of employees and customers. It sounds a little like a more specialised version of Amazon’s Mechanical Turk or Upwork.

Banks and fintech companies, like other tech companies have to test their products – which costs money – so one imagines being able to deliver a high quality testing platform for less will be an element of the company’s pitch.

If you’re in Hong Kong next week and are keen to catch up for a coffee, drink or just a chat – either email me or connect with me on Twitter. Would be great to meet in person!

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.