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Select Committee on Financial Technology and Regulatory Technology

JOYCE, Ms Simone, Chair, FinTech Australia; and Chief Executive Officer, Paypa Plane

SCHOT-GUPPY, Ms Rebecca, Chief Executive Officer, FinTech Australia


CHAIR: Welcome. Thank you for your time. Information on parliamentary privilege and the protection of witnesses and evidence has been provided to you. Given you have an opening statement, I invite you to read that now.

Ms Schot-Guppy : Good afternoon. I want to thank the committee and the chair for the opportunity to address you here today. Since my last appearance before the committee, the government has moved ahead with its digital economy agenda, its most notable advance being the appointment of Senator the Hon. Jane Hume as its first minister for the digital economy. My appearance here today is yet another sign of the government's intention to see the digital economy drive our growth well into the future. It's an acknowledgement of the combined voice of our 300 fintech members and that that growth of the fintech industry will be instrumental to Australia realising its goal.

We believe Australia is on the right path. The foundational reform needed to move this in that direction is falling into place, and we finally have momentum. But, as always, there is more that can be done that will help realise the formative and long-term benefits of the fintech ecosystem and, in turn, the economy.

Our next wave of recommendations falls into three key categories. While they're aimed at growing the overall fintech ecosystem, we believe all three will, in turn, grow Australia's digital economy. The first and most comprehensive recommendation is to encourage an overall competition ecosystem. This in turn would lead to more international fintechs launching their services in Australia, bringing with them talent, thinking and technology that will grow our overall ecosystem. While competition has improved, there are still some policy factors holding it back. The CDR only launched last year and will be transformative for competition. But, to realise its impact, we need to speed up and streamline onboarding and accreditation.

There are still inconsistencies in the current rollout. For instance, currently, Australian ADIs, authorised deposit-taking institutions, are at a competitive advantage when applying to access CDR, compared to the larger lenders. Many of these larger lenders are fully audited public companies, and the process should be simplified to reflect this. We also see a case for the creation of an MPP CDR sandbox that would allow fintechs to explore new products and innovations with more regulatory freedom. This should also be tied to government KPIs for CDR adoption that can be used to measure the uptake of this new technology and a benchmark for our progress. Separately, payments infrastructure such as the MPP needs to be more accessible to the fintech industry. This in part can be achieved by lowering the cost associated with accessing it and also by establishing access pathways that do not solely rely upon ADIs and their willingness to sponsor fintechs into payment infrastructure.

Crucially, the government also needs to work with the industry to prevent bank interference in hindering competition. This has less to do with fintechs' exits driven by banks, such as NAB's acquisition of 86 400. We encourage this, as it will help grow the ecosystem and funding opportunities for fintechs. We instead are pointing to instances where major banks have used their leverage and market power to create scenarios that slow the growth of the sector, including debanking many fintechs.

Our second recommendation is tied to the next avenue of growth for fintech, digital identity. This is set to come into the spotlight this year. As we suggested in our submission last year, we believe it would be beneficial for the industry to gain access to the electoral roll to facilitate KYC checks.

Lastly, we ask the government to consider further tax and policy related measures aimed at improving overall access to capital. This includes further tweaks to R&D to add a premium that rewards industry collaboration with publicly funded bodies. We also support a reduction in the business tax rate to 25 per cent to, again, foster international company expansion into Australia and keep our ecosystem globally competitive. We also urge the government to consider the UK's approach—to its ecosystem—of government backed loans for the fintech sector.

As our engagement with government continues, we find our advice to this committee is becoming granular and more nuanced. We see this as progress. The broad strokes of a world-leading fintech ecosystem are there and, alongside it, a vibrant digital economy. Through further collaboration, Fintech Australia and its members aim to see Australia emerge from the COVID-19 pandemic stronger than when the pandemic began. We look forward to providing further guidance and helping to realise these ambitions.

CHAIR: Thank you. I might take you to this issue of debanking. In evidence presented this morning in relation to digital asset businesses, there was an argument put to the committee that there was an unsophisticated regulatory framework which was leading to debanking. Do you see debanking as being linked to the policy framework?

Ms Joyce : Yes, I do. I think that banks are risk averse, and rightly so; they should be, and that's appropriate for them. But, because there is no framework that leads them through on a safe path by adhering to it and getting to yes, they default to no. It's the easiest, safest and known path. If there were a policy driven regulatory framework that allowed them to check off certain criteria and ensure that the party that they were considering banking met those criteria, I think that we would see banks more inclined to say yes.

Ms Schot-Guppy : I'd also like to add to that that it's not just digital assets. It's actually a significant amount of payments businesses.

Ms Joyce : Which is critical for payment companies, because it's often not just the ability to bank funds; it's the ability to access payment infrastructure via that sponsorship agreement with the ADI, which means they get cut off from their raw materials and they can't operate.

Ms Schot-Guppy : Just to put this in perspective, I have had four or five members contact me in the last two weeks to tell me that they have been debanked recently.

Ms Joyce : At the end of 2018, we were to debanked as well.

CHAIR: And these are not digital assets; these are—

Ms Schot-Guppy : Payment companies.

CHAIR: So why would they be being debanked?

Ms Joyce : When a bank agrees to allow a payment company to access the payment rails by the sponsorship of that particular ADI, the payments company takes on the burden of responsibility to ensure that they are performing appropriate KYC, making sure the funds are being transferred appropriately et cetera. Because there was a move away from that as something the banks were willing to do, looking at the investigations by AUSTRAC into Westpac and other banks recently, the way to fence that happening is to debank companies that they don't have that purity of oversight about where the transactions are. So instead of looking at the partnership with the payments company as a commercial venture whereby they can drive transactions into the banking infrastructure, it becomes a risk more than a benefit.

CHAIR: The issue before this committee is we don't tell businesses who to bank with in Australia. You can pay that in any way you want and that is my personal view. But the question for this committee is: what are the policy recommendations we could consider which would help address the issue you raise, which is a market issue—

Ms Joyce : It is a market issue.

CHAIR: that the policy framework can help with.

Ms Joyce : I think there needs to be another access to the payment rails that doesn't rely upon appetites of an ADI.

CHAIR: It is easy to access the payment system through an ADI.

Ms Joyce : That is the only path that exists. If there was another path that was open or even if there was, as Rebecca mentioned in her opening statement, a sandbox, where both parties could get comfortable with each other operating in a safe environment, that would go a long way towards it. But having the ability as a company to apply for independent access to the payment infrastructure in Australia would open up competition in this space.

If you look at the UK as an example, there is a mechanism where you can have access to the payment rails as an independent non-ADI company. We could do that in Australia as well. That would mean we would be able to see companies directly accessing MPP, scheme payments, BECS payments and all the other types of payments that sit in our infrastructure in Australia. It would also mean that we would be able to start seeing early-stage companies have an alternative pathway to do that independently without necessarily needing to go the whole turkey and apply to become an ADI themselves.

CHAIR: Was this considered by the Farrell review?

Ms Joyce : In FinTech Australia's submission to the Farrell review, which we submitted two weeks ago, we certainly raised this.

Ms Schot-Guppy : To put it in perspective, to connect directly in the UK, it is about 47,000 pounds. If you were to connect directly to the MPP at the moment, it would be over $1 million.

CHAIR: It is a big barrier to entry. You've made submissions to the Farrell review—

Ms Joyce : Yes we have.

CHAIR: about that issue?

Ms Joyce : Yes. We have also made previous submissions to this committee in our first submission.

CHAIR: Yes, you have. But the Farrell review was a detailed review of the payments issue. This is a parliamentary review, so this is going to be a broader scope, if you like. But we might get you to provide that again on notice, just so we have that for the secretariat's benefit. We will take an open mind to how we look at the broader architecture. That is debanking.

If you were drafting the recommendations of this final report, what would the recommendation be for government on digital ID in relation to your constituents?

Ms Schot-Guppy : There are two things. The first recommendation would be to allow private companies to have access to public registers to be able to drive the digitalised identity and verification. We don't submit that it should be the Singapore model where everyone is plugging directly into government; we submit that it should be a public-private partnership: what entities can build across BECS and things that are currently verifying and then plugging into government registers as well. You could speed up that process and the APIs and connectivity to get you there.

We'd also say to progress the bill that's currently before parliament in relation to shared KYC. At the moment, our KYC legislative framework is not internationally competitive. In other markets you can share KYC between different entities. At the moment, you have to go get your own KYC. But there is a bill before parliament which is contained in our submission, and, if that progresses, it would allow for shared KYC.

Ms Joyce : The AusPayNet digital ID framework does go some way towards addressing the shared KYC issue, but it's a surface-layer fix; it's not a systemic fix at the level that would be required for long-term benefits.

CHAIR: The other question I have is again around access to capital. We have received your extensive submissions and we've responded to large parts of the interim report, some of which, as you know, has been addressed by executive government and some of which is yet to be dealt with. In terms of 10b5-1, your membership was divided on that question?

Ms Schot-Guppy : Yes, our membership remains divided on that question. We actually need to understand how it would work in Australia. We have a very different publicly traded system and rules, and so we'd need to understand how that worked before we provided any guidance.

CHAIR: On CDR, what is the best way for us to design a data-sharing scheme which is compatible with offshore frameworks like California's and Singapore's?

Ms Schot-Guppy : If we could come back to you in detail on notice on that question, that would be great.


Ms Schot-Guppy : More broadly, we need to have rules and data standards that are interoperable so people can saddle up here and be able to plug into our network. So we will come back to you with a more detailed answer on notice.

CHAIR: I think that's quite important to the second part of this review, so I will be grateful for your feedback on that.

My last question is about blockchain. What is your position on where we are on blockchain in this country?

Ms Schot-Guppy : Blockchain is a unique technology that can solve a range of different problems, but it has to be the right fit. There's some great work happening with the blockchain road map and the different working groups; however, blockchain's not going to solve all our problems, and there are many technologies that can do the same job as blockchain. We need to encourage businesses to look at different technologies, but it may not necessarily be blockchain. Blockchain can be great in relation to property assets and recording things, supply chain finance or digital contracts, but it's not going to solve all our technology problems. So I think the government is progressing down the route in discovering data through the working groups. I sit on the regtech blockchain working group, and we're getting some very interesting data and survey analysis, but I think that, as a whole, we should be looking more at what other technologies and blockchain, not just blockchain in isolation, can do for the economy.

CHAIR: Thank you. Deputy Chair.

Senator KITCHING: Thank you for your submission and also your appearance today. I understand that when you last appeared before the inquiry many of the government's economic programs in response to the pandemic were being rolled out. Can you provide an update on the uptake by fintechs of JobKeeper as well as the various lending facilities?

Ms Schot-Guppy : For JobKeeper in the first six months, quite a substantial number of fintechs were able to access the program thanks to the government's changes in relation to high-growth companies and pre-revenue companies gaining access. However, the sector picked up towards the second half of the year, and I would suggest a lot of fintechs are no longer receiving the last wave of JobKeeper, which is a testament to the growth of the sector. We've seen that through multiple fintechs' hirings and share prices. In relation to the ADIs, our lenders are in a really strong position. A lot of them did end up getting some funding or support through the AOFM. Others are still looking at creating some warehouses to get access to capital.

I think the biggest issue in relation to government support for our members at the moment is for our non-bank lenders, so our non-bank lenders or our neobanks that couldn't access the TFF. The TFF means that the banks at the moment get access to the cheapest capital ever, which means their headline rate is significantly lower than our non-bank lenders can provide, despite their comparison rates being if not better on the neolender side than the ADIs. So that headline rate and that cashback offer that the big banks can get because of the TFF is actually causing people to refinance towards the big four. We've never seen the big four be as strong, and I think that's indicated by CBA's results yesterday. I think the biggest issue at the moment in relation to government support is the fact that the TFF has created this big divide in headline rates and given the big four access to a cost of capital that none of our neolenders can get access to. Many of the mutuals are seeing the same impact.

Senator KITCHING: Earlier today the ACCC gave evidence, and we discussed the rollout of open banking and the upcoming rollout of open energy. We also talked about other sectors. Which sector does FinTech Australia see as the next priority for rollout?

Ms Schot-Guppy : Before we even answer that question in relation to sectors, I think we have to get the rollout in open banking correct first.

Senator KITCHING: Right.

Ms Schot-Guppy : We still don't have tiered accreditation for fintechs and, if we don't have any fintechs or ADRs connected, we're not going to see the results that the government would like to see in relation to CDR. There is an important piece of legislation that's been drafted and I think has been tabled in the House, and I will come back to you on that. Without that legislation passing with the amendments to the CDR bill, we can't get the rules passed by the ACCC or Treasury to allow for tiered accreditation. The other issue is getting the mutual banks connected by 1 July 2021. We need a vibrant open-banking ecosystem before we can really think about the next sector. But, from my perspective at FinTech Australia, I think the next sector that really makes sense to give people a whole picture of their financial wellness is the super sector. Super and insurance would probably make the most sense, from our perspective.

Senator KITCHING: Thank you.

Ms Joyce : I think that there are some lines that can be drawn between looking at the NPP rollout and the open-banking rollout, some of the access problems, the non-ubiquitous distribution around the tier 3 and 2, the mutual banks and the big four banks that weren't quite ready to switch it on all at once. That is a good analogy to make, to get it right in banking first, so that the competitive environment is operating correctly.

Ms Schot-Guppy : And you want more consumers on the system. By rolling out open banking and making sure there are not ADRs and more data holders on the platform, many more consumers will get access and there will be greater impacts when other sectors come on board.

Senator KITCHING: In your submission, you also discuss the need for a CDR-specific sandbox. Are you able to detail what the benefit of this would be and how you perceive such a sandbox operating?

Ms Joyce : Yes. The benefit of a sandbox on CDR would allow early stage or mid stage companies, who are starting to create new product offerings, to test those product offerings using either ring fenced real data or sandbox test data to verify that the product is working and operating as they would. That can even extend to doing live market tests so that real users can interact with the product. And that sandbox environment could involve fintechs who are testing products. It could also involve people like the ADIs who have data that will be exchanged over the opening banking rails. It really is a place where everyone can have a look to see if its working—doing what it should. If it is, then you can commit to the investment that needs to be made to be accredited to go out into a completely live environment.

Senator KITCHING: Thank you very much. I might leave it there.

CHAIR: We'll ask you to come back on that CDR interoperability issue. I think we hear you on digital ID. We hear you on access. The only issue we probably haven't traversed as much as we could is this question of capital. There were recommendations in the interim to play with the ESIC regime, to play with the ESVCLP regime. Is there anything else you think we should consider in the final report?

Ms Schot-Guppy : We do think your recommendations in the first report into R&D were excellent. But can we go further in some of those recommendations in relation to software, collaboration premiums and the rate, and also how the payments are made if they're made quarterly of if they're made month by month? How can we look at the administration of the system. Then the other thing I would suggest, and we've tabled it again, is looking at some of the matched finance funds that've been set up in the UK and France. We don't expect the government to be handing out money to any company, but what we are suggesting is create a fund to funds so the government can help coinvest with fintechs or other innovative companies that have received VC funding.

Ms Joyce : The Queensland state government also has a similar arrangement.

Ms Schot-Guppy : And so does the Victorian government.

CHAIR: We hear you on that. I think the other point you made about the administration of the R&D system is well put. Thank you very much for your time and input into the submission and your appearance today. You go with our best wishes. I now close these hearings.

Committee adjourned at 16:22