Different approaches to market place lending Source: World Economic Forum, 2015, A Paradigm Shift for Small Business Finance Lending p.27

Digital transformation in financial services – international responses Fifth Annual Monash Business And Sustainability Network Workshop On Sustainable Development June 26-27, 2017 Venue: Monash University Prato Centre Deborah Ralston, Professorial Fellow, Monash University, (Chair ASIC Digital Finance Advisory Committee Member, Payments System Board, Reserve Bank of Australia)

Agenda The range of fintech applications The opportunities and threats of fintech Regulatory responses from around the world UK, China, Australia

Fintech “FinTech” can be broadly defined as technologically enabled financial innovation that could result in new business models, applications, processes or products with an associated material effect on financial markets, financial institutions and the provision of financial services Carney, M (2017): “The promise of FinTech – something new under the sun?”, speech at the Deutsche Bundesbank G20 Conference on Digitising finance, financial inclusion and financial literacy, Wiesbaden, 25 January.

Source: Mark Carney Governor of the Bank of England, Chair of the Financial Stability Board, The promise of fintech - something new under the sun? , 25 January 2017

Appeal of fintech Stability of financial system – New entrants = diverse ecosystem Efficiency of financial system – Lower margins + higher volumes = higher productivity Democracy of financial system – Greater access* + lower cost = social value *Financial inclusion – 2 billion of 38% world pop.n are unbanked A Haldane, Bank of England 2016

Growth of alternative lending China

Growth in (non-china) Asia Pacific

International regulatory responses Regulatory responses are shaped by: How the trade-off between stability and efficiency is viewed “Financial philosophy” of the economy eg. government-business relationships, consumer rights, market forces v. public policy etc Political will – inclusion and economic growth, competition

International approaches United Kingdom Positive pro-active approach following dramatic contraction in bank lending post 2008-2013 Leading regulator - FCA – competition mandate - Innovation Hub UK Govt. direct financial support for alternative lenders Mandated sharing of SME data Small Business, Enterprise and Employment Bill 2014 “New Bank Start-up Unit” –Challenger Banks authorised on £1m capital Forthcoming Second Directive on Payments Services, known as PSD2 - will allow fintechs to act as intermediaries between banks and their customers. 

International approaches China Population 1.35bn, 63% banked, 86% mobile phones - few branches or ATMs Rapid growth in fintechs: Fintech payments grew 400% in 2013-14. Yu’e Bao (launched by parent of Alibaba) grew > US$90 bn in 10 months - 4th largest MMF in the world Problems - incidents involving fintechs  from 92 in 2013, to 1263 in 2015, collapse of peer-to-peer lender E’zu Bao after executives diverted $7.3bn in funds from over 900,000 investors (KPMG 2016). Source: Douglas W. Arner, Jànos Barberis, Ross P. Buckley, 2015, The Evolution of FinTech: A New Post-Crisis Paradigm?

International approaches China In July 2015, Guiding Opinions on Promotion of Healthy Development of Internet Finance - encourage fintechs eg. preferential tax and stamp duty From December 2015 “soft touch” regulation on peer-to-peer lending platforms and non-banking online payment service providers Multiple authorities involved New dimension – China is introducing a Social Credit System (SCS) mandatory by 2020. Each citizen will have a score of between 350 and 950 points based on personal data held by banks, e-commerce sites and social media. An early component is Sesame Credit – a scoring system built and run by Ant Financial.

International Approaches Australia Australia felt minimal impact of global financial crisis, very strong retail banking infrastructure, 99% of the population have a bank account. Very strong but highly concentrated banking sector with round 80 banks, but largest 4 have over 80% of bank deposits and over 80% of domestic loans. Impetus for greater innovation and competition following 2014 Financial System Inquiry, and in September 2015 Prime Minister Malcolm Turnbull assumed office with a strong innovation agenda - political will for development of a fintech sector in place. March 2017-18 budget – open data, greater access to banking licence, a broader approach to crowdfunding, expansion of regulatory sandbox.

Fintech regulation in Australia Australian Investment and Securities Commission (ASIC) is the single point of contact for any company seeking a financial services license to: provide advice, investments, credit, payments service, offer credit, raise capital from retail consumers ASIC’s remit is to: 1. Promote investor and financial consumer trust and confidence; 2. Ensure fair orderly and transparent and efficient markets; and 3. Provide efficient and accessible registration. Innovation Hub and FinTech Taskforce to provide advice in early 2015 Digital Finance Advisory Committee – promote collaboration between fintechs and regulators Regulatory Sandbox December 2016 Payments system matters are overseen by RBA Payments System Board Overseeing the implementation of the New Payments Platform, digital currency, clearing and settlement , credit cards

Regulating fintechs Challenge for regulators in dealing with fintechs: collaboration, approachability, flexibility, timeliness International harmonisation

Summary Benefits of fintech are significant in terms of efficiency and financial inclusion Challenges for government in determining appropriate regulation Very different international approaches to fintech regulation – harmonisation? Increasing number of partnerships between fintechs and traditional providers