Sydney struggling to keep up as technology challenges financial services industry

October 7, 2014 – 12:15AM

Matt Wade

Senior writer

Sydney's banking and financial services district needs to embrace new technology to continue to thrive.

Sydney’s banking and financial services district needs to embrace new technology to continue to thrive. Photo: Bloomberg

Sydney has the potential to follow London and New York in becoming a hub for the burgeoning financial services technology sector, a report has found. But it also warns the increasing overlap between financial services and new technologies – or Fintech – could disrupt many big local employers and challenge Sydney’s place as a leading financial services centre.

The Committee for Sydney report says the rapid advance of technology, including consumer favourites such as smart phones and tablets, is changing the landscape of the financial services sector, one of Sydney’s most important industries.

“Traditional financial services institutions are investing in technology innovation, rethinking their business models and even collaborating with Fintech firms,” it says.

The Fintech sector is experiencing strong global growth – in 2013 financing activity in the industry was estimated to be $US3 billion and that is forecast to rise to $US6 billion-$8 billion by 2018.

Sydney’s financial services industry generates about 5 per cent of Australia’s gross domestic product and the sector employs about 180,000 people in NSW. That key economic strength combined with two other sectors in which Sydney leads Australia – information technology and tech start-ups – means there is “every reason to be optimistic that a vital Fintech sector can be established”. The IT sector employs about 160,000 people in NSW.

The increasing overlap of financial services and technology presents great opportunities for Sydney as we’ve got high-calibre talent and enterprises in both areas,” said Andrew Low, chairman of a new Financial Services Knowledge Hub established by the Committee for Sydney and CEO of advisory firm RedBridge Grant Samuel. ”The key is to provide more opportunities for smart start-ups to interact with financial services businesses, both big and small, so we get innovation.”

But the report also highlights the risk that new technologies pose for cities such as Sydney that rely heavily on the financial services sector. Fintech is challenging existing business models as non-traditional players in the financial sector leveraged new technology to deliver new and existing services to consumers and business in more relevant and convenient ways.

It’s estimated that 25 to 30 per cent of current banking industry revenue could be at risk as a result of these trends.

“This cannot be taken lightly,” the report warns.

Tim Williams, the Committee for Sydney’s chief executive, said the rapid changes in financial technology would be a boon for consumers.

“Technology is generally placing more power in the hands of consumers to shape their financial services,” he said. “Technology is so disruptive to the financial services sector that it will pose challenges to traditional providers and ways of working who will need to reinvent themselves – it will put pressure on all to innovate. This is great for competition as well as consumers.”

Despite the size and sophistication of Sydney’s financial services sector the city is still in the early stages of establishing itself as a key hub for Fintech start-ups.

“Sydney has many of the required elements to become a Fintech hub,” the report said. “But compared to the global leaders, it is underperforming.”

Report co-author and head of banking at KPMG, Ian Pollari, said the support of the state and local governments was needed to foster Fintech in Sydney.

“London provides an excellent role model for Sydney to emulate, with the UK government, in particular, leading the Fintech charge through innovative funding, alignment and collaboration initiatives,” he said.

Sydney will also need to “collaborate to compete” as technological change reshapes the financial services sector.

“Structuring and enabling collaborations between banks, alternative finance providers, insurance providers, Fintech entrepreneurs, universities, venture capitalists, regulators and indeed government – is vital to overall success,” the report said.

Source : The Sydney Morning Herald

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