In recent months, Australia has followed in the footsteps of the United Kingdom, Singapore, Hong Kong and the US in throwing the state’s weight behind fintech. A fintech advisory panel, bringing together bankers and fintech leaders alike, has tasked its members with the job of making Australia the leading force in financial technology within the APAC region.
The UK Government in particular can be applauded for drafting a comprehensive report titled FinTech Futures, offering ten recommendations that if implemented, would position the United Kingdom to further entrench itself as the fintech capital of the world.
Many consider such initiatives overwhelmingly positive. In fact, for the most part, they have come about primarily through the lobbying efforts of those within the nascent fintech space. But if you agree with me that the line between traditional banking and fintech continues to blur more and more by the day, then the question of the role of government in defining or supporting the disruption occurring in the financial sector becomes increasingly interesting.
The debate regarding the degree of state involvement in the banking and finance sector is a fraught one but it certainly isn’t new. Even before the calamitous events of 2008, western economies struggled to balance regulation and free markets in ways that promote sustainable growth rather than debt gluttony.
Yet since 2008, the debate has edged closer and closer to home. Suddenly liberal ideologies invoking self-correctional, free markets, which once felt empowering, now frighten us: notably due to the rampant rise in positive housing equity and the realisation we have far more to lose than ever before. At the same time, stagnating wage growth makes us question the need to continuously consume, thus depriving the very business owners that depend on our relentlessly increasing purchasing power to keep them employed. It seems neither side of politics has a compelling solution to the financial quagmire we find ourselves in.
Economies are complex machines. Even so, we still consider our banks relevant stakeholders in discussions about how we can make its cogs work more effectively and productively. I would argue it makes sense therefore that their potential successors, fintech, are now included in these discussions too. And perhaps this is the government’s intent. If so, it then becomes critical to be mindful of the sorts of questions our advisory panel should be asking each other, and the government, when they sit around the table.
During his time at Toyota Motor Corporation, Sakachi Toyoda developed an iterative interrogation technique for solving problems known as the 5 Whys. Now widely used in Six Sigma methodology, it is designed to uncover the root causes of a product, process or service’s failure. By asking ‘why’ enough times (with the golden number being five), the methodology allows its users to stop solving superficial symptoms and address the root cause of the visible issue or defect, thus preventing the superficial problems from arising in the first place.
If we looked at it from a small businesses perspective, Toyoda’s 5 Whys might go something like this.
Problem: The bank won’t lend to my business
- Why? Because the bank doesn’t understand my business.
- Why? Because they haven’t invested time and money into educating their bankers and changing their risk-evaluation procedures.
- Why? Because they don’t perceive they will see a return on their investment.
- Why? Because the market is skewed so that they will obtain better returns on household lending.
- Why? Because the government has not encouraged market dynamics that favour small business lending.
While this is a simplistic approach to a basic problem, it guides us towards a better understanding of the root cause of our issue and what the role of government could be in correcting it. Defining how one encourages market dynamics then becomes the focus of the subsequent conversations, the inevitable solutions likely to be fintech related.
Could we apply such thinking to economic problems like the one above? No doubt. It would certainly help provide us with a framework for what problems fintech and traditional banking are respectively best suited to solving. Unfortunately, there seems to be evidence that this type of thinking doesn’t always occur in policy creation across other portfolios, with a tendency to create band-aid policy that stems the bleed for a term of political office but doesn’t heal the wound.
If Australia’s advisory panel can challenge itself to uncover the root causes of the financial sector’s woes, then it has a unique opportunity to shape an economic landscape that addresses these specifically, to the benefit of the ultimate consumers of the financial system – everyday Australians. Otherwise, such initiatives, like many others, run the risk of devolving into a high powered ‘talkfest’, to steal a phrase from Tyro’s CEO Jost Stollmann.
I look forward to hearing more about the challenges and real issues the members of the advisory panel bring to the table to discuss. Tyro’s CEO has already raised the need to review how we think about regulation and the shifting context within which it tends to rigidly sit, which is an excellent start to the banking and fintech debate.
Now to leave you with a few questions. Just when does fintech becoming banking and vice versa? And when we talk about disruption, what exactly do we mean? I don’t have the precise answers but I do believe we should always challenge ourselves to think deeply about these questions, rather than blithely quote the terms ‘fintech’ and ‘disruption’. If we can do that, then we will see progress and change for the better. We will shift our economy forward and we will create vibrant hubs for startups and companies that solve real problems, not superficial ones, or even worse, problems that don’t even exist.
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