With previous experience in banking and wealth management, Sapien Ventures, partner, Helen Lorigan, outlined the case for partnerships with fintechs and how Australia can deliver the next tech giant. Christine St Anne reports.
Australia’s start-up sector presents enormous opportunities for collaboration with the sector well-positioned to create the next Google or Amazon despite increasing threats from the technology innovators in China.
Speaking at an AB+F Randstad Leaders Lecture in late June, Lorigan outlined the ways banks and fintechs could work together. Having garnered decades of experience working for big name institutions such as Commonwealth Bank and the Australia and New Zealand Banking Group, Lorigan is now a partner in the venture capital business, Sapien Ventures. She said her role in the sector has enabled her to experience first hand, the “massive change that continues to shape the industry” – change driven in part by the entrance of disruptors, spurred on by massive technological change.
“What struck me most when I left the traditional corporate sector, was the enormous change taking place in the industry. It’s a new “world order.” According to Lorigan, demographic shifts and technology have combined to create the most disruptive era for financial services. The most obvious theme driving this change is of course the enormous growth of fintechs, creating both threats and opportunities for the incumbents.
Using analysis from German market intelligence firm Statista, Lorigan described a landscape of businesses set to challenge established institutions, likening these models to White Sharks, Swordfish and Piranahs.
White sharks and Piranhas
The White Sharks – diversified businesses with gigantic assets include Google, Facebook and Amazon. Swordfish – big and fast industry-shaping businesses - include Airbnb, Uber and Netflix. Piranahs – small, aggressive and product-specific players include businesses such as houzz, SoFi and Shazam.
As a venture capitalist, Lorigan plays in the piranhas’ space, investing in a few such businesses including marketplace lender HashChing. These businesses have not yet reached their peak, but continue to grow. HashChing has continued to deliver double digit growth year-on-year since Sapien Ventures invested in the firm back in 2016.
She went on to highlight five major trends in fintech including online marketplaces; crowd-sourcing; changing customer engagement models and new payment/settlement methods. Online markeplaces have certainly emerged as a big competitor in the marketplace. “Businesses like Amazon and Alibaba have been able to solve customer problems better than anyone else. They are able to leverage their scale effectively and because they don’t own assets, this massive scale can drive costs down. These businesses have emerged as significant competitors.”
There is definitely the potential for our businesses to become the Amazons and Googles of this world
Mobile phones have reshaped customer engagement, with consumers now socially and financially interacting with their mobile phones. This has opened up new opportunities for fintechs and presented challenges for incumbents. She said that the emergence of blockchain has also created new payment/settlement methods. Blockchain allows for the verification of data points so that transactions can happen quicker whether it is “buying a house or even grain”. Here, Lorigan highlighted an interesting case study that emerged from Sapien Ventures’ Blockchain Pitch Summit in July last year. Full Profile uses blockchain to facilitate payments in the agricultural sector. Its solution has been adopted by grain growers. These growers previously had to wait 60 days before they got paid. The application of this technology has cut down payment wait periods significantly. Growers now get paid on the day of settlement. The business is currently looking at opportunities in Canada.
But according to Lorigan, the real threats to both Australian and global incumbents are coming from China. It’s no secret that Chinese giants like Alibaba and Tencent are fast catching up with Apple and Google. While Apple and Google now stand at US$743 billion and US$574 billion in market cap respectively, Alibaba and Tencent are catching up with US$276 billion and $270 billion respectively. “These are formidable players and yes they are at our doorstep.”
What is interesting for Lorigan is that some of the emerging Chinese players will become “the new face of financial services”, creating a “new paradigm in payments”. This will have implications for incumbent institutions.
The new face of financial services
Indeed, WeChat Pay and WeChat Wallet are now the world’s largest and fastest growing payments platform. “It just excites me when I use their app. I can manage my wealth products, I can top up my bank account or I can buy movie tickets. It’s an amazing application that continues to attract millions of users.” The application has also introduced a “shake function”. This shake function connects WeChat users with each other, allowing them to share payments or even split the bill.
A similar trend from China is also occurring in peer-to-peer lending. Chinese P2P lender Lufax is now valued at US$19 billion, making it the world’s largest P2P lending platform by volume and valuation. Furthermore, the business is backed by China’s largest insurer: PinAn – itself a $630 billion giant. Despite growth of these Chinese giants and the domination of the big US technology firms, Lorigan believes Australia is well-placed to create its own innovative monolithic firms.
“There is definitely the potential for our businesses to become the Amazons and Googles of this world. Why not? We have the talent and expertise and Australians are well known for being able to adapt quickly to new technology.”
Australia’s fintech and innovation sector has also captured overseas investor interest with Chinese, South African and European investors among the backers of many of the venture capitalists’ investee businesses. “The source of our investor base is just stunning. These investors see Australian businesses as offering a gateway to Europe and Asia.”
In fact, Sapien Ventures is already supporting the launch of three fintechs to China while another of its fintech’s is planning to enter the United Kingdom. “They see Australian businesses as potentially being the next Amazon. We are a nation of smart people, with the ability to pivot in any environment.” She acknowledged that government support was important to ensuring the support of Australia’s fintech sector and the need for tax breaks. Equally important was encouraging university students to engage with Australia’s technology sector and commended an initiative by the University of New South Wales where over 300 students are working with the country’s start-up community.
According to Lorigan, organisations can either “ride the tsunami wave of change or wait for it to crash over them,” before offering a number of solutions including buying the company; buying the IP; building the business and competing head or partnering and co-developing.
Her experience in the big institutions certainly makes Lorigan well credentialed to provide an insight into how successful collaborations can be formed. Indeed, among her roles, she managed the Commonwealth Bank’s $40 billion retail managed funds business. Accountable for the integration of 80 core and peripheral information technology systems and 645 new wealth products, Lorigan was also part of the bank’s $10.8 billion acquisition of the wealth business Colonial.
This gave her an insight into the cultural issues that arise from merged businesses, and as such she believes that buying a company can come with enormous challenges particularly around integrating people, systems and legacies. Moreover, start-ups are “often different animals” to incumbents adding further challenges to the business. Similar challenges exist in buying the IP and there is the added risk of the technology eventually becoming dated. Trying to build a solution from the ground up, means extra resources for the business – furthermore this strategy takes time and again, any technologies built could run the risk of being irrelevant.
For Lorigan, the obvious and “smart” solution is to partner and co-develop with fintechs. “Companies need to assess what their core competencies are. These can’t be easily replicated and then partner with the disruptors and fintechs to fill the areas that will complement the business.”