Imagine having a front row seat as the CEOs of Australia's fastest growing fintech start-ups share their hard-won insights. I was fortunate to have the opportunity to join just such an event on Thursday, at the second annual FinTECH Summit in Sydney.
Fintech is generating a lot of buzz lately, and for good reason. For decades the sleepy behemoths of the financial industry have resisted many of the biggest advances in technology. Whereas most of us hold access to the world's information in our pocket, most of our banks are still running on archaic systems built in the 1980s. Mullets were popular in the '80s. It wasn't an advanced time.
But a new wave of innovative technology companies are changing all that, and fast. Fintech companies are redefining financial services across many areas: lending, payments, big data, cryptography, blockchain, insurance, security, personal finance & robo-advice, to name a few. And on Thursday they gathered together in Sydney to share the latest news from the forefront of the industry.
Here are 3 key takeaways from inside the Australian FinTECH Summit:
#1: Machine Intelligence is Big and Getting Bigger
"With access to this [technology], half the office at a lot of companies will be able to go home at 10am" — Tim Baker, Global Head of New Content Initiatives at Thomson Reuters
There is often a lot of discussion about which new areas in technology are hype and which are genuine opportunities. But one area that every panellist agreed was already a key differentiator and with huge potential ahead was machine intelligence and 'cognitive computing'.
One particularly impressive demonstration came courtesy of Tim Baker from Thomson Reuters, who highlighted the company's development of its Knowledge Graph. The system reads through tens of millions of sources of content such as news articles, company updates and contracts, and identifies the key entities (company's, employees, etc.) identified in each document, and their relationship to one another. The Knowledge Graph then compiles that vast ocean of data in to a graph which displays the links between every entity.
This technology is only made possible through recent advances in machine learning, and has the potential to disrupt multiple industries. Insurance companies must keep on top of thousands of new 'risk events' every day, from natural disasters to legal scandals. Through applying this tech an insurance agent could instantly get a picture of every insurance contract that is affected by a particular risk event, and to what degree, generating huge savings and opening new opportunities.
Almost every company that presented was already utilising machine intelligence to some degree, and noted how much more potential they saw ahead for future use.
Sadly most of the advancements in machine intelligence have happened outside of Australia, leaving us with few publicly listed opportunities. But we are always on the lookout to strengthen our portfolio with companies that are operating in this space, or more likely that are using the latest advances to get a leg up on their competition.
#2: Some Tech is Still Not Ready for the Primetime
'I think we'll still be sitting here talking about the coming rise of blockchain in 3 years time'– John Fildes, CEO, Chi-X Australia
Blockchain first entered the public consciousness through an odd (and slightly dodgy) alternative to money, known as Bitcoin. But the core technology is now gaining a lot of attention for its potential to replace many complex systems that currently rely on trust – everything from banking, to share trading, to legal contracts.
For those who aren't familiar with Blockchain, the technology allows you to have a single shared ledger, where there is a cryptographically secured and agreed history of transactions. In simple terms, smart technology is used to ensure that everything is kosher, instead of relying on trust.
One core benefit is that you avoid the time-consuming and expensive ledger reconciliation process that normally slows down transactions (think of how long it takes to clear a cheque). Replacing that process with a shared central ledger therefore provides a lot of efficiencies.
But while some speakers were bullish, the general consensus was that the blockchain was still a long way from replacing existing systems. We recognise the vast potential of the technology, but at MDP we'll be taking a cautious approach to any companies in this space until we see more signs that the technology is gaining broader acceptance.
#3: Australian Investors have a Huge Untapped Opportunity
'Australia is a small country with 23 million people, but we have the 4th largest pool of retirement funds in the world. When we look at the $550 billion in self managed super funds, over $200 billion of that is sitting in term deposits. If you look at what we invest that huge pool in, banks and miners, is that really the best sectors for Australians to invest in?'
Why didn't Atlassian invest in Australia! The government needs to find ways to support the tech sector. We need to have an attitude that it is ok to get wealthy by innovating.' – John Fildes, CEO, Chi-X Australia
As you might expect from a conference dominated by cash-hungry start-ups, every CEO thought that Australians were missing a huge opportunity by not investing more in technology.
That advice might be a little self-serving, but they have a point. Australia has a terrible history of supporting our tech start-ups, with one panellist noting that our total venture capital funding was just one ten-thousandth the size of the United States.
While most of the market is slow to catch on we are sitting up and paying attention. We see the market's misunderstanding of the outstanding economics of software companies as a core opportunity for our portfolio – and one we are working hard to exploit!
The Foolish Bottom Line
The opportunity for financial technology innovation is vast. Plenty of today's start-ups will fail. But among them there will also be huge winners, with the potential to fit in to the higher-risk section of our MDP portfolio. By keeping our ear to the ground, meeting with CEOs, and sitting in on leading-edge discussions, we remain alert and ready to seize new opportunities when the market presents them to us.
