It’s reassuring to hear the Prime Minister’s words recently that “Australian Digital Economy is crucial to jobs recovery” and that the Government is investing in 5G digital skills capability, regulatory technology (regtech), financial technology (fintech) and open banking. This article is about understanding what these innovations are.
In this series of mini articles, Director Janelle Manders will introduce you to some of the advancements and trends in the Australian Digital Economy market and how they can affect you personally and as a business owner or employee.
1.What is 5G and what are its implications?
5G is the 5th generation mobile network.
The University of Oulu in Finland has created a 5G test network with the aim of researching the opportunities 5G provides like higher multi-GBPS peak data speeds, ultra-low latency (delay), more reliability, massive network capacity, increased availability, and a more uniform user experience for users.
An article in PC Mag by Sascha Segan outlined some ideas that were raised at a 5G Hackathon at the University of Oulu. Such ideas include game streaming service, a way to do stroke rehab through virtual reality, smart bandages that track your healing and a way for parents to interact with babies who are in incubators.
For industry, 5G could provide increased automation and support the development of industrial robots. Driverless cars could benefit by interacting with other cars and smart roads to improve safety and manage traffic. It will also enable small, inexpensive, low powered devices to connect to a lot of smaller objects and different kinds of ambient sensors.
The innovation that is possible with 5G will be swift, and ensuring your business is ready to move when the time comes is important. The questions for a business to ask in advance of the widespread arrival of 5G are:
- What are the ways in which greater connectivity will improve our customer’s experience?
- What are the ways in which faster and more reliable data capacity will help?
- What are the ideas that may seem crazy now, but in the future may lead to innovation? Do you have a way of capturing those ideas and working through them or putting them aside for when there is more certainty around 5G?
It’s very easy to see the benefits and improved efficiencies that faster and more reliable data provide. However, it’s important to keep in mind that implementing new initiatives often requires the clients to change their ways. Ensuring that the change is easy for the clients and that they are educated on the changes and benefits to them is essential in maintaining the integrity of your client experience.
Imagine a world where connectivity is instant, broad and cheap. The opportunities of 5G are endless both for business and customers alike.
2. Regulatory Technology (regtech)
A recent report by Wray, Mackay, Loh, Young and Ang explained regtech as technology to improve how businesses manage regulatory compliance, and how governments manage oversight, to benefit consumers, companies and regulators. In fact, the report noted that Australia is the world’s third largest regtech hub behind the US and the UK with over 10% of all regtechs now headquartered in Australia.
Leading-edge regtech involves the use of data for predictive analytics and real time monitoring, enabling better regulatory outcomes and potentially fewer compliance burdens for businesses.
The aim of regtech is improved efficiency, improved productivity, lowering of costs and increased safety and confidence. The Productivity Commission notes that there is potential scope in Australia to extend existing low-tech solutions — including digitised data, forms, registers and transactions. These could reduce compliance costs for individuals and businesses, improve the efficiency of regulator practices, and generate flow-on benefits for the community.
Used well, regtech can support the improved targeting of regulation and reduce the costs of administration and compliance. The Productivity Commission report into regtech released in November 2020 cautioned that while it aims to improve regulatory outcomes and reduce costs it is not a substitute for regulatory reform.
The reduction of red tape complications could make business life much simpler. However, business needs to be vigilant on the trade-off between the reduction of red tape and the intrusion of government into the business world. The Productivity Commission flags these issues by acknowledging that increasing the reach of regulation, compliance and enforcement activity is only positive if regulations are well-justified and the enforcement and compliance activity is finely-tuned. Given the risks of regulatory ‘creep’ and overreach, as well as the potential to reduce costs and improve regulatory outcomes, advances in technology heighten the onus on policy makers to ensure the design of regulations are soundly based.
Even ASIC considers there is enormous potential to help businesses build a culture of compliance, identify learning opportunities, and save time and money relating to regulatory matters. ASIC has also been exploring regtech application to ensure financial promotional material is clear, meets disclosure obligations and is not misleading.
The Productivity Commission considers that there are four key areas where regtech solutions may be particularly beneficial for business:
- Where regulatory environments are particularly complex to navigate and monitor,
- Where there is scope to improve risk-based regulatory approaches, thereby targeting the compliance burden and regulator efforts,
- Where technology can enable better monitoring, including by overcoming constraints related to physical presence,
- Where technology can safely unlock more uses of data for regulatory compliance,
In order to have a regulatory environment that supports the realisation of these benefits, its essential that we pay attention to the accountability of regulators and be cautious about what it means for privacy and data security. To get the best benefits of advancements in regtech, businesses will need to be familiar with the possibilities available and continually monitor how regtech is impacting their operations.
William Buck will be keeping an eye out for regtech tools that will help assess and fulfil regulatory requirements faster and in a manner that is more integrated with other business processes.
3. Financial Technology (fintech)
The Corporate Finance Institute considers fintech to be the synergy between finance and technology and its use in enhancing business operations and delivery of financial services. It can take the form of software, a service, or a business that provides technologically advanced ways to make financial processes more efficient by disrupting traditional methods. Technologies that contribute to fintech are artificial intelligence and machine learning, big data and data analytics, robotic process automation and blockchain.
Some examples of Fintech advancements (summarised by Australian Fintech) include:
- Borrowing products, including peer-to-peer lending allowing the borrowing of money directly from your peer network,
- Business products linking the consumer more directly with the product provider such as looking for loan facilities or way to improve how a business takes payments,
- The continued proliferation of crowdfunding websites with different websites focusing on different fundraising outcomes,
- Changing the way we spend and store money through digital currencies (or cryptocurrencies) such as Bitcoin, as well as the competition to create digital wallets that we will use to make payments in the future,
- Advanced computer models providing ways to break down the complexity around life insurance, with insurance being offered on the spot,
- Digital wallets storing loyalty cards and knowing which card to use at which purchase,
- Providing a variety of payment methods and covering gateway payment providers,
- Utilising roboadvice by giving a computer the rules and algorithms required to make accurate and consistent decisions.
Fintech has enormous potential to profoundly affect the way we bank, make purchases and store our money.
4. Open Banking
In the interim report from the Select Committee on Financial Technology and Regulatory Technology, Open banking was seen as giving customers greater access to and control over their own banking data, with the ability to direct their bank to share information with third parties. The expected outcomes include improving price transparency, facilitating comparison services, assisting customers with the choice of the most appropriate products and facilitating the switch from one provider to another.
The disruption to the banking sector has been significant. The use of algorithms, big data, blockchain, peer-to-peer lending and crowdsourcing, means that the role of the intermediary is changing. Banks now face competition from other intermediaries in their core business. Digital disruption is changing the provision of services in the sector but may also be solving some of the previous competition problems in financial markets. These competition problems include high switching costs, or high transaction costs.
Open banking and the disruption in this arena provide a huge opportunity for business.
With banking for many businesses being carried out digitally and open banking providing easier transition across institutions, the traditional role of the banker has changed. The personal relationship which in previous generations may have kept a client loyal to one bank is being broken down. This provides the opportunity for increased competition in relation to the costs of borrowing and other merchant services.
For a business to take advantage of these opportunities, it should:
- Be more proactive in monitoring the offerings available from bank and non-bank institutions,
- Understand its merchant fees and borrowing costs to determine whether they are cost effective,
- Ensure its financial systems provide timely and accurate information to enable change of providers easily and efficiently,
With the myriad of opportunities becoming available due to an expanding digital economy, it’s impossible to cover everything here. This deconstruction is intended to lay out some of the developments that apply to you and may help your business to grow and thrive.