Sydney is a great city for financial technology ("fintech") startups, second only to London, according to Kim Heras -- and that's not just because the startup studio he's a partner in, 25fifteen, is based here.
While London is "the fintech hub of the world", and the UK government continues to support the development of fintech there, New York has "dropped the ball a little", Heras told the DisruptoCon conference in Sydney on Tuesday.
"I guess [New York] just always assumed that they would be a financial services capital, and so they haven't done that much, especially around new forms of currency," he said.
"On top of that, New York's got another issue, which is not unlike every other startup hub around the world: They've got Silicon Valley envy. So while New York, you would think, would be focused on fintech, media, advertising, the reality is what they're dying to see out of New York are consumer tech companies that mirror what's happening in the Bay Area."
So if it's not London for your fintech startup, Heras said, it's Sydney.
Indeed, there's a lot of fintech activity here already. Why? Because Australia has a "really robust" financial services industry, including a "very well respected" banking system that's well ahead of other nations in deploying advanced payments systems. Compare that with the United States, where paper cheques are still popular, and contactless payment systems are only just beginning to come into use. Plus, Australia has solid mobile data and smartphone market penetration.
"On top of that, in the payment space, we have a new industry-wide initiative called the New Payments Platform, a real-time payments platform that's about to be built with what they call overlay services, and metadata transported along with the actual transactional data, which is really, really impressive," Heras said. Only the UK and Singapore have comparable systems.
And, in financial realms, at least, Australia has scale.
"If you look across all other industries, you have a real challenge with scale in Australia, because normally, your audience are people," Heras said. Australia's population of 23.8 million just isn't enough for a startup to scale up as quickly as venture investors might like, but not so with fintech.
"In managed funds, we've got the fourth-largest pool of capital, so you can get to global scale very quickly in Australia by focusing on fintech. That's something that makes fintech really attractive for Australian founders."
On top of all that, Australia is close to large growth markets in Asia, not only geographically, but also in terms of time zones.
"And then, from a political point of view, the government has kind of done us all a favour with these trade agreements with China, where Australian financial services organisations get unparalleled access to the Chinese market," Heras said. "How that'll actually play out, we'll see."
Heras wasn't the only speaker at DisruptoCon to praise the internal "self-disruption" experiments being pursued by Australia's big four banks -- especially Westpac's partnership with Inventure -- and by major financial services organisations like AMP and Macquarie and their off-balance-sheet investments. But there's an interesting dynamic between these established institutions and the new lean, agile startups.
"It's awesome how engaged industry is starting to be with this idea of early stage tech innovation. It's good," Heras said. "The challenge in Australia at the moment is that we're still in that exploratory stage, at least for the financial services industry."
In part, that's because the big institutions are still quite profitable.
The banks' approach has generally been to gather some resources, set them up somewhere other than the head office, run hackathons and competitions, and seek new ideas that way. But at the end of the day, the banks still envisage that innovation is really going to come out of their core innovation teams, not the little lab teams that sit on the periphery of the business.
As happens so often, it's all down to a clash of cultures.
Corporates are good at providing resources, creating processes, and scaling up.
"There's a belief inside corporates that money [and] resources solve problems," Heras said. "And that you get new capabilities through hiring the right people. That's the exact opposite of how startups think.
"What startups are good at are complete uncertainty, flexibility, lack of resources," Heras said. "So culturally, the two absolutely don't fit. That's the real challenge. And if you're a startup, and you try and embed yourself inside a bank, but you still have to exist within their rules somewhat, you're starting to be hamstrung with the things that corporates or larger companies are good at -- which is resources, processes, a particular path, a particular way of doing things."
Australian corporates need to understand that they can't control everything.
"When you talk to corporates, the biggest issue for them is around IP [intellectual property] rights and procurement, and how can we support this thing if we don't own the IP, and that's not the model that we've seen elsewhere around the world, we're we've seen [financial services organisations] supporting startups more so than trying to own and control them," Heras said.
"The fact they're even considering working with startups shows that we've moved down that path. But coming from a startup founder's point of view, the ideal state is one where there's as much of a recognition of the value that entrepreneurs bring at the early stage as there is from entrepreneurs of the value that corporates bring at the scale-up stage."