Foreword from the Deputy Premier - KPMG US LLP | … are the major global ecosystems for Fintech? 3....

Unlocking the potential:The Fintech opportunity for Sydney

October 2014

Unlocking the potential: the Fintech opportunity for Sydney

© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International). Liability limited by a scheme approved under Professional Standards Legislation.

Foreword from the Deputy PremierSydney’s position as Australia’s financial services powerhouse is set to move up a gear. The convergence of digital and financial sector strengths and growing global recognition of the city’s role as a key financial hub for the Asia Pacific are fuelling Sydney’s fast emergence as one of the world’s most exciting new financial centres.

The NSW Government has recognised this opportunity and is working with businesses and researchers to improve collaboration and knowledge sharing across the NSW financial services industry. We are supporting the establishment of an industry-led Knowledge Hub for financial services to create a new platform for collaboration, to enhance productivity and innovation, build capabilities, and identify market opportunities.

With an improved culture of innovation and collaboration between government, industry and research, we have the potential to provide fresh insights for NSW businesses to help them build sustainable long term competitive advantages.

The Financial Services Knowledge Hub, coordinated by the Committee for Sydney, aims to capitalise on this by positioning the NSW financial services industry for new markets, new opportunities, new capabilities and global growth.

This report provides some specific insights into the rapidly developing market for financial services technology or Fintech, and it will help to inform the activities of the Financial Services Knowledge Hub. Fintech presents a fantastic opportunity for Sydney as a leading financial services and technology hub for Australia and the Asia Pacific.

I commend the Committee for Sydney for commissioning this highly relevant research, and for its important ongoing role in driving growth and innovation with the Financial Services Knowledge Hub. This initiative will further enhance Sydney’s emerging position as a leading global financial services centre.

Andrew StonerDeputy Premier



ContentsPage

Scope 4

Executive summary 5

Fintech in Sydney: Building on success 8

Importance of financial services to Sydney 11

§ Importance of the financial services industry 12

§ The changing industry landscape 14

§ The development of Fintech 19

What is happening globally 23

§ Global perspective 24

§ What can we learn from global leaders 32

Sydney Fintech today 33

§ Sydney’s Fintech sector 34

Key implications and recommendations 40

§ The key implications for Sydney 41

§ Building on our foundations 42

§ Recommendations 43

Appendix 46

The contacts at KPMG in connection with this report are:

Ian PollariHead of Banking SectorPartner, Sydney, KPMG Australia

Tel: + 61 2 9335 [email protected]

James MabbottFinancial ServicesDirector, Sydney, KPMG Australia

Tel: + 61 2 9335 [email protected]

mailto:[email protected]

mailto:[email protected]



Scope of the research projectUnlocking the potential: the Fintech opportunity for Sydney is the result of a KPMG research project for the Committee of Sydney, aimed at understanding the emerging Fintech sector and what conditions, if any, are necessary and sufficient to enable Sydney to compete with other global cities

■ This research has been commissioned by the Committee for Sydney in its role as a key member of the Financial Services Knowledge Hub. The Knowledge Hub aims to establish Sydney as a key global financial services hub through encouraging cross industry collaboration to identify the key projects and initiatives required to meet this goal.

■ Fintech (Financial Services Technology) has been chosen as one of five key areas to focus on initially (other areas of focus include Index Based Products, Asia Pacific Equities for Australian Super, Australian Bond Markets and Infrastructure & Real Estate Funds) with the first phase being research into global leaders for Fintech.

■ The purpose of this research is to identify what conditions, if any, are necessary and sufficient to enable Sydney to compete and thrive on Fintech at a local, regional and global level.

■ KPMG’s report, Unlocking the potential: the opportunity for Sydney, seeks to explore five key questions:

1. What is Fintech?

2. Where are the major global ecosystems for Fintech?

3. What are the necessary conditions to establish a successful Fintech ecosystem?

4. What are the key implications for Sydney as a financial services hub?

5. What recommendations would we make for private and public sector companies to establish a successful Fintech ecosystem in Sydney?

■ KPMG Global Services desktop research of current publications and reports into Fintech in Australia and globally, as well as a review across eight leading and emerging global centres for Fintech.

■ A series of interviews with Australian Fintech start-ups (emerging and successful), Venture Capital funds, financial institutions and Government and other stakeholders.

■ Internal KPMG workshop with key local and global partners from the technology and financial services industries to test research findings and assumptions

■ Meetings with key local and global stakeholders to verify and refine research outcomes

Background and purpose of the research The Fintech eco-system in Australia Approach undertaken

Supported by

Executive Summary



Executive SummaryFinancial services is a substantial driver of the Australian and NSW economy, with Sydney widely regarded as a leading international financial services centre

■ The Australian financial services industry contributes the highest share of sector value to the national economy (9%), employing 420,000 people and paying A$11.5 billion in tax in 2013, 18% of total corporate tax receipts.

■ Financial services is a significant employer in NSW, representing 42% of total industry employment nationally.

■ Sydney is the dominant city for finance and insurance, with the most significant cluster of industries, as well as critically linked industries that support financial services, such as ICT/digital, tertiary education, creative and professional services.

■ Sydney boasts a strong and sophisticated financial services industry, ideally located within the rapidly growing Asia-Pacific region. The city of Sydney is the location of employment for 77,946 workers in the finance and insurance industry, or around 21% of the total Australian employment in this sector.

■ Sydney is home to many Australian and foreign-owned financial institutions, the financial regulators, central bank and stock exchange (e.g. ASX).

There is a paradigm shift in financial services occurring driven by technology, with new business models emerging

■ Post GFC, strategic imperatives for financial institutions and evolving consumer behaviours, in part driven by new technology, has been a catalyst for innovation in the global financial services industry.

■ The traditional financial services landscape is being disrupted by new entrants leveraging technology to deliver new and existing services in more relevant and convenient ways to consumers and businesses.

■ The agglomeration of technology and financial services (“Fintech”) is creating new business models, e.g. peer to peer lending.

The emergence of Fintech represents an opportunity and a threat to Sydney’s position as a leading international financial services centre

■ Financial institutions globally are taking a wide range of approaches in trying to keep up with the wave of technology innovation, with Fintech emerging as a key enabler.

■ The Fintech sector is experiencing rapid growth globally, with financing activity predicted to rise from US$3bn to US$6-8bn by 2018.

■ As a leading global centre for financial services, coupled with a deep cluster of ICT/digital, creative and professional service industries, Sydney is ideally positioned to capitalise on this growing trend.

■ Fintech provides a pathway to position Sydney for the ‘digital economy’, fostering new business ventures, both in the financial services and technology industries, creating benefits from a multiplier effect across NSW and nationally.

■ Fintech also represents an opportunity for Sydney to export our financial services and ICT/digital capabilities globally.

■ Other leading international financial centres are also pursuing the Fintech opportunity and are supporting this through a strong alignment of activity and investment at all levels of government, regulators and industry to accelerate their success.

■ Based on our discussions with local Fintech start-ups, other countries, such as the UK, are actively targeting Australian Fintech start-ups to relocate to London.



We need to proactively respond to maintain our leadership position

■ To capitalise on the opportunity and defend our current strong position in the financial services industry (i.e. protect tax revenue and employment), Sydney must proactively respond in a coordinated and committed manner.

■ No-one can predict which specific technologies or business models will be winners (or losers) from the emergence of new technologies and the implications for financial services.

■ Therefore, the focus should be on fostering a collaborative environment for entrepreneurial activity and innovation from new Fintech start-ups and established financial institutions to flourish.

■ Creating the enabling conditions to support as many options as possible should be prioritised by government and industry.

There are a set of enabling conditions that can be drawn from other developed and emerging Fintech hubs

■ Analysing the emergence of Fintech in other international jurisdictions, the following factors were observed as important enablers:

- available and accessible early stage funding for Fintech start-ups and a strong pipeline of opportunities for investors/VC funds;

- depth of financial services and technology talent, with close proximity of these talent pools to each other (in city locations);

- a robust financial services industry, with a vibrant technology start-up community with mentoring, networking and high visibility;

- Government and regulatory support for the Fintech sector specifically, and technology start-ups generally; and,

- business backing for a Fintech hub, with high levels of collaboration and a strong culture of knowledge-sharing and entrepreneurship.

■ The UK in particular have accelerated the development of London as a Fintech hub over the past 18 months through a concerted effort by the government, regulators, the City of London, technology start-ups and industry.

There are a series of recommendations, including both the public and private sector, that are proposed

■ Recommendations proposed to build momentum for Sydney as a Fintech sector are as follows:

- State Government to continue working with partners in the private sector and the Committee for Sydney on the development of a comprehensive Fintech vision and strategy for Sydney.

- Explore the establishment of a not-for-profit Fintech hub in the heart of the citythat co-locates venture capital, technology start-ups and established financial services firms.

- Establish a series of events in the city, regionally and globally to promote Sydney as a leading Fintech hub in the ASPAC region, in line with our leading financial services position.

- Form an independent Fintech focussed industry association, based in Sydney, to give the sector a public voice and champion.

- Review current regulatory, tax and business incentives available to the start-up community and target foreign repeat entrepreneurs and attract them to Sydney.

- Engage the university sector to research key Fintech themes.

Fintech in Sydney: Building on success

Lucy Turnbull, AO, Chair Committee for Sydney



Fintech in Sydney: building on success

Sydney’s financial services industry is a key driver of national productivity. In itself it produces 5 percent of Australia’s GDP with a significant extra multiplier effect in innovation and job creation - for the rest of the economy. Overall, Sydney’s finance and professional services driven CBD produces more wealth for Australia than the mining sector as a whole. At the same time, Sydney is also the centre of Australia’s ICT industry and leads the nation in technology start-ups. It is because of the agglomeration and combination of high labour productivity sectors here that the Committee for Sydney has talked of Sydney’s increasingly important ‘dividend’ for Australia as the mining boom moderates and the need for public policy and investment to support its continued growth - in the national interest.However, despite the importance of ‘Fintech’ both on the global stage and nationally and the fact that many financial services companies are clearly redesigning their business models because of the new digital and mobile platforms, there has been little research on it in Australia. The conditions for the emergence and success of Fintech here have not previously been identified to inform a strategy aimed at actively promoting the growth of the Fintech sector. As Fintech will actually shape the future of Sydney’s key financial services industry and produce beneficial spill-over effects in other productive, tech-based sectors of our urban economy, this gap needs to be filled.This report goes some way towards doing that. It is the first study produced under the aegis of the new Financial Services Knowledge Hub initiated by the Committee for Sydney, its many members in finance, ICT and the NSW Government Department of Trade and Investment. Recognising that digital, mobile and cloud computing technologies are revolutionising how customers bank and businesses raise finance, the Knowledge Hub will seek to help accelerate Sydney’s growing position in the region’s financial services industry by supporting its burgeoning Fintech scene and the eco-system and environment required to sustain it.


Focusing on what will enable the sector to grow

Like all Committee for Sydney reports, this is not an academic exercise. The report has a decidedly practical objective. It focuses on what innovations, policies or tools are required across the public and private sectors to help grow the capacity and economic impact of Sydney’s Fintech sector. Sydney has great foundations for a thriving Fintech cluster and a significant opportunity to benefit from a technological revolution that plays directly to its strengths, both as a financial and an ICT centre.

Of course while understanding our strengths we also need to overcome our challenges.

While Sydney enjoys many natural advantages and its lifestyle is a magnet for young talent, previous research finds that such mobile talent is attracted for rational economic reasons to cities with the right mix of assets. They want to be assured that the employment, enterprise and investment opportunities and the face to face, digital or transport networks they need from their city – and indeed the required tax and visa regimes - are also available alongside the lifestyle they seek.



Providing a supportive eco-system for innovation and growing export potential

With tech entrepreneurs, this means that the eco-system and environment for innovation need to be attractive and supportive and also that the skills and finance they need are readily available. In this context this sector faces some critical challenges and barriers to overcome. This report seeks to identify them and suggest ways in which the ecosystem supporting Sydney’s Fintech cluster –that combination of financiers, entrepreneurs, customers and civic support –can be further enhanced.

And, by growing the Fintech sector in Sydney we will further cement Sydney’s reputation as the national leader of innovation in the financial services industry, as well as reinforce our reputation as a hub of technology development and talent. With the right policy settings, talent attraction strategies, collaboration and above all ambition, Sydney can become a key Fintech leader within the Asia Pacific region and a key exporter of financial services and wealth management expertise and products to the region. That must certainly be our objective.

Collaborating to compete – and to accelerate learning from competitors

Just as the most successful cities internationally are those who ‘collaborate to compete’ so too will greater success for the Fintech sector require greater collaboration. In principle the very essence of Fintech is the coming together of financial services and ICT/digital economy enterprise. We must build on this. Whereas some serendipity always helps in innovation, the report stresses that little should be left to accident if we wish to succeed in Fintech in Sydney. Structuring and enabling collaborations – between banks, alternative finance providers, insurance providers, Fintech entrepreneurs, universities, venture capitalists and indeed government – is vital to overall success and specifically to sharply reduce the typically longer product development and sales cycles found in the Fintech sector. Assertive collaboration, skills development and capacity building are crucial to speeding up the maturing of Fintech firms and to realisinga flourishing Fintech sector in Sydney.

Experience from other global cities suggest the initiatives and institutional innovation is required. Both New York and London are leveraging the benefits of having the two interlinked sectors of financial services and ICT, close to one

another physically by actively promoting closer working of financial institutions and tech entrepreneurs: this ensures innovation is tailored to the specific needs of financial services and their customers. We must do the same.

Both are actively engaged in supporting training and workshop initiatives to arm first time Fintech entrepreneurs with the skills that would otherwise take years of experience to attain. We must do the same.

Both have created Fintech accelerators or innovation labs to reduce the time to market and speed up deal-making between financial institutions and Fintech enterprises from 18 months to 18 weeks. We must do the same.

Vital: effective partnership between the public and private sectors

At the heart of success are effective public-private cooperation. We know that the NSW Government ‘gets’ financial services and understands Sydney’s dividend from them for the state and the nation. We have also seen how creative a partner they have been in working with the Committee and the private sector on developing effective new industry policy and initiatives such as the Global Talent and Knowledge Hub projects. We are confident that our State Government will seek to reduce any unnecessary barriers to the success of Sydney’s financial services industry and to the development of a successful Fintech sector.

Some further policy development and advocacy will be required at the Commonwealth level to ensure that we have competitive tax and visa regimes in place to enable Sydney to attract the global talent and investment required to maintain its existing status as the nation’s centre for both finance and ICT and indeed to enable it to increase its economic significance in the region. In making the case for Sydney as Australia’s financial services export platform, the NSW Government will, we believe, be able to point in the coming years to a flourishing Fintech sector of regional significance. This report, and its key recommendations, will help catalyse this result.


Thank you to Michael Rose for Chairing the Committee’s Financial and Professional Services Taskforce, Andrew Low for Chairing the Financial Services Knowledge Hub and KPMG for developing this report.

The importance of financial servicesto Sydney and thecase for change



The importance of the financial services industry

Financial services and ICT, are significant employers in NSW, representing 42% and 37% respectively, of total industry employment nationally

■ Sydney’s highly educated and multilingual financial services workforce is growing. About 180,000 people were employed in NSW’s finance and insurance services industry, representing 42% of the Australian industry.

■ Finance and insurance is the largest industry in NSW, contributing A$57 billion to the State’s economy. NSW makes up 46% of Australia’s finance and insurance industry. It is also the second fastest growing industry in NSW, recording annual average growth of 3.6% between 1998-99 and 2008-09.

■ Furthermore, NSW has number of leading workforce education and training providers in financial services; anecdotal evidence suggests these providers have a positive level of engagement and make significant investment in education and training activities.

■ NSW accounts for 43% of Australia's total ICT businesses and almost 40% of national industry value-added output.

■ Almost 160,000 people are employed in the ICT sector in NSW, representing 4.7% of total employment in NSW and 37% of Australian employment in the ICT industry.

■ NSW has over 13,000 students studying information technology courses at the 11 universities in NSW

Size of the finance and insurance services workforce Key employing occupations of finance and insurance services workforce

■ The distribution of workforce in the financial and insurance services industry corresponds to the share of total population in Australia, and in turn, the share of the country’s banking businesses located in each states.

■ Over the past five years, both NSW and VIC recorded the largest employment gains in the industry, at 10% and 8% respectively.

■ The vast majority of NSW’s financial services industry employees are located in the Sydney CBD.

■ Within, financial services, the banking sector is the dominant employer in NSW, employing over 40% of the workforce.

■ Whilst the industry employs an almost equitable mix of professional and more generic skills across states, NSW and VIC have a higher proportion (54%) of professionals and managers than more junior, clerical and administrative staff

52%18%30%

QLD

55,000

45%

33%

VIC

120,000

42%

17%

38%

NSW

180,000

7%

39%

15%

39%

50%16%

OtherWA

38,00033,000

Managers

Other (sales, technicians)Clerical and admin.

Professionals26%15%

8%7%4%

Other

WA 34,000(9%)

QLD

32,000

VIC

54,000(13%)

120,000(28%)

NSW

180,000(42%)

100% = 420,000

(8%)

Source: ABS Catalogue number 6291.0.55.003 - Labour Force, Australia, Detailed, Quarterly



Finance and insurance industry■ The City of Sydney is the location of employment for 77,946 workers in the finance

and insurance industry, or around 21% of the total Australian employment in the industry in this sector.

■ Of the top 10 locations for finance and insurance employment, 3 are located in Sydney. Therefore, Sydney has the greatest concentration of overall finance and insurance industry employment.

■ The City of Sydney is the clear leading city for financial services in Australia, ranked 1st in a number of ANZIC industries:

- Depository financial institutions – 57.1%

- Broking services – 43.6%

- Life insurance – 20.8%

- Banking services – 19%

- General insurance – 18.5%

- Professional services

Professional Services■ Sydney is home to the largest base of professional services (e.g. accounting,

taxation, legal, consulting) to the banking, finance and property industries (estimated to be around 30-35%).


■ The City of Sydney is also dominant in critically linked industries to the financial services industry in terms of clusters of national employment in:

■ Digital industries – 14.7% (rank: 1st)

■ Tertiary education, Adult education and Support services – 5.8% (rank: 3rd)

■ Creative industries – 13.8% (rank: 1st)

■ The City of Sydney grew in employment terms at a rate greater than the national average, as a result of the cluster/agglomeration economies and innovation.

■ This suggests that concentrated collaborative work between businesses in these financial industries, education and research institutions and Commonwealth, state and local government could provide the support to ensure that these benefits continue or can be enhanced in the future.

■ Notably, financial centres are not country, rather cities described as ‘hubs’, e.g. New York and London as ‘financial hubs’.

Sydney has the greatest concentration of overall finance and insurance industry employment, as well as ICT, professional services and tertiary educationSydney is the dominant City for finance and insurance, with the most significant cluster of industries, as well as critically linked industries, such as ICT, digital, tertiary education and creative services

■ Sydney boasts a strong and sophisticated financial services sector, ideally located within the rapidly growing Asia-Pacific region. It has deep, liquid financial markets and is recognised as a leader in investment management, as well as areas such as infrastructure financing and structured products.

■ Sydney is an attractive city to relocate staff, ranking in the top 10 cities of the World Liveability Index of 140 cities ranked on culture and environment, healthcare, education and infrastructure.

■ Sydney ranked 8th in the Global City Index in 2014 and ranked 12th in the Global Start-up Ecosystem Index 2012 (higher than any country in the Asia-Pacific region).

Critically linked industries■ The City of Sydney is also the workplace for 15% of the total information, media and

technology industry and 11% of creative and performing arts activity across Australia.

Source: City of Sydney Council; Z/Yen 2014; Economist Intelligence Unit, Liveability Ranking, 2013; Singapore Civil Service College, 2014; IBIS World 2014



The changing industry landscape

Changing consumer behaviour and demands are putting greater pressure on traditional providers of financial servicesTomorrow’s customer is likely to be even more demanding and less loyal to their financial institution, characterised by a desire for immediacy, valuing simplicity and transparency and expecting a more personalised service.

Consideration of non-traditional alternatives

Growing advice from peers

Less loyal

Reduced information asymmetry

Willingness to adopt new technology

■ Customers are likely to be more willing to consider non-traditional alternatives to ‘traditional’ loans, savings, investments and retirement products, either as a result of increased availability, customer awareness, social and peer pressure.

■ Technology is reducing information asymmetry in the industry, giving customers greater transparency when selecting a financial services provider, product or service.

■ Customers are increasingly value-driven and less loyal to financial institutions. This concern for value has driven increased levels of switching, as well as increased the likelihood of future switching.

■ Customers may increasingly trust and value advice from alternative sources. Decisions are likely to be influenced not only by their peers, friends and colleagues, but also the opinions of online groups and social media communities, which may span countries, cultures and which will almost certainly be comprised of strangers.

■ As the pace of technological advancement continues to increase, customer’s willingness to adopt new products and technologies is also likely to grow. Consumers are adopting innovations at an increasingly rapid rate

Personalised services

■ Multitasking and time scarcity is likely to continue to escalate, prompting more customers to look for time-saving solutions, single point of access and aggregation across a range of providers.

■ This is evidenced by the level with which customers have embraced self-service. In return for sharing more data about themselves, customers will demand even greater levels of personalised service.

Source: KPMG, Investing in the Future




The rapid pace of technological advancement will continue with companies seeking to significantly alter the financial services landscapeExamples of new entrants, both from established technology companies, as well as relatively new companies, are circling financial services and payments

Google has already launched a plastic debit card to accompany its Google Wallet, which is used by millions of consumers.

Financial Services

SocietyOne is Australia's only active peer-to-peer lender. They claim to be able to offer borrowers cheaper loans and investors access to a new asset

class with a lower cost business model that is more efficient than that of

traditional banks.The social network is only weeks away from obtaining regulatory approval in Ireland for a service that would allow its users to store money on Facebook and use it to pay and exchange money with others.

Apple has incorporated an NFC chip in its latest smartphone, the iPhone 6, and will support it with a service called Apple Pay. The iPhone 6 and iPhone 6 Plus have an NFC antenna and a Secure Element chip allowing users to be able to add their debit and credit card details from their iTunes store account. Payment will also be possible via the Apple Watch.

PayPal is rapidly shifting from being a company that powers payments on the Web to a company that provides payments on mobile devices, at cash registers, and soon, on the Internet of Things.

Bitcoin uses peer-to-peer technology to operate with no central authority or

banks; managing transactions and the issuing of bitcoins is carried out

collectively by the network. Bitcoin is open-source and its design is public.

Square, the mobile payments company started by Twitter co-

founder Jack Dorsey, has begun preparations to launch in Australia,

according to sources with knowledge of the plans.

San Francisco company Stripe has launched its global payments

platform in Australia, marking a first move into the Asia-Pacific region for the three-year-old payments start-up

backed by a trio of PayPal co-founders.

Many technology players are focussed on disrupting financial services, with the substantial profits of banks attracting the attention of many of the world’s most innovative companies.

Despite these threats, KPMG research reveals that “53 per cent of consumers trust their banks the most when it comes to making financial transactions over a mobile device."

Source: KPMG Desktop Research



Digital disruption is challenging existing business models, with estimates of around 25-30% of current banking industry revenue at riskTechnological change is one of the biggest disruptions facing banking since the 1980’s

■ The technology is now in place to substantially transform financial services (e.g. cheap IT, widespread mobile penetration, regulation, such as the Financial Claims Scheme requiring Single Customer View, real time payments, internal ratings based models)

■ According to Macquarie, there appears to be A$27 billion of current revenue at risk. The areas of financial services most at risk of digital disruption are lending, payments and merchant acquiring.

■ Regulation is also driving a level of innovation and competition, e.g. the RBA and the development of real-time payments infrastructure.

■ The ATO recently highlighted in its Banking and Finance Industry Strategy for 2014-15, that digitisation may present issues and risks for the traditional retail banking model (e.g. peer to peer lending, trading platforms, electronic payment and investment services).


■ In the near term, it is expected that shorter-tenure, high turnover products like credit cards, loans and payments will see the most digital transformation.

■ Looking further ahead, bank accounts and mortgages, which together typically drive more than 50% of many banks’ revenues and usually provide “sticky” annuity streams, will be brought into the fray

Banks should try to act like start-up companies if they are to thrive in an era of sweeping technological change…-Westpac is trying to think and act like a 200-year-old start-up company.

Brian Hartzer, Westpac (BRW 2014)

““

””

Source: 2014 Macquarie Research: Australian Banks ‘Trust’ in the IT Arms Race; ATO; McKinsey; Business Review Weekly

0

5

10

15

20

25

30

Payments MerchantAcquiring

Lending -P2P

Lending -SME

Total

A$27bn of current banking industry revenue is at risk of digital disruption

Removes doubleCounting for credit cards

6.82.2

13.2

10.3 26.8




Institutions are taking a wide range of approaches in trying to keep up with the wave of technology innovation that is threatening to disrupt their sector

■ Announced a venture capital fund in July, 2014.

■ The fund will be based in London, with a global remit.

■ Will provide Fintech companies with finance; US$100m committed.

■ HSBC has allocated up to US$200m for investment in tech start-ups with the aim of improving the bank’s financial technology.

■ The bank will invest globally, both in firms that operate in retail and capital markets financial services technology.

■ In June, 2014, Barclays announced the Barclays Accelerator, a 15-week programme for Fintech start-ups.

■ 10 start-ups will receive up to US$50k and be selected to go to London to accelerate their Fintech businesses.

■ UBS has created a system of internal working groups to work on specific technology projects.

■ So-called “innovation spaces” have dedicated funds to finance their operations and will comprise individuals from both the IT and the business divisions of UBS.

■ BBVA announced the formation of BBVA Ventures, a strategic initiative that will invest US$100m in start-ups looking to transform the financial services industry.

■ Based in Silicon Valley, it is establishing ties with start-up firms, incubators and venture capital funds.

■ Citi Ventures is Citi's global corporate venturing arm, chartered to collaborate with internal and external partners to conceive, partner, launch, and scale new ventures that have the potential to disrupt and transform the financial services industry.

■ American Express, established Amex Ventures which is a US$100m fund.

■ Invests in innovative start-ups in order to enhance Amex’s company's core capabilities and accelerate their efforts in digital commerce and financial inclusion.

■ Wells Fargo has launched a financial technology accelerator program that combines a cash investment (ranging from US$50k to US$500k) for a minority stake with six months of coaching and collaboration.

■ The bank has selected three companies to pilot the accelerator in areas such as artificial intelligence and location and mobile identity technologies.

Source: Company websites; Financial Times; Wall Street Journal



Leaders of the world’s largest, most successful financial institutions recognise the emerging threat…and imperative for change


““””

When people ask me: ‘Who do you look to for leadership or who are you impressed with” . . . ”My comments quickly are Amazon, Google, Apple,

Tech companies all want to eat our lunch. Every single one of them is going to try”…“We’re going to have competition from Google and Facebook and somebody else.

John Stumpf, CEO, Wells Fargo (Financial Times 2014)

Jamie Dimon, CEO, J.P. Morgan (Financial Times 2014)

The Apples, the Googles, the Samsungs, the PayPals, the credit card companies, who can pick particular slivers as a result of the application of technology into financial services and compete”…”We need to be prepared for that.

Ian Narev, CEO, Commonwealth Bank (SMH 2014)

We are stepping up the pace of innovation at the bank I run: generating more ideas, implementing them more swiftly, being quicker to discard the ones that do not work”…“The upsides are huge, and the downsides are stark. That is why accelerating technology-driven innovation is a top priority.

Peter Sands, CEO, Standard Chartered (Financial Times, 2013)

““””

““””

““

””Source: Financial Times; Wall Street Journal



This marrying of technology with core financial services has been termed ‘Fintech’ and is seeing exponential growth globally

Simply stated, Fintech is the application of technology (software, hardware and services) to financial services■ Financial technology (or “Fintech”) ranges from creating software to processes, that enable financial institutions to enhance their customer’s experience and

streamline their operations, or by consumers to fulfil their financial needs (saving, investment, make payments).

■ The Fintech sector includes - new start-ups (in financial technology), the activities and investment in technology innovation from established financial services institutions, as well as ICT/technology providers – and collaboration between these parties or ‘disruptive innovation’ by any of them individually.

■ Growth in Fintech is being driven by a convergence of six key trends: 1) digitalisation of financial services (increase in electronic transactions); 2) falling cost of computing and IT services; 3) need for cost reduction; 4) technology innovation; 5) ubiquitous data; and 6) changing customer behavior (proliferation of devices and willingness to adopt new things).

The development of Fintech

Capital Markets Technology – Tools and platforms that enable buying and selling of securities such as foreign exchange.

Personal Finance – Tools to help individuals manage their wealth, including stock portfolios, personal budgets and taxes.

Big Data & Analytics – Application of big data and advanced algorithmic techniques to risk management, fraud detection, credit scoring, calculation of insurance premiums, etc.

Payments – Technology and tools to facilitate transactions of virtual currencies and mobile payments to eliminate processing costs.

Front Office – Tools and platforms that drive efficiencies into traditional banking operations and practices such as loan origination, fundraising and sales etc.

Areas of Financial

Technology (Fintech)

Digitalisation

Cost reduction

Technology innovation

Ubiquitous data

Changing customer behaviour

Falling cost of computing

Source: KPMG analysis, Accenture



A more collaborative model of innovation in financial services has emerged, bringing together FIs, Government, technology start-ups and investorsThis is different to the traditional model, which typically sees financial institutions relying solely on IT vendors, as well as acquiring or funding start-ups to meet their innovation pipeline:


Overseas jurisdictions are witnessing an emerging model wherein multiple stakeholders collaborate via a duration-based accelerator program to incubate and nurture a talented tech start-up in the financial space

Acquisitions or Funding

Financial institutions

Government supportVC funds

Traditional approach

Accelerator/ Incubator programs

Emerging approach

Reliance by financial institutions on one or twoIT vendors for their technology innovation needs

New Fintech start-ups ready for disruption and brimming with innovation and creative ideas; funding and mentorship key deterrents

Tech start-up

Tech start-up

Financial institutions

Benefits for financial institutions■ By introducing other stakeholders in addition to third-parties to manage

these programs, FIs are able to greatly reduce risk exposure while being able to drive innovation and focus on other priorities, e.g. regulation

■ The opportunity to increase customer satisfaction and engagement through digital disruption by embracing cutting-edge technology.

■ FIs are presented with the opportunity to engage with innovative start-ups and evaluate options beyond their traditional vendors.

Benefits for start-ups■ Tech start-ups benefit from access to funding, working spaces, sector

guidance, and more importantly a privileged audience for showcasing their offering.

■ Improving their understanding of how FIs operate and leverage the knowledge gained into building a market-relevant product.

■ The support of an FI to help overcome its funding hurdles for R&D and innovation continuity – reduces sole reliance on ‘informal’ funding sources or VCs/PE firms.

Source: KPMG analysis

Innovation is critical but risk trade-off is high and often at

the cost of loss of market perception and acceptance



The Fintech sector is experiencing rapid growth globally, with financing activity predicted to rise from US$3bn today to US$6-8bn by 2018Fintech financing activity has grown substantially from around US$100 million in 2008 to US$3 billion in 2013

■ Fintech financing activity is currently estimated at US$3 billion which is projected to rise to between US$6-8 billion by 2018.

■ Fintech start-ups in New York have raised around US$800 million since 2008, with US$450 million only raised in 2013.

■ From 2008, the value of Fintech investment in the UK and Ireland increased nearly eightfold to US$265 million in 2013.

■ The US$346 million invested in Fintech venture deals in Europe in the first six months of the year is already more than double what was raised in the whole of 2013 (US$145 million).

■ Payments, banking and corporate finance currently represent the fields with the higher investments in Fintech.

■ The upward trend of mobile devices and cloud computing suggests that data analytics and performance financial management will keep growing and attracting investors.

0

500

1000

1500

2000

2500

3000

3500

0

100

200

300

400

500

Inve

stm

ents

(US$

M)

Dea

l Vol

ume

United States Europe Asia-Pacific Other Global Investment

29%

23%

33%

26%

32%

10%

10%

9%

4%

11%

4%

10%

19%

10%

8%

7%

6%

6%

28%

46%

49%

50%

53%

70%

14%

12%

7%

6%

6%

5%

2013

2012

2011

2010

2009

2008

Banking & corporate finance Capital markets Data analysis Payments Personal finance management

2008 2009 2010 2011 2012 2013

Fintech financing activity (US$)

Fintech investment areas


Source: Pitchbook; Accenture; CB Insights



The Fintech sector is growing rapidly in profile and awareness globally

Banks Lure Fintech Startups With Venture Funds

Banks are taking a wide range of approaches in trying to keep up with the wave of technology innovation that is threatening to disrupt their sector.

Wall Street Journal, August, 2014

Banks Playing Larger Role in 2014 Fintech Funding

Corporate venture capital firms have been the biggest surprise of 2014 in Fintech, according to experts in the financial technology industry.

Bank Innovation, July, 2014

London’s ‘Fintech’ start-ups aim high

Financial technology start-ups in the UK and Ireland raised more than $USD700m from investors between 2008 and 2013.

Financial Times, August, 2014

VC Investment in European Fintech Hits Post-Dot-Com High

Venture capital investment in European financial technology companies reached its highest level in more than 10 years in the first quarter of this year.

Wall Street Journal, April, 2014

Fintech Investment Boom is an Opportunity for New York to Lead in TechnologyNew York is the fastest growing market for financial-technology ventures in the US; investment is set to double by 2018.

Bank Innovation, July, 2014

Israeli Fintech start-ups get their place in the sun

This week, Bank Leumi announced that it was joining with other financial institutions, both Israeli and foreign – such as Citi and Mastercard – to develop new technologies with Israeli Fintech start-ups.

Times of Israel, January, 2014

An explosion of start-ups is changing finance for the better

A wave of financial-technology firms, many of them just a few years old, are changing the ways in which people borrow and save, pay for things, buy foreign exchange and send money.

The Economist, August, 2013

Is Silicon Valley the Future of Finance?

Financial start-ups—known collectively as “Fintech”—are spreading like kudzu, each with a different idea about how to usurp the giants of Wall Street by offering better services, lower fees, or both.

New York Magazine, June, 2014


What is happening globally and what

can we learn



KPMG has identified eight key international locations that foster prosperous Fintech eco-systemsThree established centres (Silicon Valley, New York and London) command considerable resources and a strong population of innovative companies and entrepreneurs. Emerging centres, including Sydney, have the potential to develop into global or regional hubs for Fintech.

66m

Silicon Valley New York

London

Dublin Berlin

Tel Aviv

Hong Kong

Singapore

Sydney

Location and annual Fintech investment USD

Location only

1.5b

600m

Global Perspective



Established hubsSilicon Valley and New York dominate the global Fintech landscape. Each has formidable assets and capabilities. However each has limitations amongst the foremost are restrictive visa requirements. While Silicon Valley is the undisputed Fintech global capital today the lack of a financial services industry may prove a limiting factor in the longer term, as Fintech start-ups seek closer proximity to financial services firmSilicon Valley■ Silicon Valley boasts a vibrant technology sector and is home to many of the

world’s best known companies. Against this backdrop Silicon Valley has developed a formidable Fintech eco-system. Almost one third of global Fintech investment in 2013 went to Silicon Valley companies.

■ Initial government support for the American defence sector in the 1930’s to 1950’s, as well as strong universities (e.g. Stanford) have played a key role in establishing the valley. More recently successful repeat entrepreneurs and availability of venture capital have played a key role in funding and establishing new ventures. However Silicon Valley has a relatively small financial services sector which may hamper long term primacy.

■ Approximately 11,000 people working in Fintech in the valley.

New York■ New York is the second largest Fintech hub globally, with Fintech investment

growing rapidly (CAGR 31%), increasing twice as fast as Silicon Valley over the past five years. However as deal volumes rise, deal value is diminishing which may impact the ability of start-ups to attract latter stage funding.

■ New York is a world centre for financial services. As a result there is a ready pool of financial services skills to feed entrepreneurial Fintech business. Other ‘tech’ businesses such as Google, Facebook, Amazon and eBay are growing in New York which may impact the ability to attract quality engineering talent.

■ Approximately 43,000 people working in Fintech in New York.■ The city’s relatively low Fintech profile affects its ability to attract influential capital.

Government Support

Private VCFunding

Skills / Talent

Business Environment

Start Launch Build Scale

Government Support

Private VC Funding

Skills / Talent



Start-up Environment:

Funding Availability Profile:



Global Perspective



Established hubs

London is second only to New York as a global centre for financial services. The UK government is actively trying to foster development of the Fintech sector. This investment has the potential to drive further development and innovation.

Government Support

Private VCFunding

Skills / Talent





London■ London is second only to New York in terms of global financial services.

The UK government is promoting London as a Fintech hub and actively attracting investment and talent. This coupled with reasonable access to funding, talent and a conducive business environment position the Fintech eco-system in London for growth.

■ Private funding has been growing strongly (the 5 year CAGR in 2013 was twice the global average). Late stage funding/IPO options may have been problematic in the past but are less of an issue today.

■ Approximately 44,000 people working in Fintech in London.

Global Perspective



Emerging centres - EuropeDublin and Berlin are both promising centres with good access to technical skills. However both are challenged in terms of financial services skills. Dublin suffers ‘brain drain’ to London while the financial services sector in Berlin is relatively underdeveloped. Start-ups in Dublin also enjoy better access to capital.Dublin■ The Fintech sector in Dublin benefits from strong government support.

Mechanisms include pro-investment tax settings, to bespoke services/support, and actively recruiting foreign talent.

■ It also has a network of angel investors and venture capitalists. The government also supports inward investment from foreign investors. Latter stage funding is harder to secure.

■ There is a strong education sector and a good supply of young skilled workers (ranked #1 for the availability of skilled labour).

Berlin■ Berlin has a robust education system and attracts young talented

people. It has a good business environment and costs are modest by European standards. However it lacks a strong financial services sector. Government support for Fintech and entrepreneurship is limited but may be growing.

■ Access to private funding and venture capital is also limited as are sophisticated investors who can help guide entrepreneurs towards success. This may present an opportunity for foreign investors.





Global Perspective

Government Support

Private VCFunding

Skills / Talent



Government Support

Private VC Funding

Skills / Talent



Source: IMD World Competitiveness Yearbook 2014



Emerging centres - AsiaSingapore and Hong Kong are both vibrant financial services centres. Singapore is aggressively pursuing Fintech development. Hong Kong’s proximity to China represents significant opportunities for financial services. Access to private sector VC investment remains a key hurdle for both cities.Singapore■ The Singapore government has invested heavily in the

promotion of an innovation eco-system through direct investment, tax incentives, and measures to make Singapore an attractive destination for entrepreneurs.

■ Singapore’s strategic location, conducive cultural and legal factors, developed financial services sector and ICT capabilities provide a fertile environment for Fintech. However, early stage funding is not matched by funding available later in the cycle.

Hong Kong■ There are a range of government incentives and services. The government is also

active in attracting foreign entrepreneurs however the visa process can be an impediment and tax structures are less favourable than some other centres.

■ The local pool of venture capital is small but growing and foreign investors are becoming more active.

■ The financial services and ICT sectors are well developed. Additionally, Hong Kong has a strong entrepreneurial pedigree and a supportive business environment.

■ Hong Kong is also a key gateway to the Chinese mainland which represents significant a opportunity for financial services.





Global Perspective

Government Support

Private VCFunding

Skills / Talent



Government Support

Private VC Funding

Skills / Talent





Emerging centres – Middle EastTel Aviv has spawned several successful technology ventures. Its strong technical capabilities are underpinned by skills developed during military service. The incentives for Foreign Direct Investment (FDI) though the Yozma Fund are amongst the most generous seen globally.

Government Support

Private VC Funding

Skills / Talent





Tel Aviv■ The Yozma Fund has been offering generous incentives to attract foreign

investments for over 20 years. Tax breaks also exist for research and development and the government supports entrepreneurs through events and provision of shared working spaces.

■ A good education system and technical skills developed during mandatory military service contribute to a strong skills base. Changes to make it easier for foreigners to start a business in Israel are also under consideration.

■ Almost 300 venture capital firms are active in Israel. Seed-stage funding is a relatively small proportion of aggregate investment.

Global Perspective



Government support can be segmented into four broad areas:

■ Direct assistance and funding

■ Concessional tax structures

■ Visa and immigration policies

■ Other measures.

Within these categories there are a variety of approaches and policy settings and no clear leader.

Global Perspective

London

Singapore

Tel-Aviv

■ Start-up loans for seed capital■ Broad based 100% investment matching across early stages of

start-up lifecycle■ Support for development of VCs

■ S$100 million early stage start-up funding■ Up to 85% government investment in incubators ■ SPRING ‘Networking’ assistance from multiple agencies■ Plans to scale back once eco-system is self sustaining

■ Start-up grants for seed capital (repayable via royalties) ■ Tnufa Program provides a grant for up to 85% of approved

expenses (capped at US$50k per venture)

Relative to best-in-class

London

Singapore

Tel-Aviv

■ Entrepreneurs Relief – 10% Concessional Capital Gains

■ EIS/SEIS - income tax relief and cap gains exemption(until 2014)

■ Start-up partial tax exemption (3 years)

■ Corporate tax exception for 15 years (qualifying profits only)

■ Up to 400% deduction for innovation investment (S$400k cap)

■ Low tax environment

■ Tax breaks for VC accelerators and angel investors

■ Moves to simplify criteria for start-ups under three years old (2015)


Comparison of government programsWith the exception of Silicon Valley (where the start-up eco-system is self sustaining) all centres had government programs to incentivise and support innovation.

Direct assistance and funding:

Concessional tax structures:



Government support can be segmented into four broad areas:

■ Direct assistance and funding

■ Concessional tax structures

■ Visa and immigration policies

■ Other measures.

Within these categories there are a variety of approaches and policy settings and no clear leader.

Global Perspective

London

Singapore

Tel-Aviv

■ Entrepreneur Visa scheme

■ Global Entrepreneur Programme to attract early stage companies

■ Open Immigration Policy – easy access to Permanent Residence

■ EntrePass flexible Visa for foreign entrepreneurs

■ Currently reviewing Visa policy


London

Singapore

Tel-Aviv

■ Recent relaxation of IPO requirements – able to list only 10% equity

■ Technology Strategy Board to oversee innovation programs

■ I-Class innovation accreditation for financial service organisations

■ Government focus on key sectors

■ Start-Up Week (1,500 participants)■ Go 4 Israel: the 12th edition of “go 4 Europe” conference■ MIXiii: ‘Mix Israel Innovation International” – Israel innovation

conference


Comparison of government programsWith the exception of Silicon Valley (where the start-up eco-system is self sustaining) all centres had government programs to incentivise and support innovation.

Visa and immigration policies:

Other measures:



Our analysis of the different Fintech hubs (Silicon Valley, New York, London, Dublin, Berlin, Tel Aviv, Singapore and Hong Kong) demonstrate that in order to develop a strong Fintech ecosystem the following factors are important enablers:

■ available and accessible early stage funding for Fintech start-ups and a strong pipeline of opportunities for investors/VC funds;

■ depth of financial services and technology talent and close proximity of these talent pools to each other (in city locations);

■ a robust financial services industry, with a vibrant technology start-up community with mentoring, networking and high visibility;

■ Government commitment and regulatory support for the Fintech sector specifically, and technology start-ups generally; and,

■ business backing for a Fintech hub, with high levels of collaboration and a strong culture of knowledge-sharing and entrepreneurship.

One conclusion from the analysis is that those locations that perform strongly across three or more of these factors we see clear evidence of strong Fintech ecosystems. Silicon Valley, New York and London are notable examples of this.

In addition, there also needs to be aligned activity and coordinated action across each of them. For example, the UK in particular have accelerated the development of London as a Fintech hub over the past 18 months through a concerted effort by the government, regulators, the City of London, technology start-ups and industry.

What we can learn from the global leaders

Global Perspective

Another key finding is that in some locations, notably Tel Aviv and Silicon Valley, there is also a strong cultural drive to innovate and that risk taking is not only acceptable but desirable and encouraged. It is clear that policy makers at city (or municipal) levels are closer to the sources of innovation than those at a national level (in most of the jurisdictions included in the analysis). For example, Berlin has developed a vibrant ecosystem in the past few years without systematic government support.Fintech start-ups and technology start-ups generally suffer from a lack of access to the relevant government agencies, often hampered and delayed by having to deal with many stakeholders this creates the potential for bottlenecks. Clear start-up contact points in government and regulatory agencies can greatly assist Fintech start-ups throughout their development.As the competition for investment and entrepreneurial talent reaches global proportions, city/municipal support for nascent entrepreneurial clusters becomes a must-have, especially for large metropolitan areas.There are a number of implications for Sydney and NSW in terms of the future competitiveness of the financial services industry. There is also a window of opportunity for Sydney to position itself as the leading regional Fintech hub, as Hong Kong and Singapore, have not aligned efforts within their respective jurisdictions around Fintech nor promoted themselves internationally.

Our analysis of the global Fintech landscape has identified a number of leading and emerging hubs. From this we have identified a set of common characteristics that can “enable” the development of a thriving Fintech sector in Sydney. There is a window of opportunity for Sydney to position itself as the leading regional Fintech hub.

SydneyFintech today



Australia has examples of start-ups and successful businesses across key areas of the Fintech spectrumActivity started picking up in 2007 with Australia boasting ~1,500 tech start-ups by 2013

■ Sydney is the leader among Australian cities as a key hub for tech start-up activity with over 950 businesses, followed by Melbourne (350 businesses)

■ Fintech makes up a small proportion of these businesses

■ Venture Capital is limited with two funds taking a direct interest in Fintech: AWI and Reinventure. AWI Ventures runs the only dedicated Fintech accelerator in Australia

■ As well as emerging players (e.g. SocietyOne and PocketBook), there are established Fintech businesses too (e.g. OzForex and Tyro Payments)

■ There is limited participation from established firms in Fintech through either accelerators or venture capital (Westpac being a notable exception)

■ Whilst back office support has moved to other parts of Sydney (e.g. Kogarah and Parramatta) Fintech activity is mainly located in and around the CBD

Sydney’s Fintech sector

950

350 10530

0

200

400

600

800

1000

Sydney Melbourne Brisbane Perth

Mapping Sydney’s Fintech Hubs

Mapping Sydney’s Fintech Hubs

Surry Hills

Darlinghurst

Barangaroo

Sydney CBD

Pocketbook

AWI Ventures Accelerator

StockspotEquitise/MacroVue/Debt to 10K/Simply Wall St^

VC Fund

Fintech start-up

Accelerator

LEGEND

Innovyz

Reinventure

Note: *Represents approximate figures; ^Fintech start-ups operate out of Sydney CBD as part of the AWI Ventures Accelerator Source: “The start-up economy - How to support tech start-ups and accelerate Australian innovation “, Google Ventures & PwC (April 2013) accessed July 2014; Industry reporting; KPMG analysis

“The Australian tech start-up sector has the potential to contribute A$109 billion or 4% of GDP to the Australian economy and 540,000 jobs by 2033 with a concerted effort from entrepreneurs, educators, the government and corporate Australia.”No. of tech start-ups in Australia*

Note: *Represents approximate figures; ^Fintech start-ups operate out of Sydney CBD as part of the AWI Ventures AcceleratorSource: “The start-up economy - How to support tech start-ups and accelerate Australian innovation“, Google Ventures & PwC (April 2013) accessed July 2014; Industry reporting; KPMG analysis

http://www.digitalpulse.pwc.com.au/wp-content/uploads/2013/04/PwC-Google-The-startup-economy-2013.pdf



The Australian start-up ecosystem is still in its nascent stages, with most companies being one or two person start-ups, although activity is picking up

Australia has an emerging Fintech start-up landscape across the full spectrum of Fintech areas, with many new emerging start-ups, as well as more established successes


Personal Finance

■ Pocketbook provides personal financial management solutions

■ SocietyOne is Australia’s first peer to peer lending network

■ StockSpot acts as an online advisor, assessing a consumer’s investment goals, risk tolerance and recommends an appropriate portfolio

■ Nimble allows consumers to obtain finance within the hour

Big Data & Analytics

■ Quantium allows businesses to capitalize on the value of their data and employs talent from the best statisticians around Australia

Front Office

■ Equitise is a new start-up that provides crowd-funding exclusively for SMEs in Australia

■ Flamingo is a vendor relationship management platform that interfaces with an organisations CRM platform, and provides tools for customers to manage their vendors

Payments

■ Tyro Payments offer an alternative merchant acquiring solution and is Australia’s only independent EFTPOS provider

■ CoinJar is Australia’s largest and longest running bitcoin company

Capital Market Technology

■ Pepperstone and OzForex are both Australian online retail foreign exchange brokers specialising in foreign exchange trading

Source: KPMG analysis; Company websites



More broadly, there are many examples of an emerging Fintech landscape, with most Fintech start-ups originating from Sydney


Personal Finance

Middle and Back Office

Front Office

Capital Market Technology

Accelerators & IncubatorsVenture Capital

Big Data & AnalyticsPayments


http://reinventure.com.au/




This development is supported by a small number of new specialist Fintech venture capital funds and accelerator programs

A critical dimension to the success of Fintech start-ups are venture capital funds and accelerator programs


Reinventure

■ In February, Westpac established its own limited partnership venture capital fund. It hopes to fund about a dozen companies run by proven entrepreneurs with proven business models. Westpac is the largest investor in the Reinventure Fund. The fund is operated independently by the managers, Danny Gilligan and Simon Cant, who are also co-investors in the fund. This allows them to fully focus on helping the portfolio companies succeed and, with A$50M in committed funds, they have the resources to continue investing and stay engaged with companies as they grow.

■ One area of focus will be companies that offer disruptive technologies that might improve the traditional banking customer experience. Reinventure makes investments from seed through to Series A and up. For the right entrepreneur and the right idea, Reinventure will invest at the company foundation stage.

Australasian Wealth Investment & AWI Ventures

■ Australasian Wealth Investment (AWI) is an investment company listed on the ASX and focused on the financial services sector. AWI will hold equity stakes (up to 100%) in operating businesses in four core thematics: digital distribution; research and information; funds management; and trustee & super services. AWI will also invest selectively in early stage businesses through AWI Ventures where these businesses complement its core operating businesses.

■ AWI Ventures invests in digital finance industry start-ups with a particular interest in direct-to-consumer wealth management services. AWI Ventures holds typically minority stakes in early stage, growing businesses that have the potential to become successful and substantial enterprises and potentially valuable partners for core AWI businesses. AWI Ventures is building a portfolio of investments in digital financial services. To foster genuine innovation in the digital financial services industry, AWI Ventures has launched a start-up accelerator program. This is the only financial services focused accelerator in Australia and one of the first in the world.






Sydney also has a fledgling Fintech community


Sydney has an emerging Fintech community with around 450 members that is already holding events (“Meet Ups”)

■ Sydney Fintech Startups Meetup, founded by Kim Heras in 2013.

■ Since its establishment they have held six ‘Meetups’ in Sydney.

Source: Sydney Fintech Startups Meetup website



Our local technology start-ups are gaining attention from offshore Governments, with some, such as the UK targeting them to move to London

There are threats from other Governments, particularly the UK and Singapore in targeting the Australian technology start-up community, to relocate their businesses offshore


■ UK Trade & Investment (UKTI) is the government department that helps overseas companies bring high-quality investment to the UK’s economy. It has recently published a document setting out the strengths of the UK’s Fintech sector and the market opportunities for Fintech companies in the UK.

■ The UK’s success indicates that a strong customer base, supportive regulator, availability of capital and the financial services infrastructure all make the UK offer attractive to Fintech companies. This evidence is being used by UKTI to attract further potential Fintech investors to the UK.

■ UKTI is launching a global roadshow to lure financial technology companies to the country, as part of the government’s push to make London a global centre for Fintech.

■ Representatives from the business trade body plan to travel to countries including the US, India, Singapore, Germany, Scandinavia and Hong Kong in a bid to attract Fintech companies to London. UKTI is looking to attract both established Fintech providers and new, innovative start-ups.

■ Chancellor of the Exchequer, George Osborne recently announced a range of measures promoting Fintech:

- Consultation on a new strategy for Britain’s digital communications infrastructure, to ensure the UK remains a leading digital nation and is equipped to harness the emergence of Fintech.

- A major new review examining how the technology that serves the financial sector will evolve in the future, to be lead by the Government Office for Science. Industry and academic experts will look at the technologies, enablers and barriers that will shape the future of the Fintech sector up to 2025, and the policy implications for the government.

- Proposal for a range of new awards and prizes to promote the development of innovative finance solutions that help small businesses access finance, co-sponsored by the British Business Bank and Innovate Finance (UK Fintech industry association).

Source: KPMG analysis; UK HM Treasury; Australian Financial Review

Key implications and recommendations



The key implications for Sydney

Government Support

Private VC Funding

Skills / Talent





Enabling conditions

Applying the same analytical framework we have used to look at both leading and emerging Fintech hubs, Sydney has the many of the required elements in place but underperforms relative to global leaders.

One area where Australia does no perform as well is in regard to capital availability, particularly post-GFC. This relative lack of capital available to new firms in Australia is highlighted by the 2013 OECD venture capital statistics which show that Australian VC totals just 0.02% of GDP, which can result in start-ups that would otherwise operate domestically moving offshore for funding.

Sydney

However, there are Australian examples of international success in Fintech most notably in wealth management platforms and foreign exchange (e.g. Bravura Solutions and OzForex).

This is a significant opportunity for Sydney and Australia. Financial services is the single largest employer in the city and the Australian financial services industry is well developed and mature across banking, wealth management and insurance. Through Fintech, we can export our capabilities to the region and globally.

Tax incentives for both start-up firms and investors can play an extremely important role in building critical mass in a Fintech eco-system. Despite reductions, tax is still an area in which Sydney falls behind other cities competing for start-up capital both on a total tax and tax on R&D basis (ranking 44 compared to other international cities in an index of 51 cities in total).

Fintech also has the potential to disrupt established businesses and also challenge Sydney’s place as a leading financial services centre. The need to develop and foster Fintech is as much about responding to the disruptive threat as it is about looking for growth opportunities for the Australian and State economies.

Source: Innovation in Australia, Australian Centre for Financial Studies; KPMG Competitive Alternatives (2014)



Building on our foundations

London provides a template for Sydney to follow in terms of taking concerted action across a range of public and private sector stakeholders to accelerate their stated ambition to be the world leader in Fintech

Enabling conditions

London is maximising its high concentration of financial services and technology talent as well as an established hegemony in financial services. Action is being coordinated across business and government through Innovate Finance and the UK Government (through UK Trade and Investment) is sending a consistent message that London wants to lead the world in Fintech.

Policy settings have also been adjusted to allow for innovation and to support the growing Fintech ecosystem (for example, the promotion of bitcoin and start-up specific regulatory frameworks).

Sydney can learn a lot by looking at London specifically for Fintech but cities like Tel Aviv and Singapore also provide strong examples particularly in terms of government support for technology start-ups.

We have strong foundations in terms of financial services and access to skilled and capable resources across financial services, technology, digital and creative industries, as well as a number of leading universities and business schools.

For Sydney to have a vibrant and flourishing Fintech eco-system we need to focus on those enabling conditions where we are strong and also seek to develop the areas where we are underweight.

This means we must leverage:

■ our concentration of and access to financial services and technology talent; and,

■ our clear leadership position in financial services.

Whilst also taking action to:

■ increase the availability of funding at both seed and venture capital stages;

■ build both government and business support for technology start-ups; and

■ foster a more entrepreneurial mind-set.



What Sydney needs to do

For Sydney to lead in Fintech we need to take action that will build and strengthen the pipeline of Fintech business ventures looking to call Sydney home.

This requires concerted aligned action from both the public and private sector.

Recommendations for the public and private sector

We have identified a number of key enabling conditions for a successful Fintech sector in Sydney. These are:

■ having a concentration of and access to financial services and technology talent;

■ increasing the availability of funding at both seed and venture capital stages;

■ building government and business support for technology start-ups;

■ having a clear leadership position in financial services; and

■ embracing a more entrepreneurial mind-set.

Maximising each of these conditions is essential to building a pipeline of Fintech business ventures. All play a role to a differing degree in each of the cities included in the analysis.

London is consciously acting to take ownership of Fintech and use it to protect and enhance its place as a leading global financial services centre.

Similar to London Sydney has a vested interest in maintaining our leadership in financial services. If we are serious about maintaining a leading position in financial services locally and regionally it is imperative we act now.

The steps we take to do so must clearly help to maximise our performance against each of the enabling conditions and action must be aligned across the public and private sector.

This is not about backing winners and avoiding losers but creating optionality for Sydney and the financial services industry in Australia.



2. Commitment 4. Accessibility 5. Collaboration 6. Promotion3. Alignment1. Vision & strategy



There are six areas that warrant attention in order to position Sydney as a globally recognised, respected, attractive City for the emerging Fintech sector

■ Fintech start-up activity tends to occur in large metropolitan areas.

■ Establish a coherent and supportive entrepreneurial vision and strategy for Fintech at a city level (Sydney).

■ Consider Fintech in a broader global financial services context and particularly Asia as an export opportunity.

■ It is important for government (and regulatory agencies) to publicly state their commitment to supporting the development of the Fintech sector.

■ Maximising the opportunity will take strong commitment from government and industry.

■ To accelerate the development of the Fintech sector, alignment and coordination of activity and investment is required (government, regulators, start-ups, industry, academia).

■ Explore adjacent opportunities and benefits across sectors, e.g. financial services, ICT, professional services.

■ Critical to any start-up is access to funds and expertise.

■ Beyond this there is also a need for access to regulators, government and data.

■ Government providing a single point of contact for start-ups to remove bureaucracy.

■ Sydney needs a clear point of entry for Fintech where various stakeholders can come together.

■ A ‘centre of gravity’ or physical focal point needs to be established.

■ Fintech requires established financial services organisations and new ventures to come together.

■ Problems need to be shared and safe environments created to truly foster innovation.

■ Financial services and Fintech both need a champion and voice at local and global levels.

■ This needs to be at both an industry level and also at a political level.

■ Promotion can be used as an effective tool to attract capital, investment and the best talent (locally, regionally and globally).





Recommended actions Rationale1. State Government to continue working with partners in the private sector and the Committee for Sydney on the development of a comprehensive Fintech vision and strategy for Sydney, providing a focal point for the alignment of effort across the public and private sector and articulating a clear commitment to the Fintech sector

■ Provides an aligned vision and goals for the development of the Fintech sector, as part of the State Government’s support for financial services

■ Articulates the importance of and commitment to Fintech as a sector■ Establishes the critical pathway and actions for success

2. Explore the establishment of a not-for-profit Fintech hub in the heart of the city that co-locates technology start-ups, venture capital and established financial services firms

■ Creates a critical mass and local ‘centre of gravity’ for Fintech in Sydney■ Provides low cost services, e.g. working space and expertise for start ups■ Provides access to low cost capital for start-ups, as well as a pipeline of opportunities

for venture capital and established financial services firms■ Drives collaboration between start-ups, established financial services firms, as well as

regulatory agencies

3. Government (local, state and Commonwealth) to promote Sydney as the leading Fintech centre in the ASPAC region and establish a series of events in the city, regionally and globally, to showcase Fintech in Sydney, in line with our leading financial services position

■ Establishes a platform to promote Fintech in Sydney and globally■ Raises awareness for Fintech start-ups to export their capability offshore■ Attracts funding and venture capital to Sydney■ Attracts entrepreneurial talent to Sydney

4. Form an independent Fintech focussed industry association, based in Sydney, to give the sector a strong voice and champion

■ Helps to prioritise the needs of the sector (liaising with Government and regulatory agencies) and provides a representative voice for the Sydney Fintech community

■ Promotes Sydney as the ‘centre of gravity’ for Fintech in Australia and regionally■ Drives collaboration between financial services firms and Fintech start-ups

5. Work with the Federal Government and regulatory agencies, to enhance the current regulatory, tax and business incentives available to the start-up community, as well as introduce measures to target foreign entrepreneurs, attracting them to Sydney

■ Provides a regulatory and tax framework that supports innovation■ Helps to broaden the entrepreneurial culture base■ Attracts funding and venture capital to Sydney■ Attracts entrepreneurial talent to Sydney

6. Engage the university sector and leverage research institutes, such as the Centre for International Finance and Regulation (CIFR) to research key Fintech themes and explore business opportunities for commercialisation

■ Develops ideas and business opportunities for commercialisation■ Connects the university sector, the Fintech start-up community and business■ Leverages existing infrastructure, such as CIFR

AppendixUnlocking the potential:the Fintech opportunity

for Sydney

Context: Macro-level trends



Post-GFC, financial institutions globally have recognised the need to work smarter and be more customer-centric, while the consumer space was seeing a disruptive change of its own

Strategic imperatives for financial institutions and evolving consumer behaviours, in part driven by new technology, has been a catalyst for innovation

For Financial institutions…1■ Driving revenue steams while lowering costs was a priority:

Financial institutions (FIs) realised that by using innovative technology solutions, they were able to not only achieve scale, but also be more efficient. Use of automated procedures and the introduction of non-branch channels drastically cut employee costs, while allowing financial institutions to grow their customer base.

■ Improving the customer experience was also key: Technology was a means to develop innovative financial solutions. FIs began to record customer data to gain deeper insight into their clientele. They were able to drive loyalty by predicting customer behaviour, anticipating the need for new products and risk of attrition. This allowed FIs to improve the customer experience.

■ Financial institutions realised that they needed to cope with a challenging business environment, and in parallel, the advent and proliferation of mobile devices led to users to demand advanced financial solutions

■ Technology acted as the key enabler, and bridged the gap between the FI’s current state and the customers’ need

The Catalyst

■ During the GFC, there was a mass exodus of banking and finance employees who had the know-how, funds and an entrepreneurial mind-set to try new things

■ These ex-employees began to focus on technology to try and solve some the industry’s biggest challenges

For Customers… 2■ The digital revolution was in full steam: As streaming data and

cloud storage rapidly replaced CDs and DVD, the need for personal banking and payments emerged as a strong consumer and business need.

■ Mobile device proliferation: The ubiquity of mobile devices further fuelled this need and changed the financial and transactional experience (and expectations) of consumers.

Macro-level trends

I think the City of London has a large part to play in the UK's dominance in Fintech. Banks were shedding staff during the recession, but we're seeing people who were experts in a big bank and had nice bonuses, some savings and strong expertise. They've come out with interesting plays that leverage cloud infrastructure and their own knowledge. They've become experts to the sector, rather than one particular bank. It's the best type of spinout really.

Alex McCracken, Director –Venture Services, Silicon Valley Bank

(UK Branch)

““

””Source: KPMG analysis




■ “Thomas Edison performed 9,000 experiments before coming up with a successful version of the light bulb”.

■ The US has proved to be more entrepreneurial than Europe in large part because it has embraced a culture of “failing forward” as a common tech-industry phrase puts it: in Germany bankruptcy can end your business career whereas in Silicon Valley it is almost a badge of honour.

■ Companies must recognise the virtues of failing small and failing fast, like placing “little bets”.

■ Placing small bets is one of several ways that companies can limit the downside of failure.

Disruptive innovation has created new ways of doing business, which destroyed or severely damaged old existing giants

Innovation plays an integral role in growing a nation’s economy, employment and standard of living through the development of new products, processes and fledgling industries. Business leaders know that the speed of development is such that they have to keep innovating and changing faster to remain competitive

Average number of years a company spends in the S&P 500 index


Source: The Economist, April 14, 2011



Rank Investor Type

1 Google Ventures Corporate Venture

1 Andressen Horowitz Venture Capital

3 First Round Capital Venture Capital

4 SV Angel Venture Capital

5 True Ventures Venture Capital

5 Crosslink Capital Venture Capital

5 Felicis Ventures Venture Capital

5 DAG Ventures Venture Capital

9 Citi Ventures Corporate Venture

9 Sequoia Capital Venture Capital

9 Redpoint Venture Venture Capital

9 Khosla Ventures Venture Capital

9 Dill Capital Management Venture Capital

9 Kleiner Perkins Caulfield & Byers Venture Capital

9 Lightspeed Venture Partners Venture Capital

9 Greylock Partners Venture Capital

9 500 Startups Venture Capital

Google Ventures was established in 2009 to help entrepreneurs through investment and support, starting off with an initial US$100 million per year in the US which has increased to US$300 million invested in over 250 companies. Up until recently Google Ventures has focused its investments on Silicon Valley companies, however, it is now expanding globally, recently announcing a US$100m European based arm of Google Ventures.

Companies such as Google see investments in start-ups as a core part of their strategy to remain at the forefront of innovation

Global financial institutions are recognising that new business models are developing and that they don’t often fit inside their current operating model -and see investing in start-ups as a way to position themselves against the threat of digital disruption

Active Investors in Silicon Valley Fintech companies: 2009-2013


Source: KPMG Desktop Research



Australian financial institutions are seen as leaders in embracing innovation and have launched a number of strategic initiatives over the past five years, particularly in mobile banking, payments and online

Australian financial institutions have been amongst the most innovative globally, adopting a range of strategies and initiatives

■ CBA launched a range of offerings in 2012 for small businesses with new point-of-sale (POS) capabilities (Leo), enabled through a new software platform (Pi) and a new omni-commerce device (Albert)

■ UBank was launched in 2008 as banks were really starting to come to terms with digital disruption. This was a way for NAB to test and learn with digital.

■ In 2014, Westpac invested A$50 million in a venture capital fund, Reinventure and through this making investments in early stage start-ups. For example, Westpac made a A$5 million investment in peer-to-peer lender, SocietyOne.

■ ANZ’s goMoney mobile app was launched in 2010 and now has more than 1.4 million users, has hit A$100 billion in transactions and a million logins a day.

NAB launch of UBank CBA launch of Pi, Albert and Leo

ANZ launch of goMoney Westpac investment in Reinventure


Source: KPMG Desktop Research; Company websites

Global perspective: comparison of

established and emerging Fintech hubs



A strong commitment has been given by the UK Government to the advancement and support of the Fintech sector

The UK is leading efforts globally to support the development of Fintech and has made substantial progress over the past 18 months…

Government

■ £100 million extension of the British Business Bank’s successful Investment Programme, which addresses long-standing gaps in the finance market for smaller businesses and promotes a greater choice in their supply of lending, including in the Fintech sector. The British Business Bank has already committed over £100m to Fintech firms through the complete range of its programmes.

■ The UK Government will allow peer-to-peer lending in Individual Savings Accounts.

■ The Small Business Bill will require that large banks provide the details of SMEs that are rejected for lending by promoting alternative lenders.

■ British Business Bank and Innovate Finance will collaborate in a joint effort to increase SME lending by promoting alternative forms of funding, including peer-to-peer and equity crowd-funding.

■ The UK Government will explore the opportunities, risks and potential regulation of virtual currencies and digital money.

■ Have established a Financial Services Trade and Investment Board, bringing together government and industry to attract inward investment, promote external trade and remove restrictions of the UK’s financial services sector.

Global perspective

I’m here today because I want the UK to lead the world in developing Fintech. That’s my ambition – short and sweet…

…There is fierce international competition for this growing industry. And you need the right support from government to win this global race – you need the best investment environment, the right tax system, the appropriate regulatory rules, the best infrastructure, and a government that gets out there in the world and sells your products and services.

George Osborne, Chancellor of the Exchequer

““

””



The UK have achieved a strong alignment of efforts, across Government, Regulators, Fintech start-ups and industry

One of the key features of the UK’s success, has been the strong alignment of effort across various stakeholders

Trade and Investment

■ UKTI has set a clear focus on increasing the export of UK financial services technologies, as well as attracting more foreign and domestic investment into the sector.

■ Fintech is one of the top priorities for the UK’s recently established Financial Services Trade and Investment Board.

■ Have developed a strategy to ensure the UK is the destination of choice for companies that want to establish a global presence in Fintech.

■ Have personnel ‘on the ground’ in Australia promoting the UK to local Fintech start-ups.

Regulatory

■ The Financial Conduct Authority (FCA) has recently announced ‘Project Innovate’, an initiative to support industry innovation by smaller start-ups through to established firms with new business models.

■ The FCA’s policy unit is engaging with firms developing innovative approaches not explicitly covered by regulation, or for which application of regulation is ambiguous.

■ Will be launching an ‘incubator’ to support innovative small financial businesses as they prepare for regulatory authorisation.

Education

■ In late 2014 coding will be introduced to the school timetable for every child aged 5-16 years old, making the UK the first major G20 economy in the world to implement this on a national level.

■ This is a landmark policy change that will arm a generation of school-leavers with the skills for the 21st century.

■ Year of Code is an independent, non-profit campaign in the UK to encourage people across the country to get coding for the first time in 2014.

Hub

■ Level39 was established by the Canary Wharf Group and opened on 2013 by Boris Johnson, Mayor of London, quickly becoming Europe’s largest accelerator space.

■ It provides a space for early-stage Fintech businesses that have potential for high-growth. It plays host to innovation and accelerator programmes – these are short programmes that aim to boost a young company’s growth over a concentrated period of time.

■ It boasts a 250 seat event venue, four hi-tech sandboxes and an executive boardroom.

Fintech Trade Body

■ Innovate Finance, an industry body established to promote the interests of the UK’s rapidly growing Fintech sector, was launched in August, based in London.

■ The body aims to be the voice of a new Fintech movement and has over 50 founding members. It will provide a single point of access to key industry influencers, clients, technologies, talent, finance and international marketplaces.

■ It is supported by the City of London Corporation, as lead sponsor.

Industry

■ UK banks are launching Venture Capital funds and/or accelerator programs targeting Fintech start-ups, e.g. HSBC, Barclays.

■ Fintech Innovation Lab was launched in 2013 supported by Accenture which provides a 12-week mentorship program, bringing together young Fintech start-ups with senior executives from 13 of the world’s leading banks. Innovation Labs exist in London, New York and ASPAC.

Global perspective




The Australian financial services industry contributes the highest share of sector gross value added to the economy and employs 420,000 people

Annual GVA and share of the top two contributors – “Financial and Insurance Services” and “Mining” (A$ billion)

■ The Australian economy has shown robust growth with GVA increasing at 6.8% CAGR over the past 13 years. During this time, financial and insurance services sector has grown at a CAGR of 7.1% (amongst the top two growing industries), constantly maintaining its share of around 8-9% of the total GVA since 2000.

■ As of June 2013, Financial and insurance services, along with mining, are the highest value-adding industries in the economy, accounting for over 9% each of the nation’s value added numbers.

■ The financial services industry employs 420,000 people, with the overwhelming majority in high skilled, high wage occupations.

■ According to the ATO, there are 2,965 tax payers in the banking and finance industry, who paid A$11.5 billion in tax, and this contributed to approximately 23% of the Public Groups and International income tax collections for the 2013 tax year and around 18% of total corporate tax receipts in Australia.

■ Treasury’s Economic Roundup confirmed that the average tax rate for the financial services sector has been higher than most other industries for at least the past six years.

June2000

June2001

June2002

June2003

June2004

June2005

June2006

June2007

June2008

June2009

June2010

June2011

June2012

June2013

Financial and insurance services Mining Others

9%

81%

9%

11%

84%

9%

88%

9%

87%

8%8%

8%

5%

5%

87%

8%

5%

86%

8%

6%

87%

8%

8%

84%

9%

85%

9%

87%

8%

82%82%81%83%

10%8%

4%

8%7%

5%

9%10%

10%

8%

1,205

CAGR 6.8%

1,392

1,313

919847

1,423

730690

644608

1,1751,089

1,002

Total GVA at current prices

Financial Services

CAGR 7.1%

786

GVA at current prices, A$ billion


Source: Australian Bureau of Statistics, Cat. No. 5204.0 Australian System of National Accounts, Time Series Workbook, Table 5 (last updated 1 Nov 2013); Australian Taxation Office, Banking and Finance Industry Strategy for 2014-15; FSC Submission to the 2014-15 Federal Budget; Treasury, Economic Roundup Issue 2, 2011).



Wells Fargo $261J.P. Morgan $229ICBC $196HSBC $191Bank of America $181China Construction Bank $160.8Citigroup $144Agricultural Bank of China $126.4Bank of China $115.9Commonwealth Bank of Australia $115Banco Santander $110.5Allied Irish Bank $100Westpac Banking Corporation $99.2BNP Paribas $96Royal Bank of Canada $95.1Lloyds Banking Group $90.1Toronto Dominion Bank $86.5Australia New Zealand Banking Group $83.2Mitsubishi UFJ Financial Group $78.4US Bancorp $78.1UBS AG $78National Australia Bank $75.5Goldman Sachs $74.1Bank of Nova Scotia $70.5Itau Unibanco $70.4

Australia has a mature, well regulated and diversified financial sector

Authorised deposit-taking institutions –

Banks60%

Authorised deposit-taking institutions –

Other1%

Registered Financial

Corporations3%

Life offices and superannuation

funds28%

Other managed funds5%

Securitisation vehicles

3%

Total financial sector assets100% = A$5,237 billion

World’s top 25 banks by market capitalisation (US $billion)

■ Australia has a sophisticated profitable banking sector and a well established regulatory environment. The four major banks are all in the World’s largest banks by market capitalisation, all rank in the top 20 of the World’s 50 safest banks, and are amongst the most profitable banks globally.

■ Australia has favourable economic fundamentals and a strong and growing financial services sector that has demonstrated resilience and outperformed other advanced economies during and post the Global Financial Crisis (GFC) period.

■ On the global stage, the World Economic Forum rates Australia as one of the world’s best performing global financial centres. It is ranked number one in Asia and number two in the world - above places like Hong Kong and Singapore. This is in large part due to our performance, efficiency, stability and low-risk profile.

■ Australia has the fourth largest pool of investment fund assets in the world and the largest in Asia. As a result of compulsory superannuation (pension) fund contributions, total consolidated funds under management grew to almost A$1.6 trillion as at 2013, up by more than 60% on five years ago.


Source: RBA Statistical Tables, B1 Assets of Financial Institutions (latest Sep 2013), updated 2 Dec 2013; RBA Statistical Tables, D2 Lending and Credit Aggregates (Oct 2013), updated Nov 2013; Bankscope; Bank for International Settlement – 83rd Annual Report`; World Economic Forum; Market capitalisation of global banks at March, 2014



Sydney is home to most of the Australian and foreign-owned financial institutions, as well as the financial regulators, central bank and stock exchange

Major Domestic Banks NSW VIC QLD WA SA NT

ANZ ü ü(HQ) ü ü ü ü

CBA ü(HQ) ü ü ü ü ü

NAB ü ü(HQ) ü ü ü ü

WBC ü(HQ) ü ü ü ü ü

Macquarie ü(HQ) ü ü ü ü û

Foreign Subsidiary Banks NSW VIC QLD WA SA NT

Arab Bank Australia Ltd ü(HQ) ü û û û û

Citigroup Pty Ltd ü(HQ) ü ü ü ü û

ING Bank Australia Ltd ü(HQ) û û û û û

Rabobank Australia Ltd ü(HQ) ü ü ü ü ü

Bank of Sydney Ltd ü(HQ) ü û û ü û

Bank of China (Australia) Ltd ü(HQ) ü ü ü û û

HSBC Bank Australia Ltd ü(HQ) ü ü ü ü û

Foreign Bank Branches NSW VIC QLD WA SA NT

Head Office distribution (42 in total) 92% 5% 3% - - -

Other Major Financial Institutions NSW VIC QLD WA SA NT

AMP ü(HQ) ü ü ü ü û

IAG ü(HQ) ü ü ü ü ü

QBE ü(HQ) ü ü ü ü ü

Summary of Branch and Head Office (HO) Locations in Australia

■ Two of the four major banks, CBA and Westpac, are based in Sydney, with NAB and ANZ also having significant operations in Sydney.

■ All of the foreign-owned subsidiary banks and most foreign bank branches have established head offices in Sydney.

■ 9 of the 10 largest Australian fund management groups are headquartered in Sydney.

■ Sydney is also the head office location for financial services regulators, APRA and ASIC, as well as the central bank, the Reserve Bank of Australia and stock exchange (e.g. ASX).


Sources: APRA; Company website; Factiva news database



The Financial System Inquiry has recognised that the catalyst for technological innovation often starts outside of the industry

The Financial System Inquiry (FSI) Interim Report acknowledged the importance of technological innovation to the continued growth and efficiency in the Australia economy, benefiting consumers and businesses

Observation

■ Technological innovation is a major driver of efficiency in the financial system and can benefit consumers. Government and regulators need to balance these benefits against the risks, as they seek to manage the flexibility of regulatory frameworks and the regulatory perimeter.

■ Financial services boundaries are shifting as technology enables new competitors from inside and outside the sector, new business models and new services. Trends, such as the increasing adoption of cloud technology and financial institutions using growing amounts of data, provide opportunities for increasing financial system efficiency.

■ Over the medium term, technology will increasingly affect the level of competition in the financial system. In some ways, technology is improving competition. It enables consumers to compare and switch between products, making new business models, such as online-only banks and peer-to-peer lenders, viable.

■ Technology, including automation and ‘mass customisation’ techniques, provides an opportunity to offer consumers more cost-effective advice. It may also enable new business models, such as scaled or automated online advice.

■ Government is well-positioned to facilitate innovation through coordinated action, regulatory flexibility and forward-looking mechanisms.

Policy options

■ Establish a central mechanism or body for monitoring and advising Government on technology and innovation policy and to promote innovation in Australia’s financial system. Consider, for example, a public-private sector collaborative body or changing the mandate of an existing body to include technology and innovation.

■ Developing a comprehensive Government strategy, in consultation with industry, to ensure the regulatory framework supports technological innovation, while managing risks.


Many technological developments adopted by financial institutions start life outside the sector…In many ways, this pattern of taking up new, but tested, technologies benefits the sector: it lowers the risk of innovation, while taking advantage of its benefits.. FSI Interim Report

““

””Source: Financial System Inquiry Interim Report (2014)



Given the rising importance of developing digital economies, Fintech could be an enabler to greater exporting of Australia’s financial services capability

The FSI and the ‘Johnson Report’ (Australia as a Financial Centre) highlight that Australia has not been able to generate significant exports of our financial services capabilities to other markets and we need to more effectively promote the strengths of our financial services sector internationally

Observation

■ While Australia’s financial sector as a proportion of its economy is large by international standards, financial services exports only represent a small proportion of Australia’s trade, accounting for around 4.5% of total trade in services at the end of 2013.

■ A key finding of the Johnson Report (2009), Australia as a Financial Centre, that Australian exports and imports of financial services are low by international standards. Fintech offers the opportunity to boost our trade in financial services, given the rising importance of developing digital economies throughout the region and globally.

■ Another finding was that Australia needs to more actively and effectively promote the strengths of its financial sector and Fintech could provide a platform for this (regionally and globally).

■ UKTI has announced a significant new push in overseas markets to promote Britain as the best place in the world to set up and develop a Fintech firm, and attract inward investment to the sector.

■ There are examples of successful Australian Fintech companies expanding internationally, including Bravura Solutions who started their operations in Sydney in 2004, and Oxforex, who started their operations in Sydney in 1998.


…Australia has arguably the most sophisticated and advanced financial sector in the region. However,while Australia is a very open trading economy overall, our exports and imports of financial servicesas a percentage of GDP are, by international standards, low. The opportunities for leveraging off our financial services skills and expertise, in the region and beyond, are potentially enormous.

Johnson Report

““

””

Given the anticipated development in Asian financial markets in coming decades, and the strength and significance of Australia’s trade relationships with the region, opportunities will increasingly arise to access capital from Asia, for Australian and Asian financial services firms to expand into each other’s markets and to grow financial services exports and imports….

FSI Interim Report

““

””

Source: Australian Financial Centre Forum (2009); Financial System Inquiry Interim Report (2014); Company websites

Sydney’s Fintech sector: case studies



SocietyOne (Peer to peer lender)

When Matt Symons was asked about the future of Fintech in Sydney and how Sydney could compete he started by talking about his own experience in San Francisco and the cultural differences he observed compared to Sydney: “In San Francisco the starting premise for talented and ambitious individuals is that if you are still working at Wells Fargo in your late 30’s to early 40’s you will be defensive (about that)”. Matt’s point is that the psyche and attitude in the US is one of “the glass being half full” and that even individuals in conservative sectors like financial services have an appetite for risk. “Examples of the possible are held up every day. Paypal is the jewel in the eBay crown. Square is a household name. Either you disrupt or someone disrupts you.”

And it is this approach to disruption and seeing what might be possible that led Matt and his business partner Greg Symons to establish SocietyOne. Their company website will tell you that “SocietyOne is Australia's only active peer-to-peer lending platform – connecting borrowers and investors in a secure, safe and confidential online environment.” They do this by exploiting the limitations within existing consumer credit models for things such as unsecured credit on personal loans and credit cards where the lending rate is set regardless of the personal circumstances of the customer. So someone with a good credit history will pay the same rate as someone with a bad credit history for the same product. What SocietyOne does is seek to offer a rate that better reflects the history of the individual by using a risk adjusted pricing model. Funding comes from high net worth investors. Essentially SocietyOne are opening up a section of the financial services market to investors that has been the traditional domain of the banks whilst also offering a better customer experience.

Since starting the business in Australia Matt noticed that “it can be quite lonely (as a Fintech entrepreneur). No-one reached out as a peer. There is no obvious alumni of others to interact with.” Again this was contrasted with San Francisco where people will reach out to each other. Angel and Super-Angel investors will look to connect new start-ups with both ideas and mentors. Whereas “in Australia there is a lack of structured support which at the business level can be very isolating”.

One thing that would work towards building a supportive ecosystem in Matt’s view is attaining a critical mass of Fintech start-ups and venture capital across the full range of financial services (banking, wealth management, insurance, private equity and real estate). Success in one or all will breed future businesses because “here Fintech is seen as a career risk. But when people see disruption occurring and succeeding this becomes a signal that Fintech has a future.” To help attain critical mass you need to attract talent. Talent that is “comfortable in unstructured environments, people who can be productive and lead which is a rare talent.”

Matt would also like to see the city showcase Fintech. To celebrate the “new and different developments in Fintech independent of where it has come from, whether its CBA, BT Financial Group or a 3-man shop. Both Google and Apple focus on what might be, the art of the possible and doing things differently in hitherto unimagined ways. It’s time Sydney did the same.”

Case studies

In Australia there is a lack of structured support which at the business level can be very isolating.

Matt Symons, CEO, SocietyOne

““ ””Source: Company Website July 2014, AFR article 11 March 2013 “ Online Credit fills the gap”, KPMG interview with Matt Symons 11 July 2014



Tyro Payments (Payments provider)Andrew Rothwell is a founding engineer of Tyro Payments Ltd. A Fintech business focussed on disrupting the payments value chain in Australia by aiming to provide a better end to end customer experience than established players. Tyro was established in 2003 by Andrew, Peter Haig and Paul Wood to take advantage of the RBA’s bank licence for merchant acquiring. All three had deep technology backgrounds having worked for technology giants such as IBM and Cisco as well as entrepreneurial backgrounds having run their own companies: Systems Technology, Netlink and Metaplex which was subsequently acquired by Cisco.

At Cisco they took on business development and engineering roles that meant they spent a lot of time in Silicon Valley and Research Triangle Park in North Carolina. One consequence of this is what Andrew described as “living in the Internet whirlwind and experiencing the start-up mentality up close”; providing direct exposure to the entrepreneurial culture; and “whatever it takes” attitude of the time. Their Cisco lives meant spending a lot of time away from their homes and families in Sydney. They were “working 16 hour days and living out of a suitcase. After years of this we were getting burned out. We wanted to live and work in Sydney with our families.” So they started to think about a new venture based in Sydney. “We saw (merchant) acquiring as an activity that could be disrupted using technology: combining Internetworking with inexpensive commodity server hardware and leveraging the emergent open source software movement meant we could build a much lower cost platform, with better speed, scalability, security and resilience, than was available by the legacy platform providers. We believed marrying such a platform with an acquiring bank licence would enable us to provide great value to Australian merchants.”

However, Andrew and his fellow founders had underestimated the regulatory environment and challenges to be overcome in terms of the financial risk management, operational risk management, governance, security and other needs mandated by APRA, APCA and PCI in the payments space. At the time Visa and Mastercard required prospective members to hold a bank license, Tyro could not become a member of either until the specialist bank license was granted.

Nor could Tyro be a member of or participate in the RBA Tier 1 settlement system until the license was granted. The other major hurdle was gaining access to the EFTPOS network. Connecting with EFTPOS member banks proved extremely costly and time consuming. The access regime did not necessarily promote easy access for new entrants. Tyro relied on support from the RBA to battle through many of these problems. “Without their support in the early years it is unlikely we would have survived.”

An early business plan had the first beta product being launched in late 2004 whereas in reality it wasn’t until the latter half of 2006 that the first “super-green” product was launched after almost A$10m of investment in product development costs, scheme membership costs, EFTPOS access regime costs, APRA licencing costs and other regulatory requirements. “Looking back, if we’d known about the regulatory hurdles, access regime dramas and cost and time to overcome them we probably would not have tried (to establish a payments business).” In total it took A$33m and 9 years to be cash flow positive.

Another key moment was the appointment of Jost Stollmann as CEO. A serial entrepreneur who had established and built his own US$1bn business in Germany (CompuNet Computer AG) brought the experience needed to grow the business, much needed capital and also the ability to attract a high quality board, including Paul Rickard (ex-CBA) and Mike Cannon-Brookes (Atlassian). Today Tyro employ 130 people and in the last year carried some $5.3bn of transactions and have over 10,000 merchants as customers. The Tyro story shows the importance of perseverance, the willingness to innovate and need for the regulatory environment to support new business ventures in Fintech.

Case studies

We believed marrying such a platform with an acquiring bank licence would enable us to provide great value to Australian merchants

Andrew Rothwell, Founding Engineer, Tyro Payments

““””

Source: Company Website July 2014, KPMG interview with Andrew Rothwell 5 August 2014



Reinventure (VC fund)Danny Gilligan and Simon Cant are the co-founders of Reinventure, a corporate venture capital fund backed by Westpac. Danny describes the fund as “creating long term strategic options for the bank as well as a near term opportunity to partner with innovative companies to leverage new technologies and know-how”. The Reinventure model is about “doing Corporate VC in a way that is attractive to good entrepreneurs.”

Reinventure operates as an independent corporate venture capital unit in partnership with the bank. Established as a fully registered Early Stage Venture Capital Limited Partnership (ESVCLP) Reinventure is regulated under both the Venture Capital Act 2002 and Income Tax Assessment Act 1997. The structure ensures that Reinventure can operate autonomously from the bank, which provides entrepreneurs with comfort that, as an investor, Reinventure will not subsume the interests of the venture to those of the bank. At the same time, the exclusive partnership with Westpac ensures that they are able to facilitate a relationship of deep trust between their ventures and Westpac over time.

The operating model for the fund is underpinned by a number of core business principles designed to enable Reinventure to “de-risk corporate venture capital.”The first is to focus on proven models. These can be either proven in terms of demonstrated traction with customers or by a model that has gained traction in another market. The second principle is to “work with proven entrepreneurs, people who have built businesses before.” The final ingredient for success is looking for “where Westpac can provide a material advantage, we will never invest just cash.” This means they are focussed on how Westpac can help the start-up to grow as opposed to how the start-up can fill a gap in Westpac’s corporate strategy.

The first investment the fund made was into SocietyOne and clearly fits with the above principles in that it has a “proven business model, proven entrepreneurs and Westpac can provide a material advantage”.

Longer term the ambition is “for Reinventure to be the preferred Corporate Venture capital fund for great entrepreneurs pursuing market leading Fintech ventures.”

Locally they see a great opportunity for Sydney and Australia in Fintech and believe “the critical first step (to drive the industry) would be establishing a Fintech hub.” Australia has and is continuing to lose significant national income in media and retail as global technology companies increasingly take market share from traditional domestic media companies and retailers. However, what we have learned from media and retail is that while some models are inherently global (Google, Facebook, Twitter, etc), others are inherently regional and have to be developed geography by geography (e.g. seek.com.au, realestate.com.au, carsales.com.au, etc). Financial services, due to its significant regulation tends to be inherently regional. This creates a great opportunity for Australia, and Sydney in particular, to build a significant start-up eco-system around Fintech. They point to the UK and Level39 in Canary Wharf as the model for establishing a hub in Sydney. Part of the reason for this is that the “key to getting the best talent is raising the profile of Fintech and creating a centre of gravity and a hub would facilitate this by co-locating venture capital funds, and Fintech ventures physically close to one another and within the financial services heart of the city.”

Sydney, in their view, has all the ingredients to be a Fintech centre of excellence including “financial services being the number one employer in the city, two of the big four banks being headquartered here and all four Australian major banks being in the top 20 globally.”

Case studies

The critical first step (to drive the industry) would be establishing a Fintech hub

Danny Gilligan, Co-founder, Reinventure

““ ””Source: Company Website July 2014, AFR article “Westpac innovates disruptively with SocietyOne” 10 March 2014, KPMG interview with Danny Gilligan and Simon Cant 17 July 2014, AusIndustry website for background on ESVCLP July 2014





Australasian Wealth Investments (VC fund and accelerator)Ben and Toby Heap are brothers and the driving force behind Sydney-based, AWI and AWI Ventures respectively. Ben is the managing director of AWI, a listed investment company, that has a clear focus on the digital wealth segment and targets “self-directed investors across every product suite through digital distribution.” AWI looks to innovate and challenge the traditional advisor focus of the industry by focussing on distribution direct to the customer. This is an area “where traditional players struggle to innovate as the business case isn’t there” due to large investments in advisor networks to distribute product.

AWI Ventures is another move to disrupt the financial services industry by providing a Fintech accelerator focussed on providing early stage seed funding to new business ventures. Toby Heap oversees AWI Ventures, has an entrepreneurial background mainly in consumer based internet ventures and he has personally invested in a number of start-up businesses. AWI Ventures is an off-balance sheet business separate to the core AWI business which is itself cash generating and profitable.

AWI Ventures borrows its model from Y Combinator in Silicon Valley who invest early (US$20k) and run a 3 month curriculum designed to accelerate the success of each of the start-up businesses it supports. A key learning from this for Toby is that “what they back is the person, they look for great people with a bright idea.”AWI ventures tries to do the same. Another thing Toby took out of his studies is that “you could count on two hands the number of financial services companies through it (Y Combinator), the regulatory barriers in financial services mean…(you need) more money, more time and mentor specificity is required.”

AWI Ventures looks to provide a six month accelerator program and up to A$100k of investment for Fintech specific start-ups. The first round call for applications attracted 86 in total with AWI Ventures’ primary focus being on pre-profitable growth stage businesses. Both Ben and Toby also noted that a single success could make a big difference to the Fintech eco-system in Sydney pointing to the success of Xero in New Zealand leading to another 20-30 companies also starting up in Wellington and that “New Zealand is now doing better in early stage Fintech than Sydney or Australia more broadly.”

For both this is an important point as one big success story creates not only a proof point to the local industry but also often leads to the creation of venture capital, angel and super angel funding for other start-ups as successful entrepreneurs look to invest into new ventures themselves. Ben describes this as the “multiplier effect, we need one or two of these businesses to really fly.”

The other key ingredient for Fintech in terms of drawing in venture capital is to have a healthy pipeline or “funnel of opportunities” for investors. For both Toby and Ben the bigger the funnel the better as this means more competition for funds, more potential collaboration between start-ups and industry and a greater chance of success. When asked about how Sydney and key players in it could best support a growing funnel of opportunities Ben was clear in pointing out that he is “not a fan of government funding Fintech.” This is a role for the private sector, investment managers, corporates, high net worth individuals and entrepreneurs.

Where government and the city more broadly could play a role is in creating the right conditions to expand the funnel. Ben and Toby see three things that would make a real difference in this sense: “More talent in the funnel, therefore a visa programme linked to ‘approved’ accelerator programmes to attract talent and ensure they stay here to build their businesses and keep their visa”; “A curriculum of speakers and events, run by a not-for-profit organisation, would be very powerful and that could also link in the universities will be crucial to long term success”; and “A Fintech ecosystem is crucial, therefore a shared space with ‘subsidised’ rental arrangements for early stage growth businesses would be very valuable.”

Case studies

…A curriculum of speakers and events, run by a not-for-profit organisation, would be very powerful and that could also link in the universities will be crucial to long term success

Ben Heap, CEO, AWI

““””

Source: Company Website July 2014; KPMG interview with Ben and Toby Heap 25 July 2014

Recommendations




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High

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Time to implementLong term Short term

1

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3

5

6

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Recommended action

■ State Government to continue working with partners in the private sector and the Committee for Sydney on the development of a comprehensive Fintech vision and strategy for Sydney, providing a focal point for the alignment of effort across the public and private sector and articulating a clear commitment to the Fintech sector

Rationale

■ Provides an aligned vision and goals for the development of the Fintech sector, as part of the State Government’s support for financial services

■ Articulates the importance of and commitment to Fintech as a sector■ Establishes the critical pathway and actions for success

Considerations and ideas from stakeholder discussions

■ Commission analysis to build the business case for Sydney and Australia in terms of detailed GDP, market size, incentives, financial services leadership, ROI on government investment in Fintech

■ Need to develop an aligned vision and direction for Fintech in Sydney, as part of broader ambitions to be a leading regional financial service centre

■ Asia as an export destination for Fintech and Sydney as an Asian Fintech leader

■ Important to agree clear targets to measure progress, e.g. jobs growth, new ventures started

■ A 3-5 year timeline with clear actions, supported by a clear commitment to the Fintech sector is required

■ Alignment with the broader Financial Services Knowledge Hub strategy ■ Brings together participants at the industry and government level around

an agreed set of goals

1


Responsibility

■ NSW Government




Recommended action

■ Explore the establishment of a not-for-profit Fintech hub in the heart of the city that co-locates technology start-ups, venture capital and established financial services firms Refer slide 71 for further details on the Fintech hub

Rationale

■ Creates a critical mass and local ‘centre of gravity’ for Fintech in Sydney■ Provides low cost services, e.g. working space and expertise for start

ups■ Provides access to low cost capital for start-ups, as well as a pipeline of

opportunities for venture capital and established financial services firms■ Drives collaboration between start-ups, established financial services

firms, as well as regulatory agencies


■ Subsidised rental model to make working space affordable■ Critical for a hub to be located in the heart of the city close to major

financial services firms■ Operate as a not for profit so as to attract multiple venture capital funds

to co-locate■ Run accelerator programs of 3-6 months■ Hold education sessions focussed on financial services ■ Hold engagement sessions involving Government representatives,

regulators and potential investors ■ Consider having a high growth space for businesses to graduate into ■ Sign friendship agreements with similar global accelerators in other

financial services centres, e.g. Level39 (UK)■ Engage established financial services organisations to provide mentors■ Encourage financial services firms to use the hub for incubation

initiatives, e.g. new product development■ Expand reach and engagement activity across the Asia Pacific region■ Establish a mechanism to allow start-ups access to regulatory

information and advice for regulatory agencies in a timely manner

2


Responsibility

■ Industry




Recommended action

■ Government (local, state and Commonwealth) to promote Sydney as the leading Fintech centre in the ASPAC region and establish a series of events in the city, regionally and globally, to showcase Fintech in Sydney, in line with our leading financial services position

Rationale

■ Establishes a platform to promote Fintech in Sydney and globally■ Raises awareness for Fintech start-ups to export their capability offshore■ Attracts funding and venture capital to Sydney■ Attracts entrepreneurial talent to Sydney


■ Alignment across local, State and Commonwealth Government is critical■ Focus not just on the innovators but eco-system at large by engaging

and showcasing both new and established financial services organisations and their innovations

■ Involve the tertiary sector and look to draw in participants from adjacent industries such as digital and creative

■ Aim to have 1-2 international key note speakers per annum■ Target leading financial services centres in Europe, US and Asia Pacific

to run targeted campaigns promoting Sydney and Fintech (e.g. the Atlassian bus tour)

■ Promote the lifestyle of Sydney as part of the Sydney ‘value proposition’ to attract foreign entrepreneurs

■ Appoint a senior government representative to be the financial services ambassador for Sydney (similar to the role played by the Mayor of London)

■ Develop an annual calendar of events in Sydney ■ Leverage Sydney hosting the international SIBOS Conference in 2018■ Participate in major global conferences, e.g. Fintechcity in London■ Hold events in Asia to showcase Sydney Fintech for export and Sydney

as a destination to attract Fintech start-ups

3


Responsibility

■ Commonwealth and NSW Government




Recommended action

■ Form an independent Fintech focussed industry association, based in Sydney, to give the sector a strong voice and champion

Rationale

■ Helps to prioritise the needs of the sector (liaising with Government and regulatory agencies) and provides a representative voice for the Sydney Fintech community

■ Promotes Sydney as the ‘centre of gravity’ for Fintech in Australia and globally

■ Drives collaboration between financial services firms and Fintech start-ups


■ Operate on a not for profit basis

■ Focus on bringing together Fintech start-ups and established financial services firms to promote collaboration and ensure alignment of activity

■ Aim to provide a single point of access to clients, technology, talent, finance and international markets

■ Work with the tertiary sector to establish Fintech aligned curriculum

■ Sponsor and conduct industry based research and through leadership

■ Run industry based roundtables and events

■ Lobby regulatory bodies to achieve a balance between regulation that maintains the sustainability of the financial services system, with new business models and innovation that provide better customer outcomes

■ Connect with Innovate Finance in the UK to learn from their experience and accelerate the development of Fintech in Sydney

4


Responsibility

■ Industry




Recommended action

■ Work with the Federal Government and regulatory agencies, to enhance the current regulatory, tax and business incentives available to the start-up community, as well as introduce measures to target foreign entrepreneurs, attracting them to Sydney

Rationale

■ Provide a regulatory and tax framework that supports innovation■ Helps to broaden the entrepreneurial culture base■ Attracts funding and venture capital to Sydney■ Attracts entrepreneurial talent to Sydney


■ Maximise amount of cash reinvested into early stage start-ups (e.g. income tax exemption for income reinvested into the business)

■ Alignment of tax incentives available through various VC fund structures and direct investment in early stage high risk ventures (current financial incentives are not provided for direct investment by individuals or corporations

■ Leverage the Centre for International Finance and Regulation (CIFR) to research regulatory settings and the potential impact on Fintech

■ Review the current taxation and business incentives to determine their “fit for purpose” nature

■ Review visa system to identify opportunities to attract repeat entrepreneurs to Australia (e.g. SIV) and link to investment in Fintech start-ups and/or participation in acceleration programs

■ Review other jurisdictions to examine how government and business work together to drive Fintech (e.g. the role of UK Trade and Investment)

■ Examine the regulatory framework to identify opportunities to better enable start-up businesses in financial services (e.g. regulation of new technologies such as crypto-currencies, regulatory requirements for start-up ventures)

■ Employee share option plan (ESOP) taxation arrangements to be aligned to the year the option is exercised not the year options are issued

■ Adding VC funds to the list of eligible investments for Significant Investor Visa applicants

5


Responsibility

■ Commonwealth and NSW Government




Recommended action

■ Engage the university sector and leverage the Centre for International Finance and Regulation (CIFR) to research key Fintech themes and business opportunities

Rationale

■ Develop ideas and business opportunities for commercialisation■ Connects the university sector, the Fintech start-up community and

business■ Leverage existing infrastructure, such as CIFR


■ Bring the university sector, the Fintech start-up community (including VCs) and business together to understand the jointly explore industry issues and opportunities within Fintech

■ Encourage entrepreneurialism at the university level

■ Explore mechanisms for industry and regulatory to make cleansed industry data sets available to academics for experimentation

6


Responsibility

■ Universities/CIFR and Industry



What Sydney needs to do – Fintech Hub

Corporate incubator

■ Corporate partner innovation

■ Ability for corporates to run3-month incubators (e.g. new product development)

Events

■ 200 person capacity

■ Breakouts

■ Sandboxes

Co-working space

■ Early stagestart-ups

■ Venture Capital

Growth space

■ 5-10 person ventures

■ 20-30 person ventures


Research data



Comparison of government programs

Government funding■ UK Angel CoFund – An early stage matching

fund to support the growth of angel investment sector.

■ Start-Up Loan Scheme – Provides seed capital and mentoring to early stage businesses.

■ Enterprise Capital Fund Program –Supports the creation of new early stage venture capital funds.

■ UK Innovation Investment Fund – Co-invests with private investors in high growth, knowledge-based businesses.

■ Business Finance Partnership – Enables increased access to finance by providing matching funds.

■ Future Fifty Program – A matching program for fifty of the most promising high-growth companies with publicly funded schemes and incentives relevant to their stage of growth and specific needs.

LondonGovernment’s focused strategy for developing the tech start-up eco-system■ Intends to develop the local tech start-up eco-system

without making it a clone of hubs

■ Allocated ~S$100 million for early-stage start-upswithin the broader S$16 billion scientific R&D budget

■ Expects the state backed start-up agenda to attract more private investors and incubators

■ Once the local eco-system is established, intends to scale back the level of involvement

■ Also attracting Australian start-ups (such as Sprooki) to relocate to Singapore

Prominent government programs for tech start-ups■ SPRING – Complete or Co-investment financing for

sector specific acceleration, commercialising ideas, networking and assistance from multiple agencies

■ MDA i.Jam – Provides fund up to S$100,000 by founders or incubators

■ i.Jam - Interactive Digital Media Program appointed incubators identify, nurture, and administer competent start-ups

■ Technology Incubation Scheme – the government co-invests ~85%. Incubators pitch in the remaining buy out the government's stake after three years

■ Incubator for Disruptive Enterprises and Start-ups (IDEAS)

SingaporeGovernment funding■ Yozma Fund [closed to new

startups]: The fund was set up to attract foreign direct venture capital investment into Israel. To incentivize inward investment, foreign investors were offered matched funding at a rate of two to one. That is, for every dollar a foreign investor committed to an Israeli entrepreneur, the government committed an additional two. To provide further up-side incentive, the government offered investors the option of buying out the government’s stake in the fund after a period of five years

■ The Tnufa provides pre-seed funding to of up to $50k (maximum of 85% of costs) for early stage activities such as financial feasibility analysis, prototype development, etc.

■ Chief Scientist R&D Development Fund: This program gives new R&D facilities access to grants covering 20-50% of a start-up’s estimated R&D costs. In return the Government is entitles to royalties in the range of 3-3.5% of annual revenues.

Tel Aviv

Research data




Tax structure and incentives■ Entrepreneurs’ Relief Program – Offers a

reduction in capital gains tax rate of 10% for founders of start-up firms who sell or give away their businesses.

■ Enterprise Investment Scheme (EIS)/Seed Enterprise Investment Scheme (SEIS) –Encourages investment into early stage, high-risk businesses and provides an upfront income tax relief of 30 percent and 50 percent, respectively. The scheme also provides capital gains tax exemption and is valid until the end of 2014.

Visa policy & immigration■ Entrepreneur Visa Scheme – Introduced in

2008 to attract entrepreneurs from across the world to establish their business in the UK

■ Global Entrepreneur Programme – Run by the UKTI to attract high caliber, early stage companies and entrepreneurs to set up in the UK . Under the program, participants are offered bespoke advice and capital raising assistance from a team of experienced entrepreneurs.

London

Tax structure and incentives■ Tax exemption for start-ups – Full tax

exemption on a specified part of a start-up’s taxable income for the first three consecutive years

■ Pioneer incentive scheme - Businesses that raise overall industry standards eligible for full corporate tax exemption on qualifying profits for up to 15 years

■ Productivity and innovation credit scheme - ~400 percent deduction or allowances on ~$400,000 expenditure incurred in qualifying innovative activities

■ Lower income and corporate tax rates■ Low GST rates (7%) - below global (16.4

percent) and ASPAC (10.6%) averages

Visa regime■ Open Immigration policy facilitates the

relocation of foreign entrepreneurs

■ Singapore has a relaxed immigration policy, making it easier to gain Singapore Permanent Residence (PR) status

■ EntrePass, the visa for foreign entrepreneurs is considered to be more flexible than other countries such as the UK and the US

Singapore

Tax breaks■ Tax breaks are given to venture capital

backed accelerators who set up in the city. The Angel’s Act. (2011) provides tax incentives to angel investors who invest in seed companies.

■ Recently, in July 2014, the ministries proposed simpler criteria for tax incentives to encourage seed-stage investments (Angels Act 2). Under the new plan (which would come into effect in 2015), to claim the tax benefits, one will have to invest in start-ups that are less than three years old, earn no more than 1.5 million Shekels (~US$0.44 million) in annual revenue, and incur expenses up to 3 million Shekels (US$0.88 million).

Visa policy ■ The government is reviewing its visa policy

with the aim of introducing a “start-up visa” regime that would make it easier for skilled foreigners to come and work in Israel.

Tel Aviv

Research data




Government backed co-working spaces■ The Infocomm Development Authority of

Singapore (IDA)’s IDA Labs serve as co-working spaces for the community, industry and government agencies

■ The labs provide physical lab spaces for generating new ideas, developing new technologies and testing out proof of concepts

■ The IDA labs also partner with global IT vendors such as Intel, HP and Redhat for providing R&D resources, enabling technologies and best practices from other geographic markets such as the US

■ In addition, IDA acts an accelerator –expediting the process of commercializing innovation ideas

■ IDA’s accreditation program to help local start-ups position themselves as qualified vendors to potential government and large enterprise buyers

■ This helps start-ups to generate revenue from the early stages and reduce dependency on VC funding

SingaporeShared/co-working spaces■ The city government has converted a number

of municipal facilities such as city libraries into incubator start-up spaces.

■ The Library: The Library in the historic Shalom Tower provides a shared working space and hub facilities for teams dedicated to developing internet start-ups and new technology companies. Teams of start-ups apply to be based at The Library for a period of about four months. In return, start-ups teams pay a subsidized rate of US$70 per month for the facilities.

Tel Aviv

Research data




Other initiatives■ The Financial Conduct Authority (FCA) of UK

launched ‘Project Innovate’ – aimed to ensure that UK financial technology companies are supported by the country’s regulatory environment.

■ In 2013, The London Stock Exchange introduced changes to IPO regulations by allowing high-growth companies to make initial public offerings with just 10 percent of their stock, compared to a standard requirement of 25%. This move was primarily to enable higher rates of technology company listings in the UK.

■ Established institutions such as the Technology Strategy Board as UK's foremost innovation agency, to oversee innovation programs and accelerate economic growth

LondonIncentive to banks and financial services institutions for innovation■ The SPRING program encourages

innovation in the country’s key sectorssuch as banking, along side incubating start-ups

■ It has accredited local banks such as the OCBC and Maybank with the Singapore Innovation Class (I-Class) certification

■ I-Class is national recognition for organisations that have management systems, underlying technologies and processes in place to achieve excellence through innovation

■ Government programs such as these provide a fillip for Fintech innovation in the country

SingaporeSponsor events to cultivate the start-up industry■ FIN-TECH, Tel- Aviv 2014: It is the 1st

International Conference on Financial Technology convened by The Israel Export & International Cooperation Institute and Ministry of Economy. The event is planned to be held in September 16-18, 2014, in Tel Aviv.

■ Go 4 Israel: the 12th edition of “go 4 Europe” conference (http://www.go4eu.com/)

■ MIXiii: “Mix Israel Innovation International” –Israel innovation conference (http://www.mixiii.com/)

Tel Aviv

Research data

Sydney



Extent of Government support

Government support (1/2)

Sydney

The Australian government offers funding at both the Commonwealth and state levels to encourage the setting up of start-ups in the country

1 Government funding ■ Venture Australia - Announced in February 2013, the scheme offers high- risk capital to Australian

businesses with high growth potential, from start-up to growth. The package will provide A$378 million over 15 years.

■ Innovate Australia – Connecting technology SMEs and businesses in key sectors of the NSW economy to develop globally competitive business-to-business (B2B) solutions that address compelling needs. There are three funding elements to Innovate NSW including Minimum Viable Product (MVP), TechVouchers (TV), and Collaborative Solutions (CS).

■ The Entrepreneurs’ Infrastructure Programme – Commenced in July 2014, the scheme offers Australian businesses with value-added advice and support such as business evaluations, ideas for commercializing, in addition to business growth grants

We want the world to know NSW as the place where great ideas are born – ideas that support economic growth and position Sydney and NSW as a global leader in NSW. Innovate NSW will support collaborative projects with the potential to leverage significant investment and unlock sustained economic growth for the State.

Andrew Stoner, NSW Deputy Premier and Minister for Trade and Investment

““

”Source: “The Entrepreneurs Infrastructure Programme”, Australian government website, “Venture Australia”, Australian government- Department of Industry ; Innovate NSW press release 13 December 2012; Industry reporting; KPMG analysis





Sydney

Encourages investments in start-up enterprises via some incentives and tax exemptions, in addition to attracting skilled migrants

1 Tax structure and incentives■ R&D Tax Incentive: Offers a refundable tax offset of 45 percent for smaller companies investing in

innovation including some software development.■ Innovation Investment Fund co-investment scheme: Government matches funds with private sector fund

managers (generally VCs) for investment in early stage companies . As on April 2013, a total of A$644 million in capital has been committed.

■ Early Stage Venture Capital Limited Partnerships (ESVCLPs) - Encourages Australian and foreign residents to invest in early stage venture capital activities/ start-up enterprises by providing them with tax exemptions on their share of income and capital gains from these investments, including from their sale.

Visa policy & immigration■ Significant Investor Visa (SIV) Program – The SIV program is a special subclass of business migration

visa available to high net worth individuals willing to invest A$5 million into Australia. Under this scheme, permanent residency restrictions are also relaxed- from two years to 160 days spread over a four year period

■ Business Innovation and Investment Visa – Available for participants interested in either investing in Australia or owning and managing a new or existing business. Requires nomination of the state/territory government.

■ Skilled Nominated Migration Program – Run by the NSW government to attract skilled professionals across occupations to develop a rich talent pool for the state’s talent needs.

Source: “Visas and Migrations” – NSW Trade & Investment website; “The start-up economy - How to support tech start-ups and accelerate Australian innovation“, Google Ventures & PwC (April 2013),“Early stage venture capital limited partnerships (ESVCLPs)”; NABprivate wealth website accessed July 2014; Industry reporting; KPMG analysis



Access to Funding

Access to Funding

Sydney

Although still in its infancy, activity in Sydney’s venture capital market is picking up with the entry of big names such as Westpac and Telstra

2 ■ Reinventure Group – Launched by Westpac (Feb 2014), the fund seeks to back early stage technology start-ups with a A$50 million in venture capital– The funds’ current focus seems to be on data aggregation and payment system start-ups. Recently invested in

SocietyOne – a Fintech provider in the peer-to-peer lending space■ Telstra has a A$50 million fund to encourage new technology start-ups (less than two years) Australia.

– Telstra’s incubator muru-D will aid 10 start-ups with A$40,000 in exchange for a 6% stake in the business along with subsidized or free rent and mentoring and coaching services and technology support.

■ Optus – Innov8 Seed Program – Offers seed funding up to A$250,000 for entrepreneurs in Australia associated with tech-start-ups– The seed program recently relaxed its rigid bi-yearly terms to encourage more applications round the year, resulting

in more investments in Australia’s growing tech-start-up ecosystem■ In March 2013, Blackbird Ventures announced A$20 million in funding with the aim of supporting 25 start-up companies

in the mobile, software and digital sectors■ Of late, Australia is also witnessing a trend wherein individual investors are returning back home to fund potential

entrepreneurs and build a thriving start-up ecosystem– Cases include those of technology investor Bardia Housman and some of the wealthiest families such as the

Smorgons, Libermans, Packers, Whites and Kahlbetzers

However in 2013, industry group AVCAL, reported a drop in PE and VC investment activity in Australia to A$2,760 million, an 8% decrease from FY2012

Source: “Westpac aims to get ‘disruptive’ with launch of $50 million venture capital fund” –start-up Smart; “Telstra plans to incubate start-ups for $40,000 a pop” – Financial Review; “$30 million technology fund open for business”; “Optus frees up Innov8 seed funding application time frames”– Financial Review; ‘Bardia Housman’ ; “Schooled by success: The start-ups Rich-listers are investing in” – Financial Review, accessed July 2014; Industry reporting; KPMG analysis



Skill and Talent

Access to skill and talent

Sydney

Sydney enjoys access to a talented workforce owing to NSW’s strong skill pool in the areas of finance & insurance

3 Availability of talented and skilled workforce■ Most global banks have their Australian headquarters in Sydney.■ Financial services and insurance among the leading employment sectors in the state – 180,000 skilled

professionals as of August 2013. Per the government’s recent Skill Shortages, Australia report, the country faces no shortage of accounting and ICT professionals for the next 5 years.

■ Among the working age population, 55 percent hold tertiary qualifications.

Skill Development Initiatives■ In 2013, Google partnered with the University of Sydney to extend its entrepreneurial accelerator

program INCUBATE to other universities across the country. Start-ups in the program receive a A$5,000 grant, access to co-working space and mentoring.

Education and Curriculum■ The Australian government is also in the process of reworking its national curriculum to require children

to learn programming concepts beginning in kindergarten and how to write computer code beginning in year 3.

■ Sydney is home to top global universities in finance and accounting and technology per QS World University Rankings for 2013 – include University of News South Wales, University of Technology Sydney and University of Sydney.

I’m really excited about creating a national network of students and entrepreneurs on campus. That’s where the potential is: to encourage more start-ups to launch from campus. There is a big gap there at the moment, with too many students leaving universities without being clued up on the start-up scene and how to get going.

James Alexander, INCUBATE program manager , University of Sydney

““

””Source: “New South Wales Trade & Investment website”; “QS World University Rankings 2013 – Finance & Accounting”; “Skill Shortages, Australia 2013”; “Computer Science Reforms”; Google partners with Sydney University accessed July 2014; Industry reporting; KPMG analysis



Business environment

Business environment (1/2)

Sydney

Ease of doing business coupled by NSWs strong local economy is an attractive proposition for businesses

4 ■ Ease of Doing Business - Per World Bank, Australia ranks among the top ten countries globally for starting a business – taking just two days and two procedures to register a private limited liability company.– Per its latest Entrepreneurship Data – Australia has a high density of businesses being set up in

the last decade (2004-2012) with a score of 12.16 and 185,009 new limited liability companies.■ Strong local economy – New South Wales has been credit rated AAA by both Standard & Poor's and

Moody’s, reflecting the local economy's strength in withstanding changing economic circumstances.■ Encourages a Collaborative Environment – The NSW Government recently established the Centre for

International Finance and Regulation (CIFR) in Sydney to assist research and education in the financial sector by fostering collaboration among Australian universities, Government, regulators and industry.

■ Favorable Tax System – Businesses are taxed with a company income tax rate of 30 per cent with no restrictions on capital flow, profit remittances, capital repatriation, transfers or royalties and trade-related payments.

■ Competitive Business Costs - Affordable real estate prices when compared to other financial peers in the region such as Seoul, Tokyo, Hong Kong and even global peers such as London, Paris and Singapore.

Entrepreneurialism needs to be done in a tribe and being in the Hub puts us physically closer to where more entrepreneurs are.

Phil Morle, Co-founder, Pollenizer

““””

Pollenizer, a start-up incubator, recently partnered with Hub – a provider of co-working spaces in Sydney to offer its “start-up science” curriculum to Hub’s 1000-plus paying members

Source: “Doing Business 2014- Australia” and “Entrepreneurship Data”– The World Bank ; “New South Wales Trade & Investment website”; “Pollenizer to move in with Hub Sydney, create tribe of 5000 entrepreneurs” –Financial Review; “Sydney Australia website” – NSW Government, accessed July 2014; Industry reporting; KPMG analysis





Sydney

There is a growing interest among stakeholders in developing Sydney into a Fintech hub for the region

4 Of late, Sydney is witnessing a steady surge in activities specific to the Fintech sector■ Yodlee Interactive partnered with BlueChilli, a Sydney based incubator for tech-based start-ups to

accelerate Fintech innovation in the city by extending the access of its cross-platform Application Program Interface (API) to BlueChilli members.

■ Launched in March 2014, the AWI Ventures Accelerator Program is focused on Fintech and offers A$100,000 for technology start-ups in the direct-to-consumer wealth management services along with bespoke services such as expert mentoring and series A funding support.

■ Venturetec accelerator programme – A 12-month-long for enterprise technology start-ups in Sydney by the StartmeupHK Venture Forum.

Barangaroo South, a A$6 billion re-development initiative of the New South Wales Government aims to position Sydney as a global financial hub, alongside London’s Canary Wharf, Singapore's Marina Bay and Shanghai’s International Commerce Centre

Australia has a very well-proven, reliable and large-scale financial services industry and if there was one area in which we could build a real level of expertise in global terms, it is financial services. We would love to see Australia become known for its Fintech sector

Ben Heap, Chief Executive, AWI Ventures

““

””Source: “Yodlee Interactive Partners with BlueChilli” – BlueChilli website; “ AWI Ventures Accelerator Program” – Finisia; “Venturetec Accelerator Program” – start-up Daily accessed July 2014, “Barangaroo” - Investordaily Industry reporting, KPMG analysis



Gaps and Challenges (1/2)

Sydney

Australia invests a fraction of what other developed countries do funding tech start-ups, and the budget has provided no solid proof that the government intends to rectify this.

Steven Baxter, the managing director of start-up accelerator River City Labs

““””Government

Support

■ Government Funding Cuts - Plans to scrap eight programs from January 2015 that provided funding to tech start-ups per the recent budget

■ Government schemes do not differentiate start ups and SMEs - The new Entrepreneurs' Infrastructure Programme, to which tech start-up grant applicants are now being directed for support, is focused on SMEs rather than start-ups.

■ Tax Regime is anti-start-up - Australia’s current regime taxes start-ups on equity invested even before it makes money. Other unfavorable regulations include the tax treatment of employee share options.

Access to Funding

■ Availability of Limited VC Funding – Easier to source seed funding in Australia but limited access to growth capital and advanced funding rounds

■ Absence of theme based funds – Unlike the US or UK, Australia only has a handful of Fintech focused VC funds

As a business start-up, taxes are high and I wish the brackets were smaller.

Annette Coleman, Entrepreneur““ ””

Early-stage start-ups instead have to rely on the 3 F’s—friends, family and fools. That’s the only funding you get.

Steven Baxter, the managing director of start-up accelerator River City Labs

““””

It is hard for a Fintech internet business to get a strong foothold because investors are not sure whether they can trust these people with their money.

Ben Heap, Chief Executive, AWI

““””




Gaps and Challenges (2/2)

Sydney

The risk culture here [in Silicon Valley] is very different to Australia’s. Australians are definitely not as risk-taking. One of the things I have noticed about Australian entrepreneurs is that they don’t really share their idea. They think someone will steal it.

Bardia Housman, Australian tech investor

““””Skill &

Talent

■ Cultural Shift Towards Entrepreneurship – Although, a vast majority of Australians are pro-entrepreneurship and are interested in giving it a go, seasoned entrepreneurs with global experience were of the view that chances of their success at the global stage could be enhanced if they increased their appetite for risk and were open to sharing ideas.

■ Skill Development – From a Fintech perspective, Australia’s education system needs to improve when it comes to honing condusive skill sets. For example, by implementing the recent curriculum rework – which requires children to develop programming concepts is at the prerogative of State Governments and not compulsory


■ Limited start-up Activity – especially in the financial services and banking domain, owing to a complex regulatory structure.

■ The Need for Collaboration – Australia lags when it comes to incubation and accelerator programs focused on Fintech. Also, there are limited instances of collaboration between stakeholders in the sector.

Failure is treated very harshly here and it stifles innovation and risk-taking,

Adrian Turner, co-founder, Mocan““ ””

Banks in Australia, South Korea, and Singapore are doing a lot more innovation than you see in US banks. The dichotomy is that the most innovative banks are in this time zone, but not the most innovative start-ups.

Neal Cross, chief innovation officer at DBS

““””

If our leaders don't bring Australia in line with the rest of the world when it comes to fostering tech start-ups, we will continue to see many of our most successful start-ups have no choice but to move overseas.

Peter Bradd, board member, start-upAUS

““””


Global Fintech Leaders



Comparison of global Fintech leaders (1/4)

Fintech hubs Overall message Government

supportPrivate VC

fundingSkills/Talent


Silicon Valley

Despite lacking a vibrant FS sector, Silicon Valley dominates Fintech investments globally. Non-Americans facing stringent visa requirements is seen as the only challenge for the sector

§ The US government was instrumental in creating conditions that led to the formation of the Silicon Valley

§ Because the valley has become a vibrant economy in itself, with a healthy mix of skill, VC’s and start-ups, there is limited need for government intervention and support

§ Silicon Valley retains the highest access to start-up funds in the world

§ In 2013, nearly 1 of every 3 Fintech dollars went to Silicon Valley-based companies

§ In the first quarter of 2014, the region saw US$376 million in total Fintech investment

§ Fund availability across seed and growth stages

§ Entrepreneurial courses and strong university support for start-ups

§ Tech hub resulting in significant talent pool

§ Since 1930, Stanford alumni and faculty have created nearly 40,000 companies and 5.4 million jobs

§ Highest concentration of high-tech workers

§ A combination of both Fintech accelerators such as fin-tech.org and other tech accelerators are assisting Fintech start-ups in the valley

§ Lack of proximity to financial services firms


supportPrivate VC



New York

New York is the second strongest Fintech cluster in the world. Relative to the Silicon Valley, its low Fintech profile affects ability to attract large capital, but the city is reported to being the next most likely to attain the status of an established and leading Fintech hub

§ Strong funding support at the center (‘Start-up America’), city (New York City Entrepreneurial Fund)and at the university level (Start-Up NY)

§ Stringent visa procedures impede non-American entrepreneurs

§ NYC ranks No. 2 in the US(total VC invested in technology start-ups)

§ 5 year CAGR for Fintech related deals grew by 31 percent annually, compared to Silicon Valley’s 13 percent

§ Absolute number of deals increasing, however, average value of deal in NYC lower than the Silicon Valley

§ Seed stage funding available, growth stage a challenge

§ Established and successful applied sciences and engineering programs – Applied Sciences NYC (initiative to grow the economy by developing technology related skills)

§ Engineering talent gravitating to the city: Google, Facebook, Twitter, Amazon and eBay growing New York offices

§ In terms of absolute size, NYC’s Fintech cluster is second only to Silicon Valley

§ Concentration of Financial institutions, tech start-ups and accelerators

§ Worldwide Investor Network: An accelerator program that aims to discover companies from around the globe and bring them to NYC

AMS

Global leaders






supportPrivate VC



London With its booming tech and FS sectors, London is next most lucrative Fintech destination after the Silicon Valley and New York. VC fund limitations to the ‘seed phase’ and relatively smaller investments are seen as roadblocks to growth

§ The UK government – via the UK Trade & Investment (UKTI) - The Financial Services Organization (FSO), and Her Majesty’s Treasury is aims Fintech in London

§ Schemes such as the Entrepreneurs’ Relief Program are available as a apart of Tax incentives

§ Steep rise in Fintech deals – 84 deals took in the UK between 2003-13 and $675 million in investments

§ 5-year CAGR for Fintech was twice the global andSilicon Valley average in 2013

§ However, lack of funding, during the later stages, is impeding the Fintech sector progress

§ Estimated 44,000 Fintech workers within 25 miles of London, compared with 43,000 for New York\

§ More than 24,000 tech firms in London, supporting some 48,000 jobs

§ Hosts three Fintech-specific accelerator programs

§ Four of the world’s ten biggest banks with global or European headquarters situated in London

§ Proximity to London’s financial hub and reasonably successful accelerator initiatives lead to a favorable business environment


supportPrivate VC



Dublin Tax incentives, access to talent, and an engaging pro-business environment puts Dublin on the Fintech map. What may prove costly to the city’s Fintechgrowth story is its close integration with London’s Fintech cluster

§ Enterprise Ireland among offers government support and funding for fledgling start-ups in Dublin– plans to support ~70 start-ups each year

§ Access to Overseas Capital – government is encouraging global investors and operates a range of schemes for start-ups

§ Seed funds, VCs, and local business angels -over €800 million in funding available

§ Innovation Fund Ireland -Allows international venture capital funds to establish European headquarters in Ireland

§ Limited to seed level investments which are fraction of investments in the US

§ Joint government/ industry efforts to promote technology courses

§ Over 500 financial services firms employing 32,700 professionals; technology sector employs 1,05,000 professionals

§ NDRC Fintech, Ireland’s first financial technology start-up program launched in May 2014

§ NDRC LaunchPad and Dublin City University’s Ryan Academy for Entrepreneurship’s Propeller Venture AcceleratorFund

§ However, proximity to London is also challenge as Irish firms are keen to relocate

EMEA

Global leaders






supportPrivate VC



Berlin Berlin is operationally viable when compared to other European cities. However, the lack of government funding, incubation programs, entrepreneur education and private funding are inhibiting its growth as a Fintech hub

§ Government programs such as Technologiestiftung Berlin (TSB) and Investitionsbank Berlin (IBB) exist to provide incubation to tech start-ups§ However, limited

government-driven activity related to ‘entrepreneurship’ initiatives§ Red tape and bureaucracy

also inhibiting growth

§ Germany’s share in the global Fintech M&A and investment space less than 0.6% (2012)§ Some private sector funds

(Point 9 Capital) and incubation programs (DACH, Smartbootcamps) have emerged – success is limited§ Interest among international

investors is growing, however this is yet to lead to strong outcomes

§ Largest university centre in German-speaking countries § Significantly low cost of

education for students§ Lack of dedicated

courses for driving entrepreneurial culture

§ Growing network of small tech ventures, incubators and accelerators§ Growing job market - a new

start-up founded every 20 minutes and the industry set to produce 100,000 new jobs by 2020§ Lower operational costs –

Lower rent, overheads, etc.§ Entrepreneurs without FS/ICT

experience are trying to tap Fintech opportunities


supportPrivate VC



Tel Aviv Tel Aviv is the tech and financial hub of the region and global financial institutions are opting to move to Israel. Though start-ups flourish in Tel Aviv, they often also get absorbed by global players or choose to be listed on foreign stock exchanges

§ Government supports entrepreneurs and start-ups through:§ Investments such as Tnufa

and Chief Scientist R&D Development Fund§ Funding co-working spaces

– The Library§ Events focused on start-ups

– Fintech, Tel- Aviv 2014 § Tax breaks to venture

capital backed accelerators

§ ~ 70 active venture capital funds in Israel, of which 14 international VCs§ An additional 220

international funds active in Israel§ More funding for early

stage start-ups as compared to matured ones

§ Strong tech base due to mandatory 'tech intensive' military service § Dedicated research

courses in Israeli Universities§ Nine out of every 1,000

workers engaged in research, nearly 2X the rate of the US and Japan)

§ Geopolitical risk: War and Israel’s geographic location pose a significant risk to businesses§ Strong network of small tech

ventures, incubators and accelerators (Leumi bank and Elevator)§ Major banks setting up

innovation labs and R&D facilities - Citigroup’saccelerator program and Barclay’s in-house R&D centeris in Tel Aviv

EMEA

Global leaders






supportPrivate VC



Singapore Extensive govt. support and conducive environment is attracting VC funding and foreign ventures in tech start-ups. Although the state lacks explicit Fintech focus, FS and tech companies are investing in the sector

§ US$80 billion budget for tech start-ups§ Incentivizing private

investment and foreign ventures§ Supportive tax and visa

regime§ Funding co-working spaces

– IDA Labs§ No particular focus on

Fintech

§ US$1.4 billion funding (2013) – ahead of Hong Kong, Japan and Korea§ Mature start-ups attracting

more funding§ Banks funding tech

innovation§ Lack of repeat funding

due to premium price claimed; ventures less receptive to PE sales

§ Ready talent pool – 5.5 percent population in FS; 146,000 tech workers§ ~74 start-ups incubated by

SMU and NFIE§ Secondary education

system lacks entrepreneurialinclination

§ Migrant population driving business culture§ Ranked #1 (World Bank)

for ease of doing business§ 63% mobile banking

penetration§ 3 of ASPAC’s largest

banks HQ in Singapore§ Innovation labs by

Citigroup and Accentureare driving Fintech


supportPrivate VC



Hong Kong

Hong Kong’s government’s Fintech hub agenda is backed by growing levels of VC funding, rolling out of entrepreneurial universities and a supportive business environment. The market however, is still small and in its growth stage

§ State backed InvestHK, Cyberport and ITC offering co-work spaces, incubation and acceleration§ Incentivizing foreign start-

ups to relocate to Hong Kong§ Collaborating with Israel

for Fintech opportunities§ Complex tax and visa

regime compared to Singapore

§ Growing VC and PE capital. Average funding in H1 2014 (~US$6 million) exceeding full year 2013§ Funding via both home

grown and foreign VCs, and crowdfunding platforms§ However, the market is

still small, particularly for seed funding

§ Large number of dedicated courses on entrepreneurship across Hong Kong and Mainland China§ Emerging career

development platforms offering hiring solutions to tech ventures§ However, not many

specialized Fintech courses though

§ Native entrepreneurial culture§ Ranked #2 (World Bank)

for ease of doing business§ Full 4G and fibre

broadband coverage§ 70 of the top 100 global

banks present in Hong Kong§ Global IT vendors

(Accenture, Google) driving Fintech§ Market continues to be

small

ASPA

CGlobal leaders


Silicon Valley



Macro parameters

Introduction

Silicon Valley

Despite lacking a vibrant FS sector, Silicon Valley dominates Fintech investments globally. Non-Americans facing stringent visa requirements is seen as the only challenge for the sector

■ #4 in ease of doing business (Doing Business report, 2014)

■ #2 among G-20 nations on the e-trade readiness index (EIU report, 2014)

■ #12 globally on the 2014 Economic Freedom Index

■ US$ 17 trillion GDP in Q1 2014

■ 2.1 percent inflation (CPI) in May 2014

■ ~20 Fintech deals in 2014; CAGR growth of 13 percent between 2009-14

■ $376 million in total Fintech investment for Q1 2014

■ 11,000 Fintech professionals in the San Francisco – Silicon Valley

State of the Fintech sector

San Francisco

Redwood City

Mountain View

Palo Alto

Silicon Valley’s start-up ecosystem spans across San Francisco, Redwood City, Palo Alto, and Mountain View

San Francisco attracts the highest VC in the Silicon Valley region

Portero Hill and Rincon Hill , large swathes of San Francisco's waterfront, running south from the central financial district have been strong tech hubs since the dot-com boom

Source: Doing Business 2014 – The World Bank; “The G-20 E-trade Readiness Index” - article by ZDNet;’ “2014 Index of Economic Freedom” – The Heritage Group; “GDP of the United States of America” – Bureau of Economic Analysis; “Why San Francisco May Be the New Silicon Valley” – City Lab




Government support (1/2)While the government in the US has multiple schemes to support start-ups, the expansive private funding options in the Silicon Valley drastically overshadow any government funding initiatives

Government funding■ Today, Government funding in the Silicon Valley to support start-ups is not comparable to the volume and value of

deals supported by privately managed funds. However, it is important to analyse the government’s role is setting up its most important start-up yet: the Silicon Valley itself

■ In the 1930s, the venture capitalist was the US military (which was investing in R&D), and the role of the tech start-up was played by America’s engineering schools in the region

■ By the mid 1960s, three-quarters of all the graduate thesis in the engineering department at Stanford were classified. The institution used state funds to fuel research and ultimately business ventures that created the Silicon Valley

■ This government funding played a key role in developing experts in applied sciences, who would go on to create semi-conductors, capacitive sensors, solid state memory, cellular communications, and protocols such as TCP/IP. These elements form the core of what is today an icon of American corporate innovation – the iPhone

Visa policy & immigration■ In June 2013, the Senate proposed Start-up Visa (or EB6). Venture capital investment firms and entrepreneurs from

abroad are currently disappointed as this is not been enacted yet

■ However, the US already has viable visa solutions to encourage start-ups. And although not perfect, these visas have long been available and used successfully. Examples are – O-1 and EB1A Extraordinary Ability Visas, E-2 and EB5 Investor Visas, H-1B and EB2 or EB3 Professional Visas, L-1A and EB1C Multinational Manager/Executive Visas etc.

1

Silicon Valley

Right now in one of those classrooms there are students wresting with how to turn their big idea -- their Intel or Instagram -- into a big business. We're giving them all the skills they need to figure that out, but then we're going to turn around and tell them to start that business and create those jobs in India or China or Mexico or someplace else. That's not how you grow new industries in America. That's how you give new industries to our competitors.

Barack Obama, President, United States of America

““

””

So while private capital is focused on creating the next Facebook, government funding can focused on higher goals, such as – driving a country’s competitiveness, increasing its people’s standard of living, or perhaps, creating the next Silicon Valley

Source: SSBCI – US Treasury website, Whitehouse - Startup America Factsheet – Official website of The White House, US Visas - Coming to America – The Startup Visa – Forbes; KPMG analysis




Government support (2/2)The Silicon Valley’s healthy mix of skill, private funding and start-ups has made the location a vibrant economy in itself. One which requires minimal government support. In fact, most business view government intervention as an inhibitor to innovation

Tax structure and incentives■ American Taxpayer Relief Act (ATRA) – At the central level, the Act helps small businesses by providing

tax breaks which include items such as bonus depreciation, deduction on certain acquisitions, R&D tax credit, 100 percent tax-free capital gains on sale of small-business stock etc.

Other initiatives■ Small Business Development Centers (SBDCs) provide a vast array of technical assistance to small

businesses and aspiring entrepreneurs

■ SCORE, supported by the U.S. Small Business Administration (SBA), is a non-profit association dedicated to helping small businesses across the US grow and achieve their goals

1

Silicon Valley

GAPS & CHALLENGES■ Stringent visa/immigration procedures: Proposed ‘start-up Visa’ act has not been enacted yet. And while

non-American entrepreneurs do get visas, the process is described to be complex and “something to worry about”

Source: SBA.gov – SBA.GOV website, SCORE – Official website, StartUpNY – Startup.NY.GOV website, The Startup Visa – Forbes, US Visas - Coming to America KPMG analysis



Access to Funding

Access to fundingDespite lacking a vibrant FS sector, Silicon Valley dominates in technology investments globally.

Tax structure and incentives■ The region has consistently taken over 40 percent of VC deals and over 50 percent of funding to tech

start-ups across seven major US venture hubs including New York and Massachusetts

■ Silicon Valley dominates Fintech investments globally; in 2013, nearly 1 of every 3 Fintech dollars and 1 of every 5 deals went to Silicon Valley-based companies. In the first quarter of 2014, the region saw US$376 million in total Fintech investment

■ Other than VC funds, several large banks have also set up Fintech venture funds based in the Silicon Valley. An example is BBVA

2

Silicon Valley

GAPS & CHALLENGES■ Silicon Valley lacks the close

coexistence of Fintech start-ups and their customers, i.e., financial service institutions. However, the start-up environment is so positive that this does not seem to act as a deterrent for the sector in the region

513

1,020

1,513 1,3861,157 1,247

1,0601,266

1,7271,875

2,1201,935

1,529

2,2602,602

1,6101,831

2,005

2,847

45

107

144163

137 136 133152 162

199184 178 180

218251

218 208226

267

050100150200250300

0500

1,0001,5002,0002,5003,000

Q1

09

Q2

09

Q3

09

Q4

09

Q1

10

Q2

10

Q3

10

Q4

11

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Q3

12

Q4

12

Q1

13

Q2

13

Q3

13

Investment dollars No. of deals

VC financing trends in Silicon Valley (tech)

Source: CB Insights – Venture Capital: Silicon Valley – CB Insights; KPMG analysis



Skill and talent

Access to skill and talentA strong network of pro-entrepreneur Universities along with ready availability of talent drives the skill base in Silicon Valley

Proximity and availability of skilled workforce■ In Silicon Valley and the adjacent Bay Area, 45 percent people are undergraduate compared with 28

percent for whole of the US

■ More than 60 percent of the college graduates working in science and engineering fields in Silicon Valley were born outside the US

■ Culture of recruiting school students as interns. Helps in developing future workforce with an entrepreneurial focus

Strong network of academic institutions■ Close ties with the top tier educational institutions in the US such as the Stanford, MIT and Yale

■ The alumni and faculty of Stanford University alone have created nearly 40,000 companies and 5.4 million jobs since the 1930s, which collectively generate annual revenues of US$2.7 trillion

■ While Stanford has a dedicated entrepreneurial culture, others such as Harvey Mudd focus on specialized skills

■ Harvey Mudd produces a huge amount of science and engineering PhDs, and the school has a reputation for turning out graduates who excel in the humanities as well as math and science, a uniquely broad skillset required in Fintech start-ups

3

Silicon Valley

GAPS & CHALLENGES■ Job growth slowing. The

unemployment rate in the San Jose metro area levelled off at 6.3 percent in 1Q 2014. Most jobs were concentrated in lower-paying service occupations, rather than the professional services





Business environmentSilicon Valley continues as the global leader as a tech start-up hub, which is supported by a legacy of funding firms

Continues as the global leader among tech start-up hubs■ Highest concentration of high-tech workers, and the largest number of high net-worth individuals on a

per-capita basis of any major metropolitan area in the US

■ Presence of global tech vendors with noted records in promoting Fintech - Apple, Cisco Systems, eBay, Google, HP, etc.

■ Well developed start-up ecosystem. Accelerators and incubators as well as prominent investors have democratized resources, knowledge and created synergies. Standard investment terms are now publicly available and crowdsourcing resources are accessible for both investors and entrepreneurs

■ Continues to remain the centre of tech innovation, while the start-up eco-system is spreading into other parts of the US (NYC, Brooklyn, San Francisco Peninsula)

4

Silicon Valley

GAPS & CHALLENGES■ Low work-life balance. Working marathon hours is part of Silicon Valley’s DNA due to the drive,

excitement, and intensity of the start-up culture■ Regional hubs (Singapore, Hong Kong) as well as London’s position as a global Fintech hub challenging

Silicon Valley’s monopoly in the start-up space


New York



Macro parameters

Introduction

New York

The concentration of financial institutions, skilled workers, start-ups and Fintech accelerators catapults New York into the top global Fintech contenders. However, the city’s relatively low profile as a Fintech area is a key concern that limits its ability to attract influential capital when as compared to Silicon Valley

■ #4 in ease of doing business(Doing Business report, 2014)

■ #2 among G-20 nations on thee-trade readiness index(EIU report, 2014)


■ US$ 17 trillion GDP in Q1 2014

■ 2.1 percent inflation (CPI) inMay 2014

■ 31 percent growth in deal volume annually, in the past five years

■ 17 Fintech deals and $151.4 millionin total investments in Q1 2014

■ 43,000 Fintech professionals with25 miles of New York City


New York’s Fintech ecosystem is concentrated within Lower Manhattan, Flatiron District, and Brooklyn neighborhoods

In recent years, several Fintech accelerators (Fintech Innovation Lab and Barclays Accelerator ) and Fintech focused VCs ( such as the Fintech Collective, Inc.) have been set up in New York City

Lower Manhattan

Brooklyn

Flatiron District

Source: Doing Business 2014 – The World Bank; “The G-20 E-trade Readiness Index” - article by ZDNet;’ “2014 Index of Economic Freedom” – The Heritage Group; “GDP of the United States of America” – Bureau of Economic Analysis; “The Rise of Fintech - New York’s Opportunity for Tech Leadership” - Accenture




Government support (1/2)Fintech businesses in New York benefit from government funding at the center, city and university level

Government funding■ ‘Start-up America’ – a White House initiative launched in 2012, aims to accelerate high-growth entrepreneurship

throughout the nation by brining together entrepreneurs, corporations, universities, foundations and experts

■ State Small Business Credit Initiative (SSBCI): In 2010 President Obama signed into law which was funded with $1.5 billion to strengthen state programs that support lending to small businesses and small manufacturers.

■ New York State’s Innovative NY Fund:

- Seed stage business equity fund with up to $45 million to support innovation, job creation, and high growth entrepreneurship

- Supported with $35 million in State funds and $10 million from Goldman Sachs

- Expected to leverage over $450 million in additional private investment for small businesses

■ start-up NY – provides major incentives for businesses to relocate, start up or significantly expand in New York State through affiliations with public and private universities, colleges and community colleges

■ NYCEF (New York City Entrepreneurial Fund): The City created the $22 million fund – the first of its kind outside Silicon Valley – aimed at providing New York City-based technology start-up companies with early-stage capital

Visa policy & immigration■ In June 2013, the Senate proposed start-up Visa (or EB6). Venture capital investment firms and entrepreneurs from

abroad are currently disappointed as this is not been enacted yet

■ However, the US already has viable visa solutions to encourage start-ups. And although not perfect, these visas have long been available and used successfully. Examples are – O-1 and EB1A Extraordinary Ability Visas, E-2 and EB5 Investor Visas, H-1B and EB2 or EB3 Professional Visas, L-1A and EB1C Multinational Manager/Executive Visas etc.

1Right now in one of those classrooms there are students wresting with how to turn their big idea -- their Intel or Instagram -- into a big business. We're giving them all the skills they need to figure that out, but then we're going to turn around and tell them to start that business and create those jobs in India or China or Mexico or someplace else. That's not how you grow new industries in America. That's how you give new industries to our competitors.

Barack Obama, President, United States of America

““

””

New York

Source: InnocvativeNY – ESD.NY.GOV, SSBCI – US Treasury website, NYCEF – Applied Sciences – NYCEDC website , StartUpNY – Startup.NY.GOV website, Whitehouse - Startup America Factsheet –Official website of The White House, US Visas - Coming to America – The Startup Visa - Forbes, KPMG analysis




Government support (2/2)Tax structure and incentives for start-ups are favorable. And although the govt. intends to relax visa/immigration laws for non-American entrepreneurs, these are still seen as a significant challenge when foreigners are setting up businesses in the country

Other initiatives■ Small Business Development Centers (SBDCs) provide a vast array of technical assistance to small

businesses and aspiring entrepreneurs

■ SCORE, supported by the U.S. Small Business Administration (SBA), is a non-profit association dedicated to helping small businesses across the US grow and achieve their goals

1

GAPS & CHALLENGES■ Stringent visa/immigration

procedures: Proposed ‘start-up Visa’ act has not been enacted yet. And while non-American entrepreneurs do get visas, the process is described to be complex and “something to worry about”

New York

Tax structure and incentives■ American Taxpayer Relief Act (ATRA) – At the central level, the Act helps small businesses by providing

tax breaks which include items such as bonus depreciation, deduction on certain acquisitions, R&D tax credit, 100 percent tax-free capital gains on sale of small-business stock etc.

■ Start-Up NY – is the city Governor’s initiative to transform Start-Up NY campuses and other university communities across the state into tax-free communities for new and expanding businesses. This initiative enables business to locate in these zones and operate 100 percent free of tax for 10 years in the following categories:

- Income tax.

- Business or corporate state or local taxes

- Sales tax

- Property tax

- Franchise fees




Access to Funding

Access to fundingTechnology start-ups in New York enjoy access to a combination of VC funded and financial services-sponsored funding initiatives.

Tax structure and incentives■ Raking: In terms of total VC invested in technology start-ups, NYC ranks No. 2 in the US, only behind

Silicon Valley. It has been the fastest-growing tech. start-up ecosystem in the U.S over the past 10 years

■ Growth: Over the past 5 years, the CAGR for Fintech related deals grew by 31 percent annually, compared to Silicon Valley’s 13 percent, and investment grew 45 percent annually, compared to Silicon Valley’s 23 percent

■ Specific examples of VC initiatives in New York:

■ OnDeck, a peer-to-peer lending platform, has advanced more than $1 billion in loans

■ LearnVest, a personal finance platform founded in 2009, added $28 million of VC funding in April 2014

■ Kickstarter: the largest crowd funding platform for creative projects, has raised $1.1 billion from 6.4 million participants supporting 63,000 projects. It has received $10 million in VC funding

2

GAPS & CHALLENGES■ Relative to the Silicon Valley, a

low Fintech profile affects ability to attract large capital. So while the absolute number of deals is increasing drastically, the average value of each deal in New York is significantly lower than the Silicon Valley

Information Technology Venture Capital Invested (Billion US$)

New York

Financial services-sponsored VC will continue to grow as institutions recognize that the go-it-alone approach of in-house development isn’t enough.

Jaidev Shergill, Capital One, head of digital venture investing and start-up business development

““””

0.71.6

4.9

2.61.4

9.1

NY Metro Massachussets Silicon Valley

CAGR = 13.3% CAGR = -1.7%

CAGR = 6.4%

20032013

Source: CB Insights – Venture Capital: Silicon Valley – CB Insights; KPMG analysis



Skill and talent

Availability of skill and talent ; Business environment

Mature and highly successful programs in place to develop technical skills; these programs are intended to drive economic growth of the city

■ Applied Sciences NYC: Robust initiative in place to grow the economy by developing technology related skills; Projected economic impact over 30 years is over $33.2 billion

- Jan 2014: Cornell and Israel Institute of Technology to build applied science and engineering campus on Roosevelt Island. City provides site and $100 million

- Nov 2013: Fourth applied sciences program announced at Carnegie Melon University

- Aug 2012: Computer Science Masters of Engineering introduced at Cornell NYC Tech

- Jul 2012: Columbia University announces new institutes for data sciences and engineering

■ May 2012: Google donates 22,000 sq. ft. of its headquarters to Cornell NYC Tech while the university completes new campus

■ Google, Facebook, Twitter, Amazon and eBay are growing New York offices. This is increasing increasingly bringing engineering talent into the city

3

New York

The concentration of Financial institutions, start-ups and accelerators makes the general business environment in New York favorable

■ Growth

- Fintech in NYC has grown at twice the rate of the Silicon Valley over the past 5 years

- In terms of absolute size, its Fintech cluster is second only to Silicon Valley

■ New York’s Fintech Innovation Lab

- Currently in its fourth year

- Has had 18 previous alumni

- Raised a combined $76 million

- One start-up was acquired for $175 million

■ Access to a large potential customer base

- New York is known to have a strong financial sector and as these potential clients are realizing the benefits of having easy access to technology resources

■ Worldwide Investor Network: An accelerator program that aims to discover companies from around the globe and bring them to NYC

Business environment4

Cornell University and our extraordinary partner, The Technion-Israel Institute of Technology, are deeply gratified to have the opportunity to realize Mayor Bloomberg's vision for New York City: to prepare tomorrow's expanding talent pool of tech leaders and entrepreneurs to work with the city's key industries in growing tomorrow's innovation ecosystem.

David J. Skorton, President, Cornell University

““

””Source: Cornell, Applied Sciences NYC, Worldwide development fund, KPMG analysis

London



Macro parameters

Introduction

London

London’s proximity to a thriving financial hub, coupled with access to killed Fintech professionals, favorable government, and a supportive ecosystem elevates it among the big league of global Fintech hubs. However, availability of mid-size funding and a weak IPO market remain key concerns

■ #11 in ease of doing business (EIU report, 2014)



■ US$ 2522.26 billion GDP in 2013

■ 2.9 percent inflation (CPI) in Mar 2014

■ 84 Fintech deals took place in the UK between 2003-13

■ 44,000 Fintech professionals within 25 miles of London

■ $675 million in investments between 2003-13


East London is a predominant technology cluster for the city

The insurance industry is focused around the eastern side of the city while a secondary financial district exists outside of the city at Canary Wharf

Canary Wharf

Source: Doing Business 2013 – World Bank, UK GDP – Trading Economics; 2014 Index of Economic Freedom; The Economist Intelligence Unit - The G20 e-Trade Readiness Index; “Digital tech can give London a$20 billion boost in a decade – study” – Reuters Industry articles and news




Government support (1/3)Fintech businesses in London enjoy support from a government that encourages entrepreneurship to accelerate overall economic growth

Government funding■ UK Angel CoFund – An early stage matching fund to support the growth of angel investment sector.

■ Start-Up Loan Scheme – Provides seed capital and mentoring to early stage businesses.

■ Enterprise Capital Fund Program – Supports the creation of new early stage venture capital funds.

■ UK Innovation Investment Fund – Co-invests with private investors in high growth, knowledge-based businesses.

■ Business Finance Partnership – Enables increased access to finance by providing matching funds.

■ Future Fifty Program – A matching program for fifty of the most promising high-growth companies with publicly funded schemes and incentives relevant to their stage of growth and specific needs.

1UK Trade and Investment’s growth acceleration work is best in class in Europe for entrepreneurs. I have witnessed first-hand their experienced entrepreneurs at work and their team of dealmakers is a hugely valuable addition to our network.

William Stevens, International Accelerator Programme, Europe Unlimited

““

””UK Trade and Investment (UKTI)The UK government – via the UK Trade & Investment (UKTI) - The Financial Services Organization (FSO), and Her Majesty’s Treasury aims to create ideal conditions for a thriving financial technology sector in London

■ Financial technology is a focus area for the UKTI – aims to attract inward investment as well as support companies, including those in the Fintech sector, expand their operations globally.

■ According to Gavin Cleary, COO of UKTI Financial Services Organisation, UKTI’s ‘commercial diplomats’ across its global network of 103 offices aid ‘indigenous’ Fintech companies to grow internationally and make more money.

London

For us, Financial Technology is a really unique position here in the UK – we have the talent, technology, and the experience background to be a leader in Financial Technology.

Gavin Cleary, COO of UKTI Financial Services Organisation

““

””Source: “Gavin Cleary - COO UKTI Financial Services Organisation at The Fintech50 2014” – YouTubeGOV.UK website: “Crossroads - An action plan to develop a vibrant tech start-up ecosystem in Australia” –start-upAus (April 2013), accessed July 2014, Industry reporting, KPMG analysis



Government support (2/3)The government provides relevant tax relief to new businesses and also stimulates the inflow of entrepreneurs into the city

London


Tax structure and incentives■ Entrepreneurs’ Relief Program – Offers a reduction in capital gains tax rate of 10 percent for founders of

start-up firms who sell or give away their businesses.

■ Enterprise Investment Scheme (EIS) / Seed Enterprise Investment Scheme (SEIS) – Encourages investment into early stage, high-risk businesses and provides an upfront income tax relief of 30 percent and 50 percent, respectively. The scheme also provides capital gains tax exemption and is valid until the end of 2014.

Other initiatives■ Entrepreneur Visa Scheme – Introduced in 2008 to attract entrepreneurs from across the world to

establish their business in the UK

■ Global Entrepreneur Programme – Run by the UKTI to attract high caliber, early stage companies and entrepreneurs to set up in the UK . Under the program, participants are offered bespoke advice and capital raising assistance from a team of experienced entrepreneurs.

1

The country’s inability to ‘cope up with immigration’ - with increasing pressure on public services has resulted in the UK government taking a cautious stance on influx of skilled foreign nationals over the years. Recently, the Home Office tightened the "entrepreneur" visa scheme after checks revealed a scam involving potentially thousands of bogus applications.

Many of these entrepreneurs will have been attracted to some of the UK's fastest-growing business sectors, such as the UK's rapidly expanding IT start-up sector, which is centered around 'Silicon Roundabout' in London.

Simon Horsfield , Immigration Expert, Pinsent Masons

““

””Source: “Entrepreneur Visa Scheme”; “Global Entrepreneur Program” – GOV.UK website; “Entrepreneurs Relief Program” – Howlader & Company ;“Enterprise Investment Scheme/Seed Enterprise Investment Scheme”, 'Entrepreneur' visa scheme tightened after new scam uncovered” – The Telegraph, “Crossroads - An action plan to develop a vibrant tech start-up ecosystem in Australia” – start-upAus (April 2013), accessed July 2014, Industry reporting, KPMG analysis



Government support (3/3)Amidst an overall positive environment, the relatively weaker IPO market in the UK poses some challenges to the start-up ecosystem

London


Other initiatives■ The Financial Conduct Authority (FCA) of UK launched ‘Project Innovate’ – aimed to ensure that UK

financial technology companies are supported by the country’s regulatory environment.

■ In 2013, The London Stock Exchange introduced changes to IPO regulations by allowing high-growth companies to make initial public offerings with just 10 percent of their stock, compared to a standard requirement of 25 percent. This move was primarily to enable higher rates of technology company listings in the UK.

■ Established institutions such as the Technology Strategy Board as UK's foremost innovation agency, to oversee innovation programs and accelerate economic growth

1

We are competing in a global race and I am absolutely determined to make Britain the best place in the world in which to start and grow a business. The world of business is changing rapidly and one of the most promising opportunities for new jobs and growth lies within a new wave of high growth, highly innovative digital businesses.David Cameron, British Prime Minister

““

””

GAPS & CHALLENGES■ Most Fintech ventures in the UK are still in their infancy.■ The UK has a relatively weak IPO market (compared to the US); start-ups believe that higher valuations

and better exit options are available elsewhere

Source:; “LSE changes rules to boost tech companies in Britain” – The Telegraph; “Fintech sector to launch new industry body” – start-ups.co.uk, “Economic Secretary on new financial technology” – GOV.UK, accessed July 2014, Industry reporting, KPMG analysis



Access to fundingLondon Fintech start-ups have increased access to funding, especially early stage funding. However, the lack of late stage funding is hindering businesses from scaling up

London

Simon Devonshire, Director, Wayra Europe

Access to Funding

■ Crowdfunding - Crowdfunding companies in the UK issued £480 million (US$803 million) in loans and bought £28 million in unlisted securities in 2013– up 150 percent from 2012

- However, entrepreneurs and industry analysts view FCA’s new regulations on crowd funding (Apr ‘14) that restrict investments by inexperienced investors in unlisted business as a hindrance to funding efforts

■ Financial services firms showing interest; accounted for 6 percent of venture investments in Fintech in the UK and Ireland in 2013, up from 3 percent in 2012.

■ London has been witnessing a steep rise in Fintech activity, especially in the past decade

- According to research firm CB Insights, 84 Fintech deals took place in the UK between 2003-13 grossing US$675 million in investments

- Between 2008-13, the CAGR for Fintech financing in the UK was twice the global average and twice that of Silicon Valley; partly due to a string of dubious events in the past year such as mis-selling and rate-fixing scandals, rogue trading

2

GAPS & CHALLENGES■ Venture capital investments focused on Fintech in London are still mostly first round■ Availability of funding remains scarce compared to the US - Companies in the UK and Ireland netted less

than US$785 million since 2004 while Fintech companies in Silicon Valley received ~ $950 million in funding in 2013 alone

The determination and tenacity of those driving crowdfunding in the U.K. - despite a lack of clear regulation and heavyweight incumbents – has made it work.

““””

There’s a very clear message coming from banks…they are interested in opening up their supply chain. RBS and Lloyds are doing a lot in this space and recognising the opportunities of having a more efficient supply chain.

Gavin Cleary, COO of UKTI Financial Services Organisation

““

”” London and Europe are becoming more competitive at the early stage – with a number of seed and Series A funds being created. But what they are missing is the C, D and E rounds, so we think the opportunity is moving to the expansion stage.

Matt Harris, Bain Capital Ventures ““

””Source: CB Insights – Venture Capital: Silicon Valley – CB Insights; KPMG analysis



Availability of skill and talent (1/2)Proximity to London’s financial services hub ensures ready access to skilled professionals

London

Skill and talent Proximity and availability of skilled workforce■ According to research by South Mountain Economics (published in June 2014), there are an estimated

44,000 Fintech workers within 25 miles of London, compared with 43,000 for New York and only 11,000 for San Francisco-Silicon Valley

- London boasts of superior Fintech credentials – Per Financial News’ Fintech 40 power list for Europe, three-quarters of the people named as industry influencers are based in the British capital.

- Four of the world’s ten biggest banks with global or European headquarters situated in London.

- 135,000 financial-services technology workers in the UK ; ~40 percent of London’s workforce is employed in the financial services or tech sector’s.

- More than 24,000 tech firms set up shop in London, supporting some 48,000 jobs

3

Financial services are a major component of the British economy, so there's expertise in the market place. That's why many Fintech businesses are choosing London.

Claire Cockerton, Deputy Head of Level39

““

””Source: “The Boom in Global Fintech Investment- A new growth opportunity for London” – Accenture, “Digital tech can give London a $20 billion boost in a decade – study” – Reuters; “London flexes Fintech muscle in Financial News list”-TechCityNews, accessed July 2014, Industry reporting, KPMG analysis



Availability of skill and talent (2/2)The education system provides considerable fillip to entrepreneurial studies; however, UK entrepreneurs face soft skill drawbacks –such as the ability to commercialize new ideas

London

Skill and talent Proximity and availability of skilled workforce■ Education and Curriculum

- In March 2014, launched ICS Entrepreneur - a volunteering scheme that nurtures young entrepreneurs aged 18-25 years to hone their business skills, confidence and knowledge of overseas markets

- The Department of Education(DoE) introduced a technical baccalaureate (Apr ‘13) targeted at college students interested in developing skills and pursuing careers in areas such as information technology and digital media.

- DoE also recently mandated a ‘programming ‘curriculum in all primary and secondary schools. The curriculum is designed with input from the Royal Society of Engineering, and industry leaders such as Google and Microsoft and also offers a £500,000 fund to train teachers in software coding.

- Several institutions of global repute such as University of Oxford, University of Cambridge, London School of Economics and Political Science are based in and around the city.

3

Britain was built on the dynamism and graft of its entrepreneurs and our country’s future will be no different. That’s why we’re investing in the skills and energy of young people, no matter where in the UK they’re from or what their background, so that we continue to be competitive and successful.

Justine Greening, International Development Secretary

““

””GAPS & CHALLENGES■ Entrepreneurs less focused when it

comes to commercializing new ideas■ Fintech start-ups lack the expertise,

access, and resources to effectively sell to and collaborate with banks

Ismail Ahmad, Fintech entrepreneur (WorldRemit)

As the global centre of financial services and a tech hub, London gives Fintech entrepreneurs access to an unparalleled pool of talent, from developers to product managers to compliance officers to sales

““””

Source:“'Tech Bacc' aims to boost status of vocational courses”; “Year of Code and £500,000 fund to inspire future tech experts launched”: ICS Entrepreneur scheme – GOV.UK,” Europe’s Mid-Size Fintech Firms Stuck in Funding Gap “ - Wall Street Journal, accessed July 2014, Industry reporting, KPMG analysis



Business environmentA strong tech sector and a thriving FS sector give London the right business environment for becoming a Fintech hub

London


Continues as the global leader among tech start-up hubs■ A thriving financial services sector : London is counted among the leading financial services hubs in the world

■ A growing tech sector: The UK technology industry experienced high growth in the final quarter of 2013, marking some of the biggest performance increases in the sector in nearly a decade

■ FS firms opening up to tech start-ups : Financial services and banking institutions in London are willing to partner and collaborate with financial technology firms to transform their traditional offerings

- Santander launched a US$100 million Fintech fund that will initially focus on digital delivery of financial services, online lending, e-financial services, and big data analytics ( July 2014)

- Five major UK financial services firms: HSBC, First Direct, Nationwide, Santander and Metro Bank partnered with Zapp, mobile payments technology provider to enhance its existing phone and tablet banking apps ( January 2014)

■ Growing support for Fintech

- London has been recently hosting the inaugural Fintech Week, a series of mini conferences, exhibitions and networking events for the sector’s main players – and those who hope to join them

- Interest from London’s entrepreneurs in Fintech has also risen dramatically during the last 18 months. Per Eddie George, founder of Fintech network NewFinance, the network’s London membership tripled in 2013

- Two new Fintech accelerators in 2014 – The Barclays Accelerator, in partnership with Techstars and startup bootcamp, backed by MasterCard, Lloyds Banking Group and Rabobank

■ UK’s financial technology sector is expected to officially launch an industry body in July 2014 together representatives from leading Fintech start-ups and large banks onto a common platform

- Innovate Finance, previously Fintech UK will start with about 50 member companies and has won £600,000 backing from the City of London Corporation and Canary Wharf Group. The body will be based in Canary Wharf.

4

Source: “The Boom in Global Fintech Investment- A new growth opportunity for London” - Accenture, Barclays Fintech Accelerator Program and start-upbootcamp, “UK banks sign up to Zapp mobile payments” “New Industry Body to be based in Canary Wharf”; Santander Fintech fund, accessed July 2014, Industry reporting, KPMG research

Tel Aviv



Macro parameters

Introduction

Tel Aviv

Israel’s high innovation quotient and the surge in interest among global and local banking players in the city is driving the Fintech sector in Tel Aviv. However, support from other Fintech hubs- notably London and Hong Kong is also driving entrepreneurs to expand beyond Israeli borders



■ US$ 305.7 billion GDP in April 2014

■ 0.1 percent inflation (CPI) in Apr-May 2014

Rothschild Boulevard

Rothschild Boulevard - also known as the Silicon Boulevard, houses the offices of many start-ups in Tel Aviv

The growth in Fintech in the city is driven by several banks setting up R&D centers (Barclays & Citi ) and incubators (Bank Leumi )

■ Emergence of Fintech accelerator programs, driving increased interest in Fintech among Tel Aviv start-ups

■ 9 start-ups as part of Israel’s recent Fintech delegation to Hong Kong


Source: Doing Business 2014 – The World Bank ’ “2014 Index of Economic Freedom” – The Heritage Group; “GDP of Israel” – International Monetary Fund; Israel Inflation – Inflation.EU, Israeli Fintech Delegation-Hong Kong, accessed July 2014, Industry reporting, KPMG analysis





Tel Aviv

Tel Aviv’s government proactively supports entrepreneurs and start-ups through funding and tax breaks

Government funding■ Yozma Fund (closed to new startups): The fund was set up to attract foreign direct venture capital

investment into Israel. To incentivize inward investment, foreign investors were offered matched funding at a rate of two to one. That is, for every dollar a foreign investor committed to an Israeli entrepreneur, the government committed an additional two. To provide further up-side incentive, the government offered investors the option of buying out the government’s stake in the fund after a period of five years

■ The Tnufa provides pre-seed funding to of up to $50k (maximum of 85% of costs) for early stage activities such as financial feasibility analysis, prototype development, etc.

■ Chief Scientist R&D Development Fund: This program gives new R&D facilities access to grants covering 20-50% of a start-up’s estimated R&D costs. In return the Government is entitles to royalties in the range of 3-3.5% of annual revenues

Tax breaks■ Tax breaks are given to venture capital backed accelerators who set up in the city. The Angel Act (2011)

provides tax incentives to angel investors who invest in seed companies.

■ Recently, in July 2014, the ministries proposed simpler criteria for tax incentives to encourage seed-stage investments (Angels Act 2). Under the new plan (which would come into effect in 2015), to claim the tax benefits, one will have to invest in start-ups that are less than three years old, earn no more than 1.5 million Shekels (~US$0.44 million) in annual revenue, and incur expenses up to 3 million Shekels (US$0.88 million).

1

Source: “Fintech brochure 2014” Israel Export Ministry; “Magnet cities – Tel Aviv” – KPMG: “Israel to expand tax breaks to boost investment in start-ups” – Reuters/Al-Arabiya (16 July 2014), KPMG analysis





Tel Aviv

The government also supports start-ups through events and shared workspaces. A start-up friendly visa policy is being considered

Sponsor events to cultivate the start-up industry■ Yozma Fund (closed to new startups): FIN-TECH, Tel- Aviv 2014: It is the 1st International Conference

on Financial Technology convened by The Israel Export & International Cooperation Institute and Ministry of Economy. The event is planned to be held in September 16-18, 2014, in Tel Aviv.

■ Go 4 Israel: the 12th edition of “go 4 Europe” conference (http://www.go4eu.com/)

■ MIXiii: “Mix Israel Innovation International” – Israel innovation conference (http://www.mixiii.com/)

Shared/co-working spacesThe city government has converted a number of municipal facilities such as city libraries into incubator start-up spaces.

■ The Library: The Library in the historic Shalom Tower provides a shared working space and hub facilities for teams dedicated to developing internet start-ups and new technology companies. Teams of start-ups apply to be based at The Library for a period of about four months. In return, start-ups teams pay a subsidized rate of US$70 per month for the facilities.

1

Visa policy ■ The government is reviewing its visa policy with the aim of introducing a “start-up visa” regime that would

make it easier for skilled foreigners to come and work in Israel.

Source: “Fintech brochure 2014” Israel Export Ministry; “Magnet cities – Tel Aviv” – KPMG: “Israel aims to grow from start-up nation to scale-up nation” – Financial Times (January 2014), KPMG analysis



Skill and talent

Availability of skill and talentWith a robust education system, and a strong technology base rooted in mandatory military service, Tel Aviv has a considerable skill pool

Robust education infrastructure…■ Four universities and several colleges offer a

wide range of programs with special focus on research delivered in English. Well regarded institutions include Tel Aviv University and Technion (Israel Institute of Technology)

■ Tel Aviv University, the largest university in Israel, is reputed for its research courses and programs. The University has:

- 130 research institutes and 400 labs

- 30,000 students (of whom 14,000 are Master’s and Doctoral candidates)

- Filed 2,400 patents till date

3 ..and a strong tech base stemming from mandatory 'tech intensive' military service…■ All Israelis must spend two (women) or three

(men) years in the Israeli Defense Force (IDF). The IDF is very technology oriented and following service many Israelis use this knowledge to develop new communications and web-based technologies.

■ This military-trained alumni base also become recruitment targets by global technology companies such as IBM, Cisco, Microsoft and Google.

…gives Tel Aviv a considerable skill pool ■ One-third of the Israeli population is in the productive age group of 18 to 35.

■ 135 out of every 10,000 workers in Israel are scientists and engineers; in the US, this number is only 85

■ Nine out of every 1,000 workers are engaged in R&D, nearly double that in the US and Japan.

Tel Aviv

Source: “Magnet cities – Tel Aviv” – KPMG: Tel-Aviv Municipality website accessed on 17 July 2014; Israel Institute of Technology website accessed on 17 July 2014; Tel Aviv University website accessed on 17 July 2014





Tel Aviv

A positive business environment is attracting global FS institutions to Israel despite the high degree of geo-political volatility

Several accelerator programs in the city help startups. An example is JunctionThe Junction is an accelerator that was set up by Genesis Partners, an Israeli Venture Capital firm, in southern Tel Aviv. On average 150 companies compete for one of the coveted 20 places on a three month wave. The aspiring entrepreneurs work together in a modern loft-style space, coding prototypes and writing business plans. Partners and Directors from Genesis Partners coach the aspiring entrepreneurs as they develop their propositions, business and funding plans.

3

While Israel is at the forefront of technology and has great experience in creating successful startups, this move is intended to grow and enhance the country's involvement and participation in the development of financial technology around the world.

Lyron Wahrmann, Head of Citi Innovation Lab, Tel Aviv

““

””

Global Rankings:■ EIU’s business environment rakings

2014: 21st position

■ Global ease of doing business rankings 2014: 35th position

■ Global financial centers 2014: 21st position

Global banks are setting up innovation labs and other R&D facilities in Israel■ Citibank set up a technology innovation center in Israel in 2011, followed by a data intelligence lab in

2013

■ Barclay’s has established an in-house R&D center in the city

Local banks are also realizing the opportunity and investing in Fintech:

■ Leumi has partnered with Elevator (Israeli investment fund focused on start-ups) in the establishment of an accelerator program.

■ Bank Hapoalim is planning to invest US$23 million in Fintech “to turn Bank Hapoalim into a home for technology companies that are developing products for the financial industry,”, according to Bank Hapoalim Chairman Yair Seroussi

Source: “FinTech brochure 2014” Israel Export Ministry; “Magnet cities – Tel Aviv” – KPMG: “Citi Launches the First Financial Technology Accelerator Program in Israel” – Citi Group (31 July 2013); GFCI - Global Financial Centers Index report, March 2014; EIU business ranking, July 2014; World Bank, Ease of doing business report, 2014



Access to Funding

VC fundingIsraeli high-tech companies have adequate access to funding, mostly from VCs. However seed-stage funding makes up a low proportion of total funding

■ Crowdfunding - Israeli high-tech companies raised US$1.6 billion in the first half of 2014, an increase of 81 percent 2013, making it the strongest capital raising period on record for the Israel's high-tech industry, according to the Israel Venture Capital (IVC) Research Center.

■ Currently, around 70 venture capital funds are active in Israel, of which 14 international VCs with Israeli offices and additional 220 international funds which actively invest in Israel.

■ Several leading US and European VC funds have Israeli branches, namely Alta Berkeley Venture Partners, Battery Ventures, Bessemer Venture Partners, BlueRun Ventures, Blumberg Capital, Bridge Capital Fund (BCF), Canaan Partners, Defta Partners, Lightspeed Venture Partners, and more.

2

GAPS & CHALLENGES■ Seed-stage funding is a small proportion of total funds raised by Israeli high-tech companies (5 percent of

the US$ 1.6 billion raised in H1 2014, down from 7 percent in H1 2013)

Tel Aviv

Source: Venture Capital in Israel, EIPA accessed 17 July 2014, “FinTech brochure 2014” Israel Export Ministry; “Magnet cities – Tel Aviv” – KPMG: EIU Viewswire accessed 17 July 2014; Worldbank website accessed on17 July 2014

Berlin



Macro parameters

Introduction

Berlin

Berlin has locational and operational advantages over other European cities. However, the lack of robust government efforts, the limited success of private funding and incubation programs and the absence of entrepreneur education is inhibiting growth of the Fintech hub




■ US$ 3.6 trillion GDP in 2013■ 1.04 percent inflation (CPI) in June

2014

■ English becoming more widely spoken in Berlin, resulting in more VCs and entrepreneurs from the US eliciting interest

■ Over 20 Fintech start-ups in Berlin


Berlin’s Mitte and Kreuzberg neighborhoods among the preferred locations for start-up activity

The Factory is a campus for start-ups and tech companies in Berlin Mitte, at the heart of a growing ecosystem

Berlin's Tempelhof Airportbeing touted to be the city's next start-up and tech hub

Mitte

Kreuzberg

Source: Doing Business 2014 – The World Bank ; “The G-20 E-trade Readiness Index” - article by ZDNet;’ “2014 Index of Economic Freedom” – The Heritage Group; “GDP of Germany” – Trading Economics; “Inflation in Germany” – Trading Economics; Fintech Forum DACH




Government support

Berlin

Traditionally, the extent of government support in spurring a vibrant start-up landscape in Berlin has been low. This, however, is now changing.

1 Berlin has traditionally received little government support in building a start-up hub…■ Berlin has a robust tech start-up landscape; however, government initiatives in encouraging an

entrepreneurship culture have been sparse■ Since the city’s key industries are centred on tourism and culture, most of the government focus has

been on these areas and not on start-ups – Start-up initiatives (such as The Factory) have been almost completely void of government

involvement– Some degree of bureaucracy and red tapism surrounding startups in Berlin– Lack of government funded co-working spaces or accelerator programs

…however, this is now changing, with the government trying to incubate start-ups through several programs such as the following:■ Technologiestiftung Berlin (TSB) Innovationsagentur, a government agency is helping tech start-ups by

building a network of researchers, policy-makers and established companies■ Investitionsbank Berlin (IBB) provides dedicated funding for tech start-ups■ The German government’s business start-up portal that helps ventures understand legal and tax

processes, and register their companies and

Source: Berlin builds businesses, McKinsey; Germany's Fintech rising stars- and their investors; Starting a Business; The Fintech Forum; Fintech – London, Berlin, Europe; Start-up boot-camp Berlin; European start-ups in Berlin



Access to Funding

VC funding and skill availability

Berlin

Some private VC funds and incubation programs have emerged, though their success has been largely limited.

2■ Some private sector funds and incubation programs have emerged – however success has

been limited■ Fintech Forum DACH emerged as the first event focused on Germany, Austria and

Switzerland, with an aim to identify innovators and disruptors in the FS sector ■ Start-up bootcamp has been trying to push Berlin as the start-up capital of smart cities and

innovation■ Betahaus is a private accelerator and provider of co-working space in the city■ Point 9 Capital invests in early-stage start-ups across Europe who are looking for initial

seed or Series A funding

GAPS & CHALLENGES■ Germany’s share in the global Fintech M&A and investment space was less than 0.6 percent

in 2012■ Structural shortage exist in securing follow on financiering■ While the interest among international investors is growing, it has not yet translated into

sufficient action■ There is a need to educate the investors in Berlin. They are still new to investing heavily in

tech start-ups

Skill and talent3■ With over 165,000 students, Berlin is the largest

university centre in German-speaking countries and offers significant potential for recruiting new talent

■ Berlin attracts a lot of young, talented people which is important for building up an international team

■ Significantly low costs for students

GAPS & CHALLENGES■ Low interest among students and graduates in

starting businesses, particularly in the technology space

■ Lack of entrepreneurial culture/education

While Berlin has the right prerequisites for a skill pool, cultural factors have stymied entrepreneurship

VC funding and skill availability

Source: Berlin builds businesses, McKinsey; Germany's Fintech rising stars- and their investors; Starting a Business; The Fintech Forum; Fintech – London, Berlin, Europe; Start-up boot-camp Berlin; European start-ups in Berlin





Berlin

Though Berlin has some locational and macro-economic advantages over other European hubs, it still has not been able to fully monetize the opportunities

4 Slowly emerging Fintech start-up eco-system

■ Berlin does not have a very strong banking sector, which can hinder the growth of Fintech start-ups

■ With English becoming more widely spoken in Berlin and the German economy remaining robust, more VCs and entrepreneurs from the US are considering investing in Berlin’s Fintech start-ups

■ Also, an increasing number of entrepreneurs without significant FS or ICT sector experience are trying to tap Fintech opportunities

■ Considerable growth in accelerators and incubators, such as Axel Springer's Plug & Play, Berlin start-up Academy, The Factory and initiatives from companies such as Mozilla, Microsoft and Google, as well as an increasing number of events and ¬conferences

■ A growing job market. A new start-up is founded every 20 minutes in Berlin and the industry is set to produce 100,000 new jobs by 2020

■ Lower operational costs. Berlin is cheaper than several other European cities. Office overheads and the price of living are cheaper, which gives entrepreneurs more to spend on innovation

■ Growing network within the city’s tech start-up community

GAPS & CHALLENGES■ Red tapism and bureaucracy related challenges

■ Start-ups in their growth phase lack a centrally located co-working space

■ Start-ups lack a robust network with established companies and government agencies

Early successful entrepreneurs (turned business angels) now pump their back capital into a burgeoning scene. New Berlin entrepreneurs share their know how and experiences among each other, but lack significant support from advisors and mentors. In terms of living cost and lifestyle, Berlin might be the best place to start a company right now. However, for scaling it, Berlin start-ups might consider relocating as the ecosystem is not mature enough in terms of capital, support infrastructure, and mind-set

“The start-up Ecosystem Report” by start-up Genome,

2014

““

””Source: Berlin builds businesses, McKinsey; Germany's Fintech rising stars- and their investors; Starting a Business; The Fintech Forum; Fintech – London, Berlin, Europe; Start-up boot-camp Berlin; European start-ups in Berlin

Hong Kong





Hong Kong

The Hong Kong government has rolled out several funding, incubation and acceleration programs, as well as provides critical infrastructure aimed at developing the territory as a Fintech hub. It is also aggressively attracting foreign start-ups to set up tech ventures in the territory

1 The Hong Kong government’s focused strategy for developing a Fintech eco-system■ Intends to leverage the strong FS sector in the country by developing Hong Kong as a financial tech innovation hub■ State backed programs such as InvestHK or the ITC are funding co-work spaces and incubators across the territory■ The government is proactively trying to attract start-ups from India and other Asian cities. Also luring Silicon Valley

companies such as Humdinger to shift their R&D and innovation to Hong Kong■ Further, the government is collaborating with Israel to explore Fintech innovation opportunities

Prominent government programs for tech start-upsGovernment agencies■ InvestHK focuses on developing Fintech efforts by funding wide network of co-work spaces and incubators■ The Innovation and Technology Commission (ITC) promotes R&D, and facilitates tech infrastructure development■ Steering Committee on Innovation and Technology co-ordinates the formulation and implementation of innovation and tech policies and ensure synergy

among different elements of the innovation and tech programFunding■ The Innovation and Technology Fund (ITF) finances projects that contribute to innovation and IT. In Feb 2014, ~3,779 projects were approved, of which

2,206 are R&D projects■ R&D Cash Rebate Scheme that incentivizes the research culture among enterprises Infrastructure and Enablers■ The Hong Kong Science and Technology Parks Corporation (HKSTPC) supports provides incubation, physical spaces for applied R&D activities, as well as

land and premises in the industrial estates for production■ The Hong Kong Applied Science and Technology Research Institute Company Limited (ASTRI) supports start-ups in commercializing their R&D

Source: Hong Kong government factsheet; Fintech – leveraging Hong Kong’s strengths, Bloomberg; Israeli Fintech delegation to Hong Kong; Why should Hong Kong be your global launch pad





Hong Kong

Cyberport is a government-funded program that provides co-working spaces to local start-ups as well as partners with global accelerator programs such as Accenture Fintech Labs, Microsoft Ventures, and StartX

1 Government funded co-working and acceleration space■ The government funded Cyberport is a co-working

community with a cluster of more than 250 tech and digital tenants

■ The program has funded 63 projects, organized and participated in 29 collaborations and 55 showcases, reaching over 3,000 mainland and overseas entrepreneurs

■ Cyberport has also partners with global tech giants for co-sponsoring acceleration programs– In June 2014, teamed up with Accenture for

providing the physical space for the Fintech innovation lab

– In May 2014, Cyberport, partnered with Microsoft Ventures to give local start-ups an opportunity of global exposure

■ Further, Cyberport rolled out an accelerator support programme and a seed fund to sponsor creative and innovative ICT start-ups or related business concepts

GAPS & CHALLENGESComplicated visa process■ Securing a visa to live in Hong Kong took six months and

cost ~US$5,000 for the services of a visa consultant■ If Hong Kong wants to attract entrepreneurs they need to

make the visa process fast, simple, and cheap. That means the entire process needs to go online

Tax structure relatively higher■ Though Hong Kong has one of the lowest tax rates globally,

yet Singapore’s net effective personal income tax rate is much lower

■ In Hong Kong, corporate tax is set at 16.5 percent of assessable profits for corporations and 15 percent for unincorporated businesses. existence of corporate tax is an inhibitor for start-ups

■ In addition, Hong Kong unlike Singapore does not have many industry-specific tax incentives to encourage foreign investment

Cyberport, Hong Kong’s ‘creative digital community’ has been drumming up a lot of support for start-ups in the past while, the latest being a partnership with Microsoft Ventures. Besides teaming up with a tech giant to give start-ups an opportunity at global exposure, Cyberport has also announced a complimentary accelerator support programme and is now accepting applications for their seed fund.

Herman Lam, CEO of Cyberport, May 2014

““

””Source: Hong Kong government factsheet; Cyberport Partners with Microsoft Ventures for New Accelerator Program with Seed Fund in Hong Kong; Accenture, Top Banks in Asia Launch ‘Fintech Innovation Lab Asia-Pacific’; Cyberport annual report; Cyberport teams with Accenture



Access to Funding

Access to Funding

Hong Kong

The VC landscape is emerging in Hong Kong with considerable funds pouring in through private equity as well as crowdsourcing. However, lack of scale is an inhibitor

2 Private VC funding is growing in Hong Kong■ The Hong Kong VC and Private

Equity Association (HKVCA) indicates that considerable funding is pouring in for local start-ups– The average size of VC

investments was ~US$6 million in H1 2014, compared to US$4 million for the whole of 2013

■ Foreign funding is also increasing in the territory. US VC firm Sequoia Capital recently joined the Tom Group and other investors to invest US$14 million in the Series A funding

GAPS & CHALLENGES■ Venture capital funding is gaining traction in Hong Kong, though the absolute

number and size of deals are miniscule when compared with those in the US■ Most technology start-ups still need help to strike deals with "angel" investors

for seed financing and venture capital firms for larger investments to expand their businesses

■ Though crowd funding has gained traction, yet progress is slow and success in sourcing funds appears harder than initially anticipated.

■ Further, unlike banks in California's hi-tech hub of Silicon Valley, those in Hong Kong lack the expertise to fund technology start-ups

7 6 11 9 11 8

2009 2010 2011 2012 2013H1 2014

Private VC funding in Hong Kong (by deal volume)

Equity crowdfunding platform for start-ups■ An increasing interest in tech start-ups have led to several platforms

connecting companies with potential investors■ These include NEST, a Hong Kong incubator, has launched Investable.vc,

an accredited equity crowdfunding platform for start-ups. It also serve as mentors and advisers– Another venture, fund2.me is also facilitating crowd funding for local

start-ups. Investors get various forms of discounts (instead of direct equity in the start-up) for the product once it is launched

What is more important, we have begun to witness a re-emergence of home-grown venture firms that not only demonstrate sophistication in investing regionally or globally, but also have an appetite for domestic investment

Hong Kong VC and Private Equity Association , June 2014

““””

Ask Hong Kong start-up founders about the challenges facing their ecosystem and you are likely to hear one answer over and over again: the lack of funding opportunities. Because Hong Kong’s start-up industry is so new, companies are still seen as risky investments and many high-worth individuals turn to the property and banking sectors instead

Tech Crunch, June 2014

““

””Source: Venture capital showing more money for Hong Kong's tech start-ups; Hong Kong crowd funding site looking for momentum; How Venture Capital and Private Equity have provided Vitality to the Hong Kong Economy post Global Financial Crisis, June 2014, HKVCA; Venture capital showing more money for Hong Kong's tech start-ups



Skill and Talent

Availability to skill and talent

Hong Kong

Proximity to Hong Kong’s financial hub and a growing culture of tech entrepreneurship ensures ready access to skilled professionals

3 Proximity and availability of skilled workforce■ The financial service industry employed ~230,000 people in 2013, representing 5.9 percent of the city’s entire

workforce

■ In the banking sector, Hong Kong is one of the largest banking centres in the world with 70 of the world’s top 100 present in the city

■ The IT sector employed 33 percent of Hong Kong’s workforce in 2012 with the majority employed in software development

■ Universities offering specialized courses in entrepreneurship - Universities across Hong Kong (Chinese University of Hong Kong, HKUST, The Hong Kong Polytechnic University) offer dedicated programs ranging from full time MBA to short time focused courses on incubating, start-up modelling, etc.

■ Career development platform that helps connect employers with young talent - Platforms such as LIBBLER provide an interface between Hong Kong’s start-ups and the local talent pool

GAPS & CHALLENGES■ Gaps in management and marketing skills, in spite of strong technical knowledge

■ Lack of dedicated Fintech courses

Source: start-upHK; Hong Kong advantage, Washington Post;





Hong Kong

Hong Kong’s native entrepreneurial culture, ease of setting up business and highly developed financial and ICT sectors and increasing push by global tech vendors provides a ripe ground for Fintech innovation

4 ■ Native entrepreneurial culture that supports new ventures. It is socially acceptable to fail in a venture and move on to another

■ Strategic location – Hong Kong is in the same time zone as Beijing, Shanghai, Singapore, Taipei, Manila, Kuala Lumpur and Perth. All Asia’s key markets are less than four hours’ flight away. Hong Kong is also the gateway to Mainland China

■ Ease of doing business –Hong Kong scores in terms of procedures for starting a business, getting bank loans or other credit, applying for an electricity supply, transferring properties and the ease of cross-border transactions.

■ Preferred location for foreign trade and investment – Contributing factors include the strategic geographic location, synergies from Mainland China, and connected networks with the rest of the world

■ Well developed communications infrastructure includes complete 4G and fibre broadband coverage overhauled by 9 submarine cable systems, 17 overland cable systems and eight satellites for external communications

■ Well established financial services industry - Hong Kong is one of the largest banking centres in the world with 70 of the world’s top 100 banks having a presence in the city. Hong Kong ranked #3 in the Global Financial Centres Index

■ High levels of IT spending, particularly in mobile, analytics and cloud computing

Google and Accenture boosting Hong Kong’s tech start-up space■ In June 2014, Accenture launched the Hong Kong chapter of

Fintech innovation lab that creates an interface between the prominent banks in ASPAC and 7 local start-ups

■ Earlier, in 2013, Google had announced plans to tap Hong Kong’s natively entrepreneurial culture and help incubate start-ups in partnership with the Chinese University of Hong Kong. Google planned to offer mentorship to young entrepreneurs and sponsor trips to Google’s headquarters in Mountain View, Calif.

GAPS & CHALLENGES■ Smaller size of software industry

■ Lack of risk-seeking, early-stage funding

■ High property prices

Source: Paul Orlando on Hong Kong start-ups; InvestHK website; WorldBank data bank

Singapore



Macro parameters

Introduction

Singapore

Singapore is an emerging Fintech hub, backed by a conducive business environment, the government’s aggressive strategy for growing the tech start-up ecosystem and active participation by the country’s developed financial sector and foreign investors. However, it still remains a smaller hub with some short-term macro-economic challenges


■ #3 in the world for foreign trade and investment (Globalisation Index 2012)

■ US$297.9 billion GDP in 2013■ 2.7 percent inflation (CPI) in May

2014■ S$1.24 trading per USS

■ ~200 banks with a total asset size of almost US$2 trillion

■ ~S$1.4 trillion assets under management in insurance

■ S$26.2 billion in IT spending, up ~4.4 percent y-o-y

■ Innovation in cashless payments, analytics and digital


Central district – the traditional FI hub

Marina Bay - the emerging FI and start-up

destination

Concentration of start-ups, incubators and investors in the Central district and Marina Bay

Source: Worldbank databank; Singstat (Government of Singapore website), Futuregov.com, Techinasia, MAS website, Singapore Venture Capital & Private Equity Association website and reports; Infocomm Development Authority of Singapore website and reports; The National Framework for Innovation and Enterprise website and reports;





Singapore

The government provides significant support in attracting more private investors and eventually developing the local start-up eco-system.

1 Government’s focused strategy for developing the tech start-up eco-system■ Intends to develop the local tech start-up eco-system without making it a clone of hubs■ Allocated ~S$100 million for early-stage start-ups within the broader S$16 billion scientific R&D budget■ Expects the state backed start-up agenda to attract more private investors and incubators■ Once the local eco-system is established, intends to scale back the level of involvement■ Also attracting Australian start-ups (such as Sprooki) to relocate to Singapore

We’ve been talking to government agencies and they are very excited to be able to connect with this network of start-ups and talent. This programme is bridging what government needs and what the community is interested and can provide

Lee Wan Sie, Deputy Director of IDA Labs, April 2014

““

””

Prominent government programs for tech start-upsFunding■ SPRING – Complete or Co-investment financing for sector specific acceleration, commercialising ideas,

networking and assistance from multiple agencies■ MDA i.Jam – Provides fund up to S$100,000 by founders or incubatorsIncubation■ i.Jam - Interactive Digital Media Program appointed incubators identify, nurture, and administer competent

start-ups■ Technology Incubation Scheme – the government co-invests ~85 percent. Incubators pitch in the remaining

buy out the government's stake after three years■ Incubator for Disruptive Enterprises and Start-ups (IDEAS)






Singapore

The government provides critical enablers such as a conducive visa and tax regime and incentives to financial institutions for innovating

1 Tax structure and incentives■ Tax exemption for start-ups – Full tax exemption on a specified part of a start-up’s taxable income for the first three

consecutive years■ Pioneer incentive scheme - Businesses that raise overall industry standards eligible for full corporate tax exemption on

qualifying profits for up to 15 years■ Productivity and innovation credit scheme - ~400 percent deduction or allowances on ~$400,000 expenditure incurred

in qualifying innovative activities■ Lower income and corporate tax rates■ Low GST rates (7 percent) - below global (16.4 percent) and ASPAC (10.6 percent) averages

Visa policy & immigration■ Open Immigration policy facilitates the relocation of foreign entrepreneurs

– Singapore has a relaxed immigration policy, making it easier to gain Singapore Permanent Residence (PR) status– EntrePass, the visa for foreign entrepreneurs is considered to be more flexible than other countries such as the UK

and the US

Incentive to banks and financial services institutions for innovation■ The SPRING program encourages innovation in the country’s key sectors such as banking, along side incubating start-ups■ It has accredited local banks such as the OCBC and Maybank with the Singapore Innovation Class (I-Class) certification■ I-Class is national recognition for organisations that have management systems, underlying technologies and processes in place to achieve excellence

through innovation■ Government programs such as these provide a fillip for Fintech innovation in the country

The Singapore government is also actively considering a pro-crowd funding legislation






Singapore

State-backed co- working spaces provide a platform for networking, incubation and acceleration. However, the government policies on the whole lack Fintech focus

1 Government backed co-working spaces■ The Infocomm Development Authority of Singapore (IDA)’s IDA Labs serve as co-working spaces for the community,

industry and government agencies– The labs provide physical lab spaces for generating new ideas, developing new technologies and testing out proof

of concepts– The IDA labs also partner with global IT vendors such as Intel, HP and Redhat for providing R&D resources,

enabling technologies and best practices from other geographic markets such as the US■ In addition, IDA acts an accelerator – expediting the process of commercializing innovation ideas

– IDA’s accreditation program to help local start-ups position themselves as qualified vendors to potential government and large enterprise buyers

– This helps start-ups to generate revenue from the early stages and reduce dependency on VC funding

GAPS & CHALLENGES■ Most incentives focus on the overall tech start-up eco-system without any specific focus on Fintech (when compared to

other hubs such as London)■ The government routing taxpayers' money to fund foreign entrepreneurs, instead of developing the local ecosystem■ Recent changes in labor laws inhibiting employment in start-ups




Access to Funding

Access to Funding

Singapore

Significant volumes of private equity, VC funding and bank financing are flowing in; however, lack of funding across the start-up life cycle and start-ups being less receptive to PE sales pose challenges

2 Significant VC funding with participation from local as well as foreign entrepreneurs■ ~$1.71 billion VC funding in tech start-ups in 2013. This puts Singapore ahead Hong Kong, Japan and South Korea■ Deal flows for local VCs are varied – Encompass wide range of technologies and attract entrepreneurs across ASPAC.

This leads to complex deal evaluation and due diligence■ Deal syndication is common due to the relatively small number of VCs in the country and the lack of a sizeable VC pool

that can take great risk■ Mature start-ups attract more foreign investments than early stage ventures■ Exits are primarily made through trade sales with foreign companies or IPOs at the local stock exchange■ Singapore banks actively engaging in funding tech innovation ventures. Banks such as the OCBC provide funding for

start-ups as old as 6 months. Do not need collateral or audited statements

GAPS & CHALLENGES■ Lack of funding across the venture’s life-cycle. Many start-ups failed after their initial funding was depleted■ Singapore’s status as a highly developed financial hub acts as an inhibitor for private funding, as local ventures carry a

premium price compared to other Southeast Asian countries■ Start-ups less receptive to private equity sales and unwilling to give up management control

Source: Singapore Venture Capital & Private Equity Association website and reports; Guidemeinsingaproe



Skill and Talent

Availability to skill and talent

Singapore

Proximity to Singapore’s financial hub and a growing culture of tech entrepreneurship ensures ready access to skilled professionals

3 Proximity and availability of skilled workforce■ Three of ASPAC’s largest banks (DBS, OCBC, United Overseas Bank) situated in Singapore■ 5.5 percent of total workforce employed in the financial services sector■ 146,700 people employed in Singapore’s ICT sector■ 11.6 per cent residents either had set up a business in the past 3 years or were in the process of

starting a venture■ The Banking & Financial Services sector is the only sector to have seen an increase in positive hiring

intentions in 1Q 2014, up 7.4pp to 50 percent, its highest result since Q2 2011

GAPS & CHALLENGES■ Changing labour laws particularly

related to the employment of foreign workers is likely to impact inflow of foreign ventures

■ The secondary education system still needs to foster a spirit of entrepreneurship

■ Greater need for knowledge exchange programs inviting students from other geographies

Skill development■ The National Framework for Innovation and Enterprise (NFIE) supports universities and polytechnics

to translate their research into commercial products for the market■ The SMU along with other Singapore universities such as the Nanyang Technological University have

dedicated courses in entrepreneurship■ SMU has also used its academic backbone for incubating 74 start-ups that has raised funding worth

S$3.1 million

Source: MAS website, Infocomm Development Authority of Singapore website and reports, The National Framework for Innovation and Enterprise website and reports;





Singapore

A strategic geographic location, conducive cultural and legal factors, a highly developed FS sector and significant technology spending give Singapore a well-rounded Fintech environment

4 Favorable business environment driving investment in start-ups■ Strong entrepreneurial culture – There is a growing ecosystem to support entrepreneurship in Singapore, which

gives it a hub position in the region. Socially too Singapore is considered to have an entrepreneurial culture, particularly due to large percentage of migrant population

■ High investment potential – With no restrictions on the repatriation of profits and the import of capital, along with the favourable operating conditions and strong diplomatic ties, Singapore offers an ideal investment environment

■ Network and tech readiness – Singapore has one of the most developed network infrastructure (high speed mobile network, under sea fibre optic infrastructure) in Asia. There are also high levels of business and government readiness and usage of technology

■ Preferred location for foreign trade and investment – Contributing factors include the strategic geographic location, connected networks with the rest of the world, strong legal system, ease in setting up new business and attractive tax system. Is also considered to have low levels of corruption and high government efficiency

Developed financial services sector and high levels of IT spending driving Fintech innovation■ Well established financial services industry - ~200 banks with a total asset size of almost US$2 trillion have operational headquarters ins Singapore. Also with

800 companies listed on the SGX, the country’s equity market is also booming. Further, with assets of S$1.4 trillion, Singapore is also a top tier insurance and asset management location

■ 63 percent mobile banking penetration. 71 percent Singaporeans use Intelligent Personal Agents (avatar-based web interfaces)■ High levels of IT spending - The total IT spending in Singapore in 2014, is likely to exceed S$26.2 billion, up by almost 4.4 percent y-o-y■ Increased spending on Fintech - ~60 percent banks and financial services companies in Singapore are increasing their spending on cyber-security. Other

critical spend areas include analytics, digital and IT transformation

Source: Worldbank databank; Singstat (Government of Singapore website), Futuregov.com, Techinasia, MAS website, Singapore Venture Capital & Private Equity Association website and reports; Infocomm Development Authority of Singapore website and reports; Facts and Rankings about Singapore, EDB (Govt of Singapore)





Singapore

Co-working spaces and innovation labs backed by banks as well as IT vendors are emerging. These help commercialize Fintech ideas – particularly in mobile, web and analytics

4 Citi group’s innovation lab – partnering with the industry, government universities■ Citi's Global Transaction Services (GTS) business has set up the Citi Innovation Lab in Singapore that

comprises a Client Experience Center and a Client Collaboration Center■ The Innovation Lab uses web, mobile, supply chain and analytics technologies to engage Citi's institutional

clients more innovatively and to create the most effective solutions and products for them■ The Innovation Lab is fully interactive and globally-linked, allowing Citi to connect with clients, global colleagues

and experts for discussions on future needs and collaboration with the bank's clients■ Partners for the new lab include the National University of Singapore (NUS) and the IDA for fostering innovation

in web, analytics and mobile with an end objective of serving clients innovatively

Global tech giants drive Fintech innovation in Singapore■ Accenture launched the Fintech innovation Lab in Hong Kong with a view to covering banks across the ASPAC

region, including Singapore■ The Development Bank of Singapore that is already working with IBM to bring Watson on cognitive computing

and artificial intelligence, aims to leverage the Fintech lab for identifying and working with niche start-ups in the analytics domain

Banks in Singapore are doing a lot more innovation than you see in US banks. The dichotomy is that the most innovative banks are in this time zone, but not the most

innovative start-ups Neal Cross, chief innovation officer at

DBS, Singapore, June 2014

““””

The Fintech Innovation Lab is a highly accessible way for banks to put their foot in the water and experiment with start ups, which is what really attracted me to this program. Start ups have a level of opportunity and innovation that a bank would like to utilize and the bank has massive scale, a huge customer base and the ability to scale out. DBS hopes to find start ups which will help it improve the life of its customers. We are already working with IBM to bring Watson into a program focused on cognitive computing and artificial intelligence. What innovation can we bring to that. I hope to find start ups that can plug into that strategy. It will be around the customer experience and customer touch points, less on data and more about the actual interaction with customers

““

””Neal Cross, chief innovation officer at DBS, Singapore, June 2014

Source: Citibank launches innovation lab; DBS Bank Engages IBM’s Watson to Achieve Next Generation Client Experience; Accenture’s Fintech lab launches in Asia





Singapore

In spite of a conducive business environment, recent macro-economic challenges have affected Singapore’s viability as a Fintech hub

4 GAPS & CHALLENGESSluggish GDP growth in recent quarters■ Singapore’s GDP, valued at US$297.9 billion in 2013, unexpectedly contracted in 2Q 2014.

– On a q-o-q basis, GDP stayed nearly stagnant (0.8 percent decline), compared to a 1.6 percent gain in 1Q 2014. On a y-o-y basis, growth was 2.2 percent, against a 2.4 percent estimate

■ The sluggish GDP growth was largely due to a decline in electronics, primarily driven by a significant fall in semiconductor production– The fall is also due to tighter rules for foreign labour that have pushed up costs– In addition, the services has not been able to offset the manufacturing slump

Rising inflation■ The consumer price index (CPI) rose 2.7 percent in May 2014, the highest since March 2013. The core

inflation is likely to stay at 2-3 percent in 2014, with headline inflation easing out in the later parts of 2014■ The Monetary Authority of Singapore (MAS) indicates that domestic cost pressures, particularly due to the tight

labour conditions are likely to remain the primary source of inflationAppreciating currency but vulnerable to changes in US interest rates■ The MAS which uses the exchange rate rather than borrowing costs as its main policy tool, is likely to let the

Singapore dollar stay on a modest and gradual appreciation path, as it seeks to curb inflation while supporting economic growth

■ However, it has emerged as Asia’s most-vulnerable currency to prospects of higher US interest rates, and the instability is likely to challenge start-ups looking out for overseas VC funding


Dublin



Macro parameters

Introduction

Dublin

Tax incentives, access to talent, and a conducive business environment are some factors adding to Ireland’s business appeal.



■ #1 for the availability of skilled labor (IMD World Competitiveness Yearbook 2014)

■ US$ 217.82 billion GDP in 2013■ 0.39 percent inflation (CPI) in Jun

2014

■ 53 percent of Europe’s Fintech deals represented by Ireland and UK

■ Citi Innovation Lab- among the first ‘Fintech’ R&D facilities . Focuses on banking and payment technologies

■ NDRC Fintech- Ireland’s first financial technology start-up programme launched in 2014


NAMA, Dublin’s development authority planning ‘Canary

Wharf’ like re-development of the Docklands area

Majority of Dublin’s start-up activity focused around the

Grand Canal, Ranelagh, and Ringsend areas

Source: Doing Business 2014 – World Bank; Ireland GDP – Trading Economics: Ireland Inflation – Inflation.EU; “Financial start-up accelerator Fintech launched by NDRC” – Silicon Republic; 2014 Index of Economic Freedom –Ireland – Heritage Group





Dublin

The government is pro-investment and offers tax incentives and easy immigration options to Irish as well as non-Irish entrepreneursEnterprise Ireland among the foremost authority offering government support and funding for fledgling start-ups in Dublin or Ireland – plans to support ~70 start-ups each year

1

The number of trade events planned by Enterprise Ireland globally in 2014

118

Government funding§ Pre-Investment Support – Offers accelerator programmes for start-ups, wherein they receive grant funding to

cover living costs. Certain accelerator programmes also provide a funding in the form of an equity investment for a small stake (about 6 percent) in the company.

§ Enterprise Ireland International Start-up Fund – The €10 million fund is aimed at encouraging overseas entrepreneurs from North America, UK, Europe and Australia to set up businesses in Ireland. The fund targets projects in sectors such as financial services, cloud computing, and Internet and offers funding between €200,000 and €500,000

‒ Under the program, Enterprise Ireland has also sought the support of high profile successful Irish entrepreneurs such as Dylan Collins to support the marketing of the fund overseas.

§ Mentorship and Other Bespoke Services – Enterprise Ireland also provides bespoke services to aid start-ups in getting their businesses off ground. These range from workshops, mentoring and incubator space to introductions to potential investors and marketing support to enter overseas markets.

§ Priming Grants –Business start-up grant offered by the Local Enterprise Office to fund small businesses in Dublin within their first 18 months after start up.

§ Competitive Start Fund - To accelerate the growth of start-up companies that have the capability to succeed globally

What the Irish Government is saying very clearly today to the international technology community gathered in Dublin is – come and start your company in Ireland, we are open for business, and we will support you.

Richard Bruton TD, Minister for Jobs, Enterprise and Innovation, Ireland

““””

“Stimulating the flow of new High Potential Start-Ups and supporting their growth are fundamental building blocks in Enterprise Ireland’s strategy for economic growth and job creation. We want mobile entrepreneurs to locate their businesses in Ireland and to see Enterprise Ireland as their dedicated partner.”

Frank Ryan, Chief Executive, Enterprise Ireland

““ ””Source: “Support for start-ups” - Enterprise Ireland website; “Bruton launches new €10million International Start-Up Fund to draw overseas entrepreneurs to Ireland” – Enterprise Ireland website; “Government support through Enterprise Ireland”, accessed July 2014; Industry reporting; KPMG analysis





Dublin

The government is pro-investment and offers tax incentives and easy immigration options to Irish as well as non-Irish entrepreneurs

1

The number of international entrepreneurs obtaining STEP visas in 2012-13

Tax structure and incentives■ Research and Development (R&D) Tax Credits – Offers a 25 percent tax credit for incremental expenditure on

R&D activities and on buildings and structures over the 2003 base year spend, although offering a full 25 percent tax credit on the first €300,000 of qualifying expenditure.

■ Employment Investment and Incentive Scheme (EII) - Provides tax relief up to 30 percent to a maximum of €150,000 to Irish investors willing to invest in start-ups under certain eligible industries.

Visa policy & immigration■ Start-up Entrepreneur Programme (STEP) - Allows a non-EEA nationals/ high-potential start-ups to set up

business in Ireland with a minimum funding of €50,000 (was €75,000) to come and set up a business in Ireland.

■ From March 2014, non- Irish entrepreneurs are also eligible for a 12-month immigration permission under this programme in case they are attending incubators or innovation bootcamps in Ireland.

■ Immigrant Investor Program – Provides a range of investment options (minimum €450,000) for non-EEA investors and their immediate family enter Ireland on multi-entry visas and remain there for up to 5 years.

GAPS & CHALLENGES■ Low turnout for governments STEP program – Only 23 international entrepreneurs have set-up businesses in

Ireland via STEP

Among low tax rates, what appeals to many tech entrepreneurs to Ireland is the availability of Irish officials ready to help foreign companies set up —usually with Ireland's Industrial Development Agency (IDA)

23

Source: “R&D Tax Credit Scheme, “Employment Investment and Incentive Scheme”, “Citizens Information”; “Bruton launches new €10million International Start-Up Fund to draw overseas entrepreneurs to Ireland” – Enterprise Ireland website accessed July 2014; Industry reporting; KPMG analysis



Access to Funding

Access to Funding

Dublin

Dublin’s robust network of local angel investors and VC’s promise seed funding to budding entrepreneurs – However availability of growth funding remains a challenge

2 ■ A growing and robust network of seed funds, venture capitalists, and local business angels - over €800 million in funding is available ; €645 million under management in EI-supported SVC funds.

■ In October 2013, Fenergo, a Dublin based fin-tech start-up secured €4 million in new equity funding from Investec Ventures. The start-up develops client-on boarding, enterprise compliance and data-management software solutions for investment banks

■ Access to Overseas Capital – The government is pro-investment from global investors and operates a range of schemes via which they can participate. In recent years, over 35 overseas VCs have invested in Irish start-ups or early stage companies, attracted by the quality of the start-ups.– Innovation Fund Ireland - Allows leading international venture capital fund managers to establish their European

headquarters in Ireland and access entrepreneurs and innovative companies.■ In June 2013, the government launched a new €175 million Seed and Venture Capital Scheme aimed at providing

additional funding for high-growth businesses. The government is also targeting the private sector VCs to pitch with an additional €525 million in funds

■ The Dublin Business Innovation Center actively invests in scalable early stage and high growth businesses across sectors via the €53 million AIB Seed Capital Fund

GAPS & CHALLENGES■ Reports suggest that entrepreneurs in Ireland are still dependent on “informal” VC funds from local business angels and

from family and friends.

■ Availability of second-stage funding remains scarce - Per Dr. Ciara Leonard, programme manager NovaUCD, a Dublin based business incubator, availability of second stage funding is not of the same level of VC available at the seed stage.

The Dublin BIC also assists start-ups become investor ready and guides them through the fundraising process

Source: “AIB Seed Capital fund” – The Dublin BIC ; “New €175 million Government Seed and Venture Capital Scheme targets high-growth Irish companies” – Enterprise Ireland; “Fin-tech firm Fenergo nets €4m from Investec Ventures: eyes up global growth” – Silicon Republic website, accessed July 2014; Industry reporting; KPMG analysis



Skill and Talent

Access to skill and talent

Dublin

A young, educated population coupled with proximity to leading European financial centers ensures ready access to skilled professionals

3 Availability of skilled labor ■ Thriving financial services and technology sectors – over 500 financial services firms employing 32,700

professionals; technology sector employs 1,05,000 professionals across various disciplines, including ICT– Dublin is a hotbed of financial activity in the region, alongside London – Per the Global Financial Index

(September 2013), Dublin houses over 50 percent of the world’s leading financial services firms■ Ireland is ranked #1 for the availability of skilled labor, flexibility and adaptability of workforce and attitudes towards

globalization (per the IMD World Competitiveness Yearbook 2014)■ Young and skilled workforce – With a median age of 35 years, Ireland has the youngest population in Europe. Over

50 percent of Irish 30 -34 year olds have a third level degree - higher than any other country in the EU.

Education and Curriculum■ Robust higher education system – 90,000 students across Dublin’s various higher education institutions. Several

Dublin-based universities also offer business development programs for budding entrepreneurs■ Joint government/industry efforts to promote technology courses

– The ‘Smart Futures’ campaign has lead to a significant uptake of computer science courses in universities and institutes of technology.

– Enterprise Ireland runs the Student Entrepreneur Awards, a competition that aims to spurn entrepreneurship among students by helping them turn their entrepreneurial ideas into commercial businesses.

GAPS & CHALLENGES■ The Global Entrepreneurship Monitor 2012 reports that aspiration to set up a new business remains low in the

country, lower than across the OECD and EU.

We selected Dublin because it’s home to several top colleges and universities, offering us a significant base from which to cull top talent. This is one of the primary reasons that we based our international headquarters here.

Ryan Smith, CEO, Qualtrics

““

””Source:“IDA Ireland”; “Minister Perry launches Enterprise Ireland Student Entrepreneur Awards” – Enterprise Ireland; “The Global Technology Hub – Report by the Irish Software Association”; “Six Reasons Your start-up should be in Ireland” - Enterprise Ireland - accessed July 2014; Industry reporting; KPMG analysis





Dublin

A favorable business environment, coupled with start-up support fosters innovation and entrepreneurship in Dublin

4 Start-up friendly environment ■ Ireland is a low bureaucracy, low tax environment supportive of entrepreneurs. Low corporation tax (12.5

percent) combined with favorable double tax agreements. Tax depreciation is available to businesses on intangible assets and intellectual property

■ Per the Heritage Foundation, Ireland currently has the freest economy in the entire Eurozone.

Access to accelerator and incubation programs■ Ireland has a network of both state and privately owned start-up accelerator programmes.

‒ NDRC Fintech, Ireland’s first financial technology start-up program was launched in May 2014. The five-week program seeks to recruit ten early stage financial services start-ups initially

‒ Other notable technology sector focused accelerator programs in Dublin include NDRC LaunchPad and Dublin City University’s Ryan Academy for Entrepreneurship’s Propeller Venture Accelerator Fund

Other Advantages■ Location - Well connected to most European financial and venture capital centers, notably London. ■ Access to skilled talent – With a thriving ecosystem of businesses and R&D centers across ICT, life-sciences

and financial services sectors, start-ups have easy access to skilled staff, experienced entrepreneurs, investors and other support services with deep expertise.

■ Competitiveness – Per the latest IMD World Competitiveness Yearbook 2013, Ireland ranks in the top three across categories such as availability of talent, investment incentives and attractiveness for foreign investors, etc.

We’re very close to the European and UK markets, and at the same time, close to the US east coast.

Dr John Holt, Chief Operating Officer, Waratek

““””

GAPS & CHALLENGES■ Being closely integrated with London,

most Fintech ventures look to London’s large financial centre in pursuit of customers, talent, partnerships and funding.

■ Barring the NDRC Fintech, there is no theme-based Fintech accelerator for start-ups in Dublin

Source:“Financial start-up accelerator Fintech launched by NDRC” – Silicon Republic;“The Global Technology Hub – Report by the Irish Software Association”; “Six Reasons Your start-up should be in Ireland” - Enterprise Ireland; “Entrepreneurship Propeller Venture Accelerator Fund” – Ryan Academy ; accessed July 2014; Industry reporting; KPMG analysis

Supporting Material



List of key Fintech start-ups across various global hubs

Supporting Material

Accelerators/Incubators Fueled Collective

Fintech start-ups

Thinknum

LMRKTS LLC

StockTwits

Xignite

QuartetFS

Dwolla

Tradier

IQ

markit on demand

Zipmark

Venmo

Openfin

estimize

VC firms Founder Collective

Fintech start-up Ecosystem – New York Fintech start-up Ecosystem – Silicon Valley

Accelerators/Incubators Yodlee Interactive - Incubation

Fintech start-ups

Kasisto

Revolution Credit

Standard Treasury

Personal Capital

Moneyworks

Lending Club

Robinhood

Sociogramics

Upside

Endurance Lending Network

VC firms FT Partners

Note: The list is indicative and a detailed list of Fintech start-ups across the world can be viewed at Angel List - https://angel.co/finance-technologySource: Industry reporting; KPMG analysis



List of key Fintech start-ups across various global hubs

Supporting Material

Fintech start-up Ecosystem – London Fintech start-up Ecosystem – Berlin

Accelerators/Incubators

Level39Start-up bootcampFintech Innovation LabBarclays Accelerator

Fintech start-ups

AzimoLiquityEpiphyteDigital ShadowsFinGeniusTradableTransferWiseDerivitecClauseMatchMarket IQOpen GammaAireMoni TechnologiesNutmegRplanBlue Speck FinancialsFunding CircleZopa

Accelerators/Incubators GrunderTaxi

Fintech start-ups

Mambu PayeleveniZettleBarPay

Barzahlen/Cash Payment

FybertwingleRatePayVexCash AGCompanisto GmbHZencap Deutschland GmbHOpen Bank ProjectNumber 26rethink finance

Refined Insurance

Note: The list is indicative and a detailed list of Fintech start-ups across the world can be viewed at Angel List - https://angel.co/finance-technologySource: Industry reporting; KPMG analysis

Level 39



Level 39

Level 39

The concept

Europe’s largest technology accelerator space for finance, retail and future cities technology companies.

It is a space for early-stage businesses that have potential for high-growth. Members are looking to create, test, market and deliver scalable world-class financial, retail and future cities technology products and services.

The accelerator is rare as it does not take equity in member companies, instead Level39 helps members to grow into its ‘High Growth Space’, a 15000 square-foot area for larger companies situated on the 42nd floor of the same building.

■ Level39 is Europe’s largest accelerator space for technology businesses innovating in the financial services sector

■ Occupying the entire 39th floor of the iconic One Canada Square building, and established by Canary Wharf Group plc, Level39 was opened on 18th March 2013 by Boris Johnson, Mayor of London

■ The space has become an important part of Tech City- having hosted over 200 events, including hackathons, skunkworks and demo-days.

Facilities

■ Level39 plays host to innovation and accelerator programmes – these are short programmes that aim to boost a young company’s growth over a concentrated period of time. Due to Level39’s partnership with Pivotal Innovations, innovation programmes can be created and crafted in-house.

■ Members of Level39 can work from drop-in space, hot-desks, fixed-desks and private office spaces.

■ Set in the middle of one of the world’s premier business and shopping districts, Level39 is well connected to Canary Wharf’s working population of 100,000 and over 240 cafes, restaurants, bars and shops.

■ Within six months of launch, Level39 opened the High Growth Space on the 42nd floor of One Canada Square. The High Growth Space is a further 15,000 square feet of office space that is designed to suit graduates of Level39 and larger technology companies, with teams between 8-100.

Add-ons

■ Space39 is a 220 seat event space that hosts regular industry events and boasts some of London’s best views.

■ Level39’s Sandboxes are think-spaces that welcome tech experimenters and policy makers. Software engineers from large-organisations can refine, test and showcase transformative technologies in a safe, ring-fenced environment.

■ The ‘FutureMinster’ Sandbox regularly plays host to politicians and think-tanks.

By the time Level39 completed one year, it had worked with over 80 high growth potential technology companies after receiving 682 applications for membership. The 44,000 square feet space facility at One Canada Square welcomed over 30,000 visitors and convened 182 hours of mentoring

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Source: Company website, General Internet Search, KPMG analysis



■ ACE Consensus is a digital platform that provides very high quality information on market expectations for listed companies.

■ Advanced Merchant Payments (U.K.) Ltd. (AMP) is a financial technology company which enables banks and other institutional lenders to provide loans to micro-small-medium sized enterprises (MSMEs), with reference to the borrower’s electronically verifiable cash flow, such as credit card payment activity, and other available data points.

■ Apply Financial serves banks and corporates across the globe with their innovative cloud based real-time. Payments Validation solutions.

■ Digital Reasoning enables the automated understanding of human communication. Digital Reasoning’s award-winning machine learning platform, Synthesys, identifies threats, risks and opportunities by transforming information into a private Knowledge Graph.

■ Asset Mapping has platforms which gather data from the software packages used to design, install, and operate city wide systems. The company combines real time information such as CCTV video feeds, air conditioning date and live readouts of Energy meters to provide meaningful insights to stakeholders and engineers.

■ Fingenius is a global supplier of Artificial Intelligence (AI) and Natural Language Processing (NLP) solutions for the finance industry. Their proprietary technology enables financial organisations to answer questions from customers and employees instantly without employing help desks or call centres.

Level 39 + Snapshot - Members

Level 39

■ Crowd funding Magic works on platforms which act as valuable resources to colleges and universities. The company aims to organise entrepreneurial students and start-ups on campus and get them connected to mentors, advisers and resources such that they have a support system.

■ Derivitec is a UK ISV focusing on cloud based analytics for the financial industry. It is currently a team of two ex-Goldman quants and one ex-Schroders IT professional. The company has been in business since December 2011 and are just entering early adoption testing with a selection of users from the hedge fund and investment management space.

■ Big Noodle creates multi-channel solutions in a customer driven world. The company builds and implements solutions allowing banks and enterprises to predict customer behaviour and engage them in conversation in their preferred way.

■ Cayman Atlantic Investment Management is a boutique investment management company based in the Cayman Islands.

■ Cloudsoft provides enterprises with software solution related to modelling, monitoring and management of applications, enabling application migration, accelerating the development of cloud first applications; and delivering policy-based application elasticity, scalability and portability.

■ Ringpay is a payments technology company which, through its platform and mobile apps, provide a strategic and versatile communication channel, from brands to their customers, enabling one-to-one relationships and conversation possibilities.

Source: Company website, General Internet Search, KPMG analysis



Level 39 + Facts and figures

Level 39

Source: Company website



Level 39 + Fueled Collective Partnership

Level 39

+■ On 27th March 2014, Eric Van der Kleij, Head of Level39, launched Day 4 of Fintech Week by announcing a new partnership

with New York-based Fueled Collective. ■ The move was designed to open a two-way door into the transatlantic market for Fintech start-ups and high growth companies.

The friendship Agreement with New York's Fueled Collective enables members of both incubators to use each other's space when doing transatlantic business.

The friendship agreement unites the world's Fintech capitals

New York and London are two of the world’s leading cities for tech startups, and this is just the first step in a partnership that we hope can be an example to other accelerator spaces in the US and UK, and around the world. The digital economy is one of the fastest growing spheres of the market – and we need to nurture this growth to stay ahead of the curve

- Rameet Chawla Founder – Fueled Collective

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During Level39′s first year as Europe’s leading centre for Fintech innovation, we have learnt that our companies have the potential to transform the financial services sector on a global scale. As we enter our second year, we will focus on shining a light on the Fintech sector, and better connecting our companies internationally. Fintech Week is the ideal platform for Level39 to announce its new partnership agreement with the Fueled Collective of New York. This gives our Fintech members an important transatlantic gateway through which to expand their businesses into the global financial community, and offers US startups a route into Europe.

- Eric Van der KleijFounder – Level39

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””Source: Company website, General Internet Search, KPMG analysis

Definitions and references



Disruptive innovation

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■ Disruptive innovation specifically refers to technologies that “disrupt” current market norms and processes and are typically designed for niche markets before being adapted by a market as a whole.

■ A famous example is the personal computer. Originally designed for scientists who required on demand data processors (as opposed to punch holemain frames) PC’s became steadily adapted by the market as a whole when its utility for information storage and processing (initially a by-product of the invention) were found to have numerous use in other areas such as financial services, education and manufacturing.

■ Unlike bolt-on innovations which add productivity to current technologies (such as a personal computer with a faster processor), disruptive technologies are “game changers” in that they revolutionise an industry value chain.

Venture/Seed Capital■ Sydney is the lead venture capital centre of Australia. The internet and subsequent innovations such as crowd funding has also catalysed this as

Australian start ups are now able to access capital globally. Tapping into local capital is just as important and requires mitigation of information asymmetry amongst un-deployed capital in Australia. Apple computer for example received nearly US$1m in todays money.

Disruptors■ Disruptive technologies are the capstone of innovation. They require an entrepreneur to form a contrarian view on the status quo. Significant R&D is

required as usually there is no foundation to build upon or precedent to inspire.■ Human capital is extremely important. Typically disruptors have come from two branches: university students and seasoned executives. ■ Mark Zuckerberg, Sergey Brin and Larry page were star university students who had the capacity to experiment with new technologies that led them to

“stumble on” Facebook and Google. Marc Benioff on the other hand was a successful executive at Oracle when he realised that CRM can be done better in the Cloud and founded Salesforce.com.

■ These entrepreneurs flourish in a diverse learning environment, typically surrounded by educational institutions that promote experimentation and research through well funded programs. Silicon Valley for example is in proximity to Stanford, UCLA and Berkeley. The Stanford Graduate School of Business is tailored towards the start up space and graduates many technology executives and entrepreneurs.

Safe To Fail■ Whilst ‘failing quickly’ is ideal, some technologies take years to develop. From both the perspective of experienced and inexperienced entrepreneurs,

this attempt cannot be made in vain. ■ In the case of Salesforce.com’s Marc Benioff, working at Oracle as an executive meant that he could at will abandon his start-up and move into

another company in Silicon Valley where there are nearly 400,000 jobs in the technology sector compared to 60,000 in Sydney. ■ This is a major challenge of financial technology in Australia in particular as financial technology executives in Australia operate in a niche market due

to FI consolidation. Motivating them to leave their secure jobs to attempt an idea is a hurdle that must be overcome.



Collaboration and Business improvement

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■ Collaboration is a vital catalyst for disruption. From the side of the established firms, shifting to more innovative business models and process is not a choice, rather an evolution. It is only a matter of time before firms with embedded and inefficient processes begin to fail in light of disruptive innovation. The decline of car manufacturing in Australia and the USA is a notable example of this. This ‘survival of the fittest’ characteristic of the market makes a play into technology a defensive one as much as it is aggressive.

■ Business improvement occurs when established enterprises implement new technologies. Large legacy organisations find this task far more challenging than creating the technology.

■ Collaboration occurs when established organisations within the market begin to lift the veil on their process and operations in order to better guide the disruptor’s objective. This commonly occurs when the large established firm ventures into the innovation market. The venture can take the form of a cash investments, provision of resources or release of trade secrets. Some companies such as Optus and Westpac go as far as to establish incubators and venture capital firms in an attempt to gain first mover advantage.

■ Business improvement is when the disruptive technology under the guides of collaboration is ready for implementation.

Co-location■ In order to facilitate collaboration from established firms, the location of start up technologies within the finance sector must be near to the firms

they wish to disrupt. Whilst the modern age allows for decentralised working environment, relationships are forged with direct contact. Level39, a successful Fintech organisation in London is located in Canary Wharf within walking distance to financial institutions.

Economic catalysts■ Events requiring massive leaps in operational efficiency drive technology investment as firms seek more cost effective ways of doing things. The

Global Financial Crisis created a push by global financial institutions to explore technology as an effective means of cost cutting and enhancing their productivity.

Willing to take on risk■ Both collaboration and business improvement have significant risks. For Australia’s largest banks a cash investment in an incubator or start up is

miniscule in context of their profits. Far more riskier is implementing new technologies. This is particularly true for banks with outdated legacy systems that requires significant expenditure to migrate to newer technologies, e.g. CBA’s core system modernisation cost an estimated $1.5 billion.



Incubators and Accelerators

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IncubatorsWorking space■ Incubators provide a space for companies to set up in such as

office space■ Collaborative working environments facilitate idea exchange

between various entrepreneurs ■ Incubators provide modern research equipment and licensing ■ Firms typically exist longer within an incubator than they do an

accelerator. Mentorship■ Incubators do not necessarily provide mentorship. Instead

they provide fundamental business support.■ Typically incubators insert management into start-ups to guide

it through a go-to-market or funding process.Funding■ An incubator brings in an external management team to

manage an idea that was developed internally. This is usually reserved for the ideas with the greatest promise and highest capital intensity. As such incubators typically take a much larger piece of the pie when compared to accelerators.

International examples■ Level39 (London)Local examples■ Venture Incubator Space is a UNSW project available to

successful applicants for up to 12 months.

AcceleratorsWorking space■ Accelerators may or may not provide space, sometimes the space is

rented out whilst other times they are decentralised with entrepreneurs working from home.

■ Accelerators typically have times from which the start-ups enter & “graduate”

Mentorship■ Accelerators provide strong mentoring programs. Mentors stem from C-

Level executives to go-to-market specialists from management consulting. ■ Frequently this is provided for free however is not a necessary.Funding■ An accelerator takes single digit chunks of equity in externally developed

ideas in return for small amounts of capital and mentorshipInternational examples■ The Barclays Accelerator, powered by Techstars, is a three month

intensive start-up programme, with US$20,000 seed funding. ■ Wells Fargo provides small equity investments (between US$50,000 to

$500,000) and six months of mentoring for young companies.Local examples■ AWI Ventures Accelerator is a Fintech accelerator program and runs for 6

months with 4-6 teams offering A$50,000 cash in return for a minority (10%) equity share.

■ PushStart is a Sydney based accelerator offering A$20,000 in cash, office space and services for 8% equity.

■ Founder Institute is a four-month idea stage accelerator program and global launch network.



Referenced sources and additional material List of referenced sources (click on the embedded link)

KPMG Global Services

The Fintech Startup Ecosystem List of Sources/References



Stakeholders interviewed as part of the project

Stakeholders consulted Organisation

Ben Heap and Toby Heap Australasian Wealth Investment and AWI Ventures

Danny Gilligan and Simon Cant Reinventure

Andrew Rothwell Tyro Payments

Asher Tan Coinjar

Alvin Singh and Bosco Tan Pocketbook

Mike Wood Westpac

Neil Helm OzForex

Michael Lee Flongle

Remi Bourrette and Christophe Chazot HSBC (UK)

David Sayer and Tim Kay KPMG UK

Richard Hinton and Arthur Broadwater KPMG USA

Eileen Toledano and Nir Donitza KPMG Israel

Tim Dümichen KPMG Germany

James McKeogh KPMG Hong Kong

The information contained in this document is of a general nature and is not intended to address the objectives, financial situation or needs of any particular individual or entity. It is provided for information purposes only and does not constitute, nor should it be regarded in any manner whatsoever, as advice and is not intended to influence a person in making a decision, including, if applicable, in relation to any financial product or an interest in a financial product. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

To the extent permissible by law, KPMG and its associated entities shall not be liable for any errors, omissions, defects or misrepresentations in the information or for any loss or damage suffered by persons who use or rely on such information (including for reasons of negligence, negligent misstatement or otherwise).

© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International).

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