Marketplace or peer-to-peer lending connects investors (lenders) with borrowers without a bank or traditional financial institution participating as an intermediary in the deal. The marketplace operator often provides additional services such as identity verification, loan servicing, suitability assessment and repayment management. Marketplace lending models may fall within the Australian financial services regime, consumer credit regime and the AML/CTF regime. ASIC has provided guidance in its information sheet 213 to assist providers of marketplace lending products and others providing financial services in connection with these products.
Buy now, pay later
Buy now, pay later (BNPL) has been a growth area in Australia with a few providers dominating the Australian fintech landscape. Currently, some BNPL providers operate outside the Australian consumer credit licensing regime, although they are regulated under the ASIC Act, the design and distribution obligations and the AML/CTF Act. As a result of mass consumer adoption and concerns regarding consumer outcomes, the Treasury has recently proposed alternatives for increased regulation of BNPL service providers.
Australia has an evolving insurtech market that is pushing change in a sector that has historically been dominated by a small number of providers. Coming out of the Royal Commission, insureds have clear expectations regarding matters such as policy features, portfolio holdings and claims handling. There is an opportunity for insurtech to make inroads in this closely held, typically sticky, sector. However, the high barriers to entry continue to make it difficult for fintech to meaningfully disrupt incumbents.
Australia is one of the world’s major regulatory technology hubs and the Australian regulators consider that regtech has the potential to help businesses to build a culture of compliance, identify learning opportunities, save time and money on regulatory matters and lead to positive consumer outcomes. Key areas of regtech include in relation to AML/CTF and sanctions, regulatory compliance for financial services, governance, fraud and cyber security. A range of technologies are being used in the regtech space including artificial intelligence, natural language processing, machine learning, distributed ledger and blockchain technologies. Regulators such as ASIC and AUSTRAC are also exploring and utilising regtech solutions in their oversight of the financial services industry (suptech).
The Australian banking sector is highly regulated with stringent licensing, conduct (including reporting) and regulatory capital requirements which act as significant hurdles for new businesses entering the market, following the introduction of APRA’s ‘restricted’ ADI (ie, restricted bank) (RADI) licensing framework in 2018, there have been a number of new entrants in the Australian banking industry, including digital banks (neobanks). In Australia, neobanks have been characterised by targeting more digitally-oriented customers with a focus on delivering more convenient and cost-effective products and many are now owned by incumbent financial institutions.
Robo advice and wealth management
Robo advice refers to platforms that make use of algorithms to provide financial product advice. Australia is currently experiencing a downturn and consolidation of its advice industry, due in large part to the increased costs of obtaining advice coming out of the Royal Commission. It is expected that the recommendations to be made in the Quality of Advice Review at the end of 2022 will create opportunities for a re-commencement and diversification of advice providers, including opportunities for robo advisers to enter the market.
Equity Crowd-sourced funding
In 2017 the equity crowd-sourced funding (CSF) regime was introduced creating a licensing regime for intermediaries to provide services to public companies seeking to raise funds from retail investors. This regime has since been expanded and can now be used by proprietary companies to raise equity.
While reducing the regulatory barriers to investing in small and start-up businesses (including fintechs), the framework also created certain licensing and disclosure obligations for CSF intermediaries / platform operators (ie, persons listing CSF offers). While there are a range of reporting requirements imposed on companies engaging in crowdfunding, there are also a number of concessions made with respect to restrictions that would otherwise apply to their fundraising activities. Eligible companies can seek funding from a broader range of investors with an appropriate offer document (with requirements less onerous than listing on an exchange), whilst investor protection is maintained.
Cryptocurrencies and crypto assets
Cryptocurrency (also known as virtual assets, digital assets, crypto assets or digital currencies) refer to digital tokens created from code using blockchain that do not exist physically in the form of notes or coins. There are many types of cryptocurrencies that may be utilised by fintech businesses and projects. These include stablecoins, central bank digital currencies (CBDCs), non-fungible tokens (NFTs), soulbound tokens (SBTs) and governance tokens. See 'A guide to Web3 in Australia' for further information about their regulation in Australia.
Blockchain or distributed ledger technology (DLT) may be used by a range of businesses including AFSL and ACL holders and start-ups and the prevalence to which it is being used has been increasing particularly by operators of financial market infrastructure, financial institutions, financial services providers and other fintech businesses. One example of the use of blockchain technology is asset tokenisation. See 'A guide to Web3 in Australia' for further information about the regulation of blockchain in Australia.
Defi has become a popular alternative to the centralised banking and financial system. See 'A guide to Web3 in Australia' for further information about the regulation of defi in Australia.
Payments and digital wallets
Payments and digital wallets are an integral part of Australia’s fintech landscape. See 'A Guide to Payments in Australia' for further information about their regulation in Australia.