By Andy Forbes
Chief Technology Officer
Square’s acquisition of AfterPay, for a record $39 billion, was a big moment for Australian FinTechs. So, what are some of the technological trends powering the FinTech wave, and how might this apply to the self-managed super fund (SMSF) space?
The financial sector is in the early stages of a fresh wave of technological innovation. It’s an exciting time for FinTechs who are working to improve and solve problems in this industry. There are several trends fueling these innovative solutions. Looking beyond the more obvious examples, such as internet and mobile computing, I’ve documented the top four technology trends I see powering the latest wave of FinTechs, and what this means for the SMSF space.
APIs are nothing new, but their increasing prevalence is a key driver of the current wave of FinTechs. They make it easy for one system to communicate with another. Prior to APIs being widespread, it was hard for FinTechs to collaborate and build on each other’s strengths.
This collaboration means companies aren’t having to solve or build for each part of a solution and they can focus on their strengths and capitalize on that of others. For example, a FinTech says, “Hey we’re really good at share trading, but we’re not great at consumer solutions, such as mobile apps. Rather than spend our time building an app and marketing it, we’ll write an API for our trading system, and let others leverage it.” Other FinTechs can then bring stock trading to their app, without having to write a whole stock trading system themselves.
Companies that double down on their API strategy often discover unexpected benefits. By publishing an API, other startups can find fresh ways to use it in their solutions, which further fuels innovation.
For accountants – accounting and compliance software with a strong API, like SuperMate, enables greater integration with other internal and third-party business systems.
The power of AI is training computers to interpret and make smart decisions based on datasets. A common example of this is recognizing an object or a face, but it’s also applied to significantly more complex problems such as autonomous cars.
In the FinTech space, there are two areas of machine learning that are particularly interesting.
Firstly, document recognition ability and the subsequent automatic extraction of that document’s data into the software. Users can drag and drop a bank statement and the transactions will automatically be entered into an accounting system, eliminating the need for manual data entry. This is one of the new features we’ve built into the next generation of SuperMate to create greater efficiencies and improve accuracy. This technology is transferrable to various other document types and we will be introducing this to the software throughout 2022
Machine learning models can also be used to turbocharge some common accounting processes like processing and reconciling. We can put in features that proactively assist or predict your next action. An example of this is detecting a possible bank fee transaction and asking the user if they want it processed and reconciled as such, with a click of a button.
Advances in AI technology also enable software to identify human errors – this helps the user doing the work, but also can help people further along in the process – such as quality control or audit.
Open banking – Consumer Data Right applied to the banking industry
The Consumer Data Right (CDR) is an important change to the way companies collect, use and share data. Social networks collect enormous amounts of data from their users to help them ascertain which products or advertisements might be successfully sold to that person. Large enterprises also hold a lot of data on their consumers but getting access to it can be difficult. CDR is about ensuring that the end-user is aware and in control of their data being collected and with who it can be shared.
In Australia, one of the CDR areas of interest is open banking. This is where the end client can easily permit others to view bank account data. This method will replace the existing data feed
authority process that SMSF programs like SuperMate use to get transaction data feeds.
So, what’s the difference?
The current data feed authority process is specific to each bank and, behind the scenes, the files they send to administration systems are also often specific, or bespoke. A FinTech wanting a specific bank feed, must reach out to that bank, and try to encourage them to provide that feed. Discussions are had between both parties, and if the need for that data feed matches the commercial or strategic interests of that bank, a project gets kicked off. Development teams start building and, some months later, the software will support the data feed. It’s hard work for the FinTech but also a pain for the accountant and the end client.
Open banking makes this significantly easier by mandating the availability and format of data and provides a set of tools for the authorization process that make it simpler for trusted professionals and consumers.
What are the real-world benefits to customers? It’s easier to sign up for bank cards and seeking approval for a loan or mortgage can be streamlined. Open banking removes the need to track down bank statements and forward them on - simply approve the access to your data. It also helps with budgeting tools and switching between banks.
From an SMSF perspective, it will make it a lot easier to set up bank data feeds, no matter which admin software you’re using.
For FinTechs needing data feeds, it creates a level playing field as banks are mandated to participate.
For consumers, the open banking approval process can be done in minutes and is much better than the old data feed authority forms or screen scraping (and internet banking password sharing) methods currently employed by some software.
It’s no secret that cryptocurrency, and the blockchain technology that powers it, are adored by many investors and FinTechs. Crypto is a bit of a cultural phenomenon -popularising terms like ‘FOMO – Fear Of Missing Out’, HODL (Hold On for Dear Life), or the more exuberant, ‘TO THE MOON!’
SMSF’s are great in that they allow investment in assets that typical superannuation vehicles can’t. So, it’s no surprise to see some SMSF’s holding crypto as part of their investment strategy. The ATO’s SMSF Quarterly Statistical Report for June 2021 showed SMSF’s held $212m in cryptocurrencies and, with the sector’s volatility and the delay in ATO data, the figure could be higher.
But what’s great about crypto from a technology perspective? It’s an invention called the blockchain, a decentralized ledger for parties to interact with each other, that can be applied to all manner of problems to make more transparent, fair, and open ecosystems.
In future years blockchain technology will transform regular financial processes. So, for me, it’s not about the coins – it’s about what blockchain technology can do to improve the way we do business and interact with each other. Things like trading, without the need for an intermediate business to facilitate it, or smart contracts that have the terms coded into the blockchain solution so that they automatically fulfill their obligations, with no human intervention or action required.
It is not pipe dream stuff either – for example, the ASX is currently working on a blockchain-based solution to replace its Clearing House Electronic Subregister System (CHESS), set to go live in 2023. They’ve picked this as it will reduce costs for all players and increase innovation opportunities.
When it comes to SMSFs, most of the discussion right now is about investing (or not) in cryptocurrency, but it promises a future with more innovative financial products and FinTech companies, cheaper trades and settlements, and more control over how your data is stored. It’s still very early days for blockchain technologies – it will take time for it to move from novel to mainstream.
A good first step for accounting software in this space is adapting to and simplifying crypto investment tax obligations, compliance, and audit trails.
These four technology trends - API, AI, open banking, and crypto, remove process friction and power greater collaboration. This will no doubt help the financial sector to become more efficient and increasingly more innovative.
It’s an exciting time to have a front-row seat at the FinTech show. With the changing technology landscape and the advancements that are taking place, the way we live, and work is being revolutionized. It’s driving businesses forward and creating a more open and competitive market – what a time to be a consumer!
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