Stone & Chalk open and ready to disrupt

Stone & Chalk, chaired by financial system inquiry panel member and Westpac director Craig Dunn, has received funding from the NSW government and the big end of town. Foundation partners include ANZ, HSBC, Macquarie Group, Suncorp, Westpac, AMP, IAG, American Express, Woolworths, Amazon, Intel, Oracle, Veda, Allens and KPMG.

Scandurra, a former army captain who for the past three years has been running the Barclays accelerator program in London, points to Level39 in London's Canary Wharf as a collaborative incubator and accelerator that Stone & Chalk is seeking to emulate. "We want to help Sydney as a market work together to co-create the future of financial services, rather than seeing a 20th century mindset of a David and Goliath battle [between disrupters and incumbents]," he says.

The corporate partners will have access to a space in the central foyer of the floor, which on Friday was being decked out with couches for meetings and a kitchen. But the corporates will not be able to access the entrepreneurs working spaces, a necessary measure to protect the intellectual property of the start-ups.

Scandurra won't reveal the list of Stone & Chalk residents just yet, preferring to save that for the official launch by Premier Mike Baird expected later this month. By that time, around 150 people are expected to be working on the floor.

Redefining the customer experience

Many of these entrepreneurs will be seeking to deploy technology to redefine the traditional customer experience of financial services. It obviously remains to be seen whether any of these start-ups might challenge the powerful banking incumbents, who are throwing everything they can at reorienting their digital offerings around customers.

Yet as Australian Prudential Regulation Authority chairman Wayne Byres pointed out last week, the world is changing – and he suggested technology players have forced banks to become more customer-centric.

"We have a new generation of people who are not necessarily wedded to the old brands. Financial institutions were always built on trust, and those big brands generated a lot of trust," Byres told the Boao Forum for Asia Sydney Conference on Thursday. "Increasingly, we have a new generation of consumer who looks at a brand in a different way, and trust is placed in many new brands that have become very big, very quickly."

Scandurra agrees. "We are really entering a time of tremendous change driven by technology, smartphones, smart devices and the internet of things. There is also change in the way consumer behaviour is shifting as the millennials enter the workforce and become the holders of spending power."

"That generation is driving the way products and services are consumed and therefore corporations and industry need to predict and adjust to trends."

And, he adds, so do governments.

Canberra can learn a lot from UK Prime Minister David Cameron, Scandurra says, whose government is adept at "leading from the behind the scenes".

"The best role government can play is to remove the barriers, and create the right conditions to allow entrepreneurship to succeed and thrive. That does not at all mean we should remove protections for consumers or add any risks. It is about thinking about smart regulation and about regulators being enablers of change as opposed to police against change."

This message has been received by Australian Securities and Investments Commission chairman Greg Medcraft. He told the Boao Forum last week that Stone & Chalk is a member of ASIC's new Digital Finance Advisory Committee, which will advise ASIC on how it should engage with innovative business models. ASIC is also considering seconding its staff into Stone & Chalk as part of its efforts to get closer to the start-up community and adapt regulation to allow their businesses to get off the ground.

Innovation as policy

In the coming months, some of the residents of Stone & Chalk will visit Parliament House in Canberra to talk to politicians about innovation policy. While the federal government has a better understanding of the distinction between small business and start-ups than it did at the time of the May budget (when the terms were used interchangeably), Scandurra says there is a way to go, and innovation policy necessarily traverses a range of portfolios from Treasury to immigration and education.

Incentives to mobilise investment into early-stage investments such as the UK's Seed Enterprise Investment Scheme are important, he suggests, along with entrepreneurial visas tailored to technology start-ups, which would allow them to attract the best talent in the world to scale their businesses.

Longer term, better education in science, technology, engineering and mathematics (STEM) will be crucial to create a pipeline of skills for start-ups to tap.

"There are a lot of enablers that are low cost for the Commonwealth to implement which would make a massive difference," he says.

The power of government support for science and technology is evidenced by the incredible success of Silicon Valley, which emerged from the US government's investments during the Cold War on the space race, which led to rapid scientific progress in the development of semiconductors, laying the foundations for modern history of computing. "Silicon Valley started with strong and deliberate government roots," he says.

Developing a thriving technology industry in Australia will require more than government focus; widespread cultural change regarding attitudes towards risk is also necessary.

"There is a culture in Australia that if you fail, you are a failure and you should be punished," Scandurra says, "whereas in the United States, if you haven't failed as an entrepreneur, investors will resist giving you money."