Why Australian Startups Should Care About Fintech Regulation in 2025

Globally, fintech has taken off as more payment systems have become digital, and Australia, specifically, has felt a more dramatic change. As it stands, the Australian fintech sector has reached a crucial turning point, moving from an innovation hub to a more mature and regulated market. This means that fintech-related regulatory compliance needs to be taken more seriously, especially by Australian start-ups. Not only will product development and customer trust be impacted, but so will market access and investor appeal. Let's take a closer look at the upcoming regulatory changes and how Australian businesses can stay ahead and compliant. 

The Crypto Casino Connection: A Regulatory Catalyst

Although it might not seem like it, these fintech regulations will impact each business model, and one such example is leisure offerings. In Australia, online crypto casinos have been on the rise, with players opting for the bigger bonuses, faster payouts, and greater privacy features. Compared to traditional casinos, these crypto-based options offer provably fair games, where you can verify every result yourself, and play without sharing your banking details. These casinos and iGaming platforms are all considered high-risk gambling services as there is a higher chance of players being targeted for financial crimes. 

Naturally, this is one way fintech regulations will apply to this sector, as the AUSTRAC (Australian Transaction Reports and Analysis Centre) will need to ensure specific rules are in place to protect both operators and players. For one, stricter requirements and increased monitoring for digital currency and payment service providers will probably be associated with these services. For casino operators specifically, there will be a stronger need for AML (Anti-Money Laundering) and CTF (Counter-Terrorism Financing) measures to be put in place. 

Key Compliance Shifts: The Payments Revolution

Focusing on the upcoming payment change, it is important to understand how they will impact businesses. Overall, it is predicted to completely change the way cash flows in Australia, which is why breaking these new rules down is vital:

A New Payments Licensing Framework

The first and most important change is the licensing framework, and how it moves away from requirements for an institution as a whole. Instead, this new system will look at the specific payment activities and have requirements to regulate them. For example, let's say Business A is a start-up that provides financial services, but with the facility-based licensing system, Business A itself would need to be licensed. However, this new change means that fintechs would now need to get an Australian Financial Services (AFS) licence for their specific service. 

ePayments Code Reforms

The eCode Payment consumer protection framework is another regulatory aspect expected to undergo major revisions. Set to oversee electronic payments, this code was previously optional for businesses and other financial providers. However, this is expected to become a mandatory requirement for all regulated payment providers, wherein new obligations will be put in place. Naturally, this is to keep track of any mistaken payments, unauthorized transactions, and dispute resolution to ensure there is no suspicious activity. 

BNPL and Digital Wallets

It seems that a large part of this reform could be a part of the government's goal to bring all sectors together under one, easy-to-manage regulatory umbrella. For one, digital wallet providers and other new payment technologies will no longer stand separately and instead will be integrated into this new regulatory framework. Even more, more stringent rules will apply to Buy Now, Pay Later (BNPL) services, such as these being regulated as a form of credit. As a result, when new responsible lending obligations take effect before the end of 2025, they will apply to BNPL services.

Key Compliance Shifts: The Data & Privacy Overhaul

Another important aspect of fintech startups that these upcoming changes will impact is how customer data is managed. Essentially, the changes will focus on ensuring that consumer data is protected, used ethically, and does not violate any laws. 

Privacy Act Reforms (Tranche 2)

Despite the first round of reforms already having passed, fintech startups are not in the clear just yet. The government plans to release a second tranche in 2025 that will be much stricter and more impactful, such as introducing a "fair and reasonable" test. As a result, companies will be required to justify their data collection points as opposed to the government investigating it. Additionally, a law will be put in place that gives consumers a direct legal recourse to businesses should there be a serious invasion of privacy. Individual rights will also be strengthened, giving customers the freedom to erase their data from companies' databases if they wish.

Consumer Data Right (CDR) Expansion

Initially, CDR only applied to open banking, but these new policies will see a shift to include non-bank lenders alongside other financial sectors. Although the rollout of this is still in progress, any business in these relevant sectors will need to adhere to these updated CDR data sharing standards. Ultimately, this is a great way to enforce rigorous security to ensure consumer data is being protected.

The Path Forward: A Strategic Checklist for 2025 

While these regulatory changes sound intense, there are a few steps these startups can take to remain ahead of the curve and ensure compliance. Conducting a compliance audit against the upcoming regulatory changes is a great starting point, allowing businesses to review and compare. Do current payments, data handling, and customer onboarding processes align with these new regulations?

Next, considering investing in RegTech and Automation may be a good idea, as technology solutions can handle the burden of AML/CTF, KYC, and data security. A third step would be prioritizing privacy from the get-go instead of making it an afterthought and building it into the initial product. Lastly, engaging with the regulatory ecosystem is vital, as interacting with regulatory bodies through industry groups will allow startups to influence future policies.

Final Thoughts: Regulation as a Competitive Advantage

In an age where everything is either already digital (or in the process of becoming digital), payments, data, and financial crime are inevitable. As such, it is only natural that Australian fintech is following suit and maturing, ensuring these regulations thoroughly protect consumers. Ultimately, dishing out penalties is no longer enough to ensure compliance; rather, being proactive in building trust and enhancing security is the way to go. The same can be said about the way startups run their businesses, where positioning your startup as a leader amidst these changes can make the biggest difference.