Innovation in the financial services sector
The financial services sector is an important sector for the NSW economy. The Innovation Unit is working to ensure that innovative activity is encouraged in this sector. Increased rates of innovation in the sector will improve competitiveness, increase growth and create more employment opportunities.
Innovation within the financial services sector will continue to present challenges and opportunities for NSW. Government and industry will need to ensure that they remain at the forefront of developments, to ensure that the sector is competitive in the global marketplace.
A recent Australian Bureau of Statistics survey of business innovation in Australia in 2005-06 has shown that finance and insurance Services businesses have the second highest percentage of innovation-active businesses, at 50 per cent, when compared across sectors1. Business expenditure on research and development by Australia's finance and insurance sector is concentrated in NSW, with 69 per cent of this expenditure being spent in this State2.
Innovation in the financial services sector is created around new or improved:
- Capabilities and processes: such as increasing the speed of transactions; improving security and fraud prevention; and developing systems to use, store and analyse increasingly large data sets. This also includes the ongoing skill development of specialists within the sector.
The Reuters Asia Business Direct centre, established in Sydney, is an example of a successful systems improvement which has created a hubbed business administration capability for Reuters Asia.
- Products and services: the development and effective commercialisation of new products and services.
Through the Australian Securities Exchange (ASX), Australia was a world leader in providing a single integrated electronic platform for equities and derivatives; introducing an after hours electronic trading platform for futures; and the introduction of T+3 trading.
- Business models: such as outsourcing or investing in shared services models to attract high-value, high-skilled roles to NSW and achieve business efficiencies.
The Morgan Stanley Asia Pacific Service Centre based in Sydney provides a range of global processing services as well as finance and human resource functions to the bank's employees throughout the Asia Pacific region. The facility resulted from a need for a new operating model which delivered a sustained improvement in productivity and cost management. As part of this initiative, operations previously located throughout the Asia Pacific and Europe were gradually consolidated in Sydney. The expansion of transaction processing centres like Morgan Stanley's has caused a surge in foreign exchange trading in Australia.
- Business linkages: creating effective linkages between major players and smaller businesses with specialised products and services.
An alliance between NSW banking software developer Financial Network Services and Indian outsourcer TCS has opened up collaborative opportunities, including with the State Bank of India and the Bank of China. In 2007 the TCS Financial Solutions business unit was created which built on the core banking software developed by Financial Network Services.
The Innovation Unit's current projects and publications
Currently underway are a number of studies into the financial services sector, including an analysis of activities required to enhance Sydney’s position as a regional financial services centre and the potential role of an Institute for Advanced Research in Finance.
Why was financial services chosen as an innovation sector?
Value and importance
- The finance and insurance sector is the third largest sector in NSW, behind property and business services and manufacturing, contributing $31 billion to the State's economy in 2005-06.
- Sydney is the head office location of the Reserve Bank of Australia, the Australian Securities Exchange and the Australian Financial Markets Association.
- Of the 55 authorised deposit-taking banks in Australia, 53 have operations in Sydney. This includes all of the 10 foreign subsidiary banks in Australia and all of the 31 local branches of foreign banks.
- The financial services sector is both an industry in its own right and also one which enables other industries. Global trade and commerce could not function without a means of funding, payment and protection of transactions.
Employment
- Sydney's financial services workforce is growing strongly, and is now nearly half the size of London's workforce and more than 40 per cent the size of New York City's. In 2006-07 in NSW, 168,000 people were employed in Financial and Insurance Services, 42 percent of the Australian total and 5.1 percent of the State's total workforce.
- Within NSW, the financial services sector comprises 144 companies with more than 200 employees, and almost 20,000 small businesses.
- Average weekly earnings in financial services are 22 per cent higher than the total workforce, with strong productivity growth in the past five years.
Growth
- The financial services sector is NSW's fastest-growing sector, recording an average annual growth rate in total factor income of more than 14 per cent between 1995-96 and 2005-06, with exports increasing by 75 per cent during that period.
- NSW leads the nation in employment growth in financial services. In the period 1996-97 to 2006-07, 43 per cent or 34,000 of the 79,000 jobs created in Australian financial services were in NSW, where gross business income per employee was more than double the total workforce, with strong productivity growth in the past five years.
See the Financial services growth industry profile.
1 Summary of Findings on IT Use and Innovation by Australian Businesses in 2005-06: 18 November 2007: ABS
2 Research and Experimental Development, Businesses, Australia, 2005-06 (Cat. no. 8104.0), ABS