A butterfly effect: How fintech can transform the economy

The idea that the flap of a butterfly’s wing in one part of the world can set off a cascade of events that later creates the formation of a hurricane in another, is often referred to as the butterfly effect. Can a butterfly really cause a hurricane?

The “butterfly effect” was first referred to by meteorologist Ed Lorenz in 1972 in relation to a weather prediction model. Lorenz’s model consisted of only a few equations and was not intended to be realistic, but it showed that systems like the atmosphere, or for that matter the economy, might be very sensitive as well.

The concept that small causes can have large effects is not only useful for weather prediction, but also for fintech and its effect on the economy.

The impact that fintech can have is far reaching. The fintech sector is predicted to add $1 billion to the Australian economy by 2020 and grow at a compound annual growth rate of 76%.

Increasing the awareness of new financing options for consumers and SMEs will help businesses across Australia take advantage of new opportunities for growth and create new jobs. Access to finance for businesses is proven to increase turnover, employment and profitability.

Investing in new products and services creates new jobs and opportunities for growth.

Treasury has a key role to play in addressing these critical issues.

The funding gap

Nearly a third of businesses miss opportunities because of a lack of access to capital. Every business that does not receive the funding they need, is not increasing productivity, is not bringing on new employees and this has a knock-on effect throughout the economy.

Availability of appropriate finance is essential to ensure that businesses can achieve their potential and contribute to Australia’s economic future.

Lack of awareness

Increasing awareness of new, alternative, non-bank funding options will allow businesses to realise their growth potential.

Positioning the fintech industry as complementary to the traditional financial services industry, developing campaigns to raise awareness of the benefits and implementing supportive regulation are all critical in raising awareness about the range of financial solutions available and future economic growth.

Here’s how raising the awareness of new financing options would impact the Australian economy:

Whilst the butterfly effect predicts unpredictability in complex systems such as the economy, one thing is certain: supporting the fintech industry’s progression will drive change in the Australian financial ecosystem essential for businesses and the wider economy to thrive.

This article was first published on LinkedIn.

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