Welcome to the Mclowd Community Newsletter.
Comparing Sympli’s existing transaction pricing schedule to the incumbent’s pricing demonstrates that the potential fee savings for consumers from interoperability are around $65 million per year.
ACCC submission, 7 November 2019
Introduction
Competition in the market for e-conveyancing is hotting up, with ASX-backed challenger Sympli now going head-to-head with incumbent PEXA.
As per the above ACCC submission, Sympli is quoting per-unit cost savings of up to 50% vis-a-vis PEXA (although in relation to the core product of land transfers that figure is only 15%).
With the state and national regulators:
- Moving to mandate interoperability
- Thereby encouraging yet further market entry
this downward pressure on prices can only increase.
Digitisation and Deflation
The success of the transition to digitised land transfers and related transactions is analogous to the impact which digitisation has had on the SMSF sector in recent years.
That digitisation has lead to increased efficiency, whether through integration, automation or workflow management. It has been widely embraced by participants, to the benefit of asset owners and the industry as a whole.
However when it comes to the underlying technology, digitisation will often be associated with deflation, for the simple reason that it drives marginal cost towards zero.
For both PEXA and Sympli the largest part of the marginal cost of an electronic conveyance has nothing to do with their day-to-day operations. It is actually a function of the opportunity cost of the hundreds of millions of dollars in capital which they have chosen to deploy.
The equation here is very Simple:
- Sympli has achieved a materially lower capital intensity than PEXA
- Sympli therefore has a lower marginal cost
- Sympli is therefore able to offer its products / services at a materially lower price point
(The Mclowd Community is itself a classic example of this process – and its consequences – with a balance sheet of just $1.7 million being reflected in materially lower price points).
Open Banking
Open banking is now a reality within the Australian financial services landscape, and the standards setting that has been involved represents a similar process of interoperability.
Open banking has opened up free API-based access to the vast majority of upstream data which is required to deliver transactional automation to SMSF investors and their advisors.
But involving a small fraction of the capex previously involved in delivering such an outcome.
The inevitable result will be rampant per-unit price deflation in regard to any downstream services that are derived from that data.
Conclusion
For decades the macroeconomic narrative in Australia – and virtually all advanced economies – has been one of steady (and at times uncontrolled) inflation.
That macroeconomic narrative is dead.
As economic activity is increasingly digitised, per-unit price deflation will become endemic, and – like PEXA – any business model / capital structure that has not factored in this deflation will come under increasing pressure.
Postscript
Interestingly the SMSF industry as a whole pays approximately $65 million each year for access to specialist accounting software.
Like Simpli, it will be interesting to see how much of that impost can be removed in the years ahead…
Regards
Ashley Porter
Managing Director
Mclowd Pty Ltd