It’s estimated there are now around 600 fintechs operating in Australia with numbers having more than doubled since 2015.
However, it’s not just the sheer increase in numbers that point to the growth of the local fintech scene. In fact, Australia’s fintech sector has matured significantly against a range of metrics over the past twelve months.
In the 2016 EY FinTech Australia Census, we saw a snapshot of a sector that, while evolving rapidly, was still in its relative infancy. But the results of this year’s Census, released at the Intersekt Festival’s Collab/Collide Summit in Melbourne this week, show that Australian fintech has now really started to come of age.
A greater proportion of Australian fintechs have now been in operation for more than three years and the proportion that are now in their post-revenue stage is also up. The Census also found that the monthly median revenue of local fintech businesses tripled between June 2016 and June 2017.
These factors point to stability, resilience and, importantly, an increasing demand for fintech products and services. This increase in demand is also supported by research from another recent report, the EY FinTech Adoption Index, which found that Australia ranked fifth in the world for fintech adoption. It found that fintech use among digitally active Australian consumers had risen from 13 per cent in 2015 to 37 per cent in 2017. We have always been early adopters of new technology and services that make our lives easier, so it’s no surprise that Australians are adopting fintech quickly. This local demand will continue to gain momentum, with 43 per cent of digitally active consumers stating that they intend to use fintech in the future.
But it’s not just the domestic market that our fintech leaders have in their sights. It seems that many of them are now also ready to go global, with more than half (54 per cent) of fintechs surveyed for the 2017 Census stating they have plans for overseas expansion within the next year – up from 38 per cent in 2016. For those who are planning to expand overseas, their top six target markets are the UK (49 per cent), Singapore (40 per cent), USA (38 per cent), New Zealand (27 per cent), Hong Kong (22 per cent) and Canada (22 per cent).
The Census shows that there is a buoyant and vibrant fintech sector in Australia, but it also highlights areas where further support is needed to ensure it continues to thrive. The Australian market doesn’t have the same financial services scale, capital for investment or tech industry presence of some of our global peers. In this context, the need to create the most effective ecosystem to foster and support growth is incredibly important.
On the policy side, improving research and development initiatives (87 per cent), government mandated open data controls (85 per cent) and capital gains tax relief (85 per cent) top the list of industry growth initiatives most supported by fintechs. Open data in particular has come into the spotlight, rising to the second highest priority issue this year (up from the fifth highest priority in 2016).
With the open banking independent review committee due to report in December 2017, the anticipation of positive recommendations for the setup of an open banking regime in Australia is real. Using industry-wide data sharing standards, open banking has the potential to provide significant benefits for consumers, banks, fintechs and the broader financial services economy. For consumers in particular, the implementation will allow greater convenience, choice and access to their financial data and services. Fintechs have a key role to play here in driving innovation and pushing change for our financial services system.
As the sector matures, and customer acquisition and growth become more of a priority, fintechs are also reporting increasing talent pool shortages in sales and marketing. There is also some evidence that access to funding may be tightening, with 25 per cent of Australian fintechs now citing a lack of funding as an impediment to growth (up from 20 per cent in 2016). Somewhat disappointingly, there has also been little change to overall gender diversity, with the proportion of female participation in the fintech workforce moving only slightly – from 22 per cent in 2016 to 24 per cent in 2017 – although there are some industry-wide initiatives being developed to help address this issue.
Despite these challenges, the transition of the Australian fintech sector over such a short period has been pronounced. Fintechs are not only becoming significant players in the financial services industry, they are also shaping its future direction. Their new propositions are increasingly attractive to consumers and their use will only continue to rise as awareness grows, consumer concerns fail and technological advancements, such as open APIs, reduce switching costs. At the same time, the opportunity for greater collaboration between traditional financial services players and fintechs is immense.
In this environment, the outlook from local fintech leaders is predominantly optimistic. Although risk remains high and hard yards are required, there is recognition of the increasing support for the sector. The barriers to success, while still pronounced, are decreasing. While there is more work to be done in order to reach its full potential, it’s clear that the Australian fintech is a sector on the rise.
The views expressed in this article are the views of the author, not Ernst & Young. The article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation. The views expressed in this article also do not necessarily represent those of Westpac Group.
By Peter King
Acting Chief Executive Officer, Westpac