21 Oct. 2020
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How Australian fintechs are planning to emerge stronger from the crisis

By Meredith Angwin

EY Asia Pacific Advisory Quality Leader

Business technology transformation and change. Fintech advisor. Experienced program management leader across the Asia-Pacific region.

21 Oct. 2020
Related topics Finance Technology

The fifth issue of the EY FinTech Australia Census shows the industry powering ahead despite capital constraints. 

In brief

  • The industry is maturing, with 78 per cent of respondents post revenue, strong growth in paying customers and optimistic for global expansion.
  • Top segments are: payments, wallets and supply chain, lending, and data and analytics.
  • Tightening capital and waning collaboration with incumbents are key areas of concern.     

Despite the once-in-100-year challenges of dealing with a global pandemic, the Australian fintech industry is sustaining its revenue base, with more paying customers and plans for future global expansion. Fintechs say this moment of crisis is driving a step-change in consumer digital adoption and has adapted quickly to grasp new opportunities. This has resulted in a significant increase in consumer digital payments and transactions and the rise of the “buy now pay later” sector, which has expanded at pace.

However, the industry continues to face its usual headwinds of regulatory concerns and competitive pressure. And, now in a post-pandemic world, fintechs must also contend with the added difficulties emerging from the crisis – issues such as tightening capital and the concern that consumers will return to the “safety” of major institutions for their financial services needs.

There is also widespread concern that large financial institutions have pivoted to focus on their customers, redeploying staff away from innovation, slowing the momentum of fintech initiatives. Before the global pandemic hit, there was a genuine feeling that, at last, financial services innovation collaboration had reached a ‘tipping point’.

2019

42%

Fintechs reported improved relationships with banks and financial institutions

2020

17%

Fintechs reported improved relationships with banks and financial institutions

But fintech founders also believe the crisis creates a great opportunity to reshape and advance focus on fintech innovation and expansion as part of the post-COVID rebuild. In the future, they expect accelerated financial services innovation and transformation, with the acceptance of digitisation supporting fintech solutions for debt recovery and payments.

Global ambitions continue

Despite the current global challenges, fintechs remain largely optimistic about offshore opportunities. Australia’s fintech presence in overseas markets is already strong. The 2020 Census found the intention to go offshore remains high with 88 per cent intending to 'expand in the future beyond the next 12 months'.

Traditionally, fintechs seek to enter well-regulated markets with mature financial services sectors. However, this year, fintechs have broadened their outlook to other international markets, including: Ireland, Germany, Indonesia and the UAE.

What does the sector need to thrive?

  • Policy enhancements – If Australia is to be globally competitive, the fintech sector needs appropriate policy, regulation and broader government support to put our ecosystem on the global investment and talent radar. Top of the agenda for fintech founders are making the R&D tax incentive more accessible* and introducing measures to support early stage fintechs and more broadly, technology startups such as those already successful in the UK and Europe.
  • Fewer barriers to Open Banking – Fintech founders believe the current pace of Consumer Data Rights implementation is too slow to support fintech innovation and fear the system is being designed to support the major players. However, they remain positive overall towards the initiative. To encourage smaller players into the market, they recommend streamlining the complex and costly accreditation process, with a tiered system so those with scale can support smaller players. The ability to access the scheme via a third party intermediary is viewed by many as an necessary step. 
  • Continued regulatory engagement – The fintech community appreciates Australia’s mature and well-regulated financial system but wishes the pace of change could be quicker. Engaging with regulators has become increasingly productive, with ASIC’s innovation hub being most effective at communicating with fintechs and providing informal guidance. The industry is highly positive about the new, enhanced regulatory sandbox, which allows a broader range of financial services and credit activities to be tested for a longer period.
  • Digital ID framework – Fintechs are highly supportive of Australia adopting a Digital ID framework, similar to those already being implemented in Asia and Europe. Almost three in five Census respondents believe a Digital ID would deliver cost savings to their organisation – an average of $124,700 per annum, including those with no savings expected.

 

Australia’s fintech industry is among the world’s most important fintech ecosystems. Now in its fifth year, this Census is recognised as the best source document defining the industry’s overall shape and tracking its progress. This year, despite the pandemic and issues with access to capital, the Census finds the industry continuing to grow and envisioning a future where fintech becomes Australia’s innovation infrastructure.   

The data and analysis expressed in this report were produced by EY Financial Services team with the research program designed and run by EY’s dedicated market research practice, EY Sweeney.  The quantitative research consisted of 111 online surveys conducted in July – August with those in the fintech industry.  Also 10 in-depth interviews were conducted with fintech leaders and leaders of innovation functions within major Australian financial services organisations. 

* The Federal Budget handed down on 6th October contained significant changes to the R&D tax incentive scheme with commitments to additional funding, removing the refund cap for small companies (<$20M turnover) and substantially increased the refundable R&D tax offset. This was heartily welcomed by the fintech industry. All changes will be implemented from 1 July 2021.

Summary

Despite the once-in-100-year challenges of dealing with a global pandemic, the Australian fintech industry is sustaining its revenue base, with more paying customers and plans for future global expansion. Australia’s fintech industry is among the world’s most important fintech ecosystems. 

 

 

About this article

By Meredith Angwin

EY Asia Pacific Advisory Quality Leader

Business technology transformation and change. Fintech advisor. Experienced program management leader across the Asia-Pacific region.

Related topics Finance Technology