According to the EY FinTech Australia Census 2020, nearly a third of Australian fintechs (30 per cent) are focusing on ‘payments, wallets and supply chain’, closely followed by lending (29 per cent).
These are the top two types of fintech services in Australia, largely driven by “a step change in consumer digital adoption and the rise of the buy now, pay later sector”.
The report, which consisted of 111 online surveys conducted with people working in the fintech industry during July-August 2020 and qualitative interviews with “fintech leaders”, found that the proportion of fintechs focusing on lending had risen on last year, when 21 per cent of fintechs said they were focused on this area.
The report reads: “Our census revealed that fintechs focused on payments are more prevalent, with lending and data/analytics the other top fintech sectors. This year has also seen a growth in challenger banks.
“These are healthy signs in an environment of extreme disruption and uncertainty, suggesting fintechs will survive this crisis and, with appropriate support, emerge invigorated.”
EY suggested that the proportion of fintechs offering loan services may rise as “neo-lenders will play an important role in providing loans” into the future.
The report noted that the last 12 months had seen growth in the neobank sector with offering of loans and new services.
Nearly half (48 per cent) of fintechs surveyed also revealed that they plan to become accredited in the Consumer Data Right.
Of these, nearly a third (31 per cent) said they intend to become an accredited data recipient (ADR) within the next six months and 71 per cent said it would be within the next 12 months.
More than quarter (28 per cent) of respondents said they will connect through an intermediary when the rules allow.
EY also found that the vast majority of fintechs (80 per cent) are business-to-business-facing rather than consumer-facing.
While EY noted that the COVID-19 pandemic had affected fintechs (72 per cent of fintechs reported that the pandemic had a negative impact on their capital raising ability), it added that the Australian fintech industry is still managing to sustain its revenue base, attract more paying customers than ever before and plan for future global expansion, according to the EY FinTech Australia Census 2020.
Nearly two-fifths (39 per cent) of local fintechs surveyed now have more than 500 paying customers, up from just 27 per cent in 2019.
Australian fintechs also were largely optimistic about offshore opportunities, with 88 per cent intending to expand overseas in the future.
Meredith Angwin, fintech adviser, Ernst & Young Australia, said: “Fintechs by definition are agile organisations, so they have been able to respond quickly to the COVID-19 crisis and make the most of the new opportunities it has presented...
“But it’s not all smooth sailing. While the industry continues to face its usual headwinds of regulatory concerns and competitive pressure, it is now also contending with added difficulties emerging from the pandemic, such as the tightening of capital and concerns that consumers may return to the perceived safety of major incumbent institutions for their financial services needs in uncertain times.”
Rebecca Schot-Guppy, CEO of FinTech Australia, said: “Much work has gone into shaping policy and creating regulatory settings that allow fintechs to thrive. This census shows that this effort is having an impact, but more still needs to be done.”
However, she added: “Raising capital is usually a lagging indicator of the health of the sector, so it is concerning to hear that the pandemic is already having an impact.”
She therefore suggested that it was “crucial” for the increased spend on research and development announced in the recent federal budget to be brought forward from its start date of 1 July 2021.
CEO of mortgage broker platform Effi, Mandeep Sodhi, noted the findings, stating: “Recent regulatory changes for fintechs mean innovation could be significantly reduced, but B2B platforms like Effi will look to drive more in this area, as well as productivity benefits for the mortgage broking market that have been overburdened by these changes.
“I also believe more clarification is required on open banking and how it applies to SaaS companies like Effi, where mortgage brokers have to work with different parties outside of their business, to prepare clients’ home loan applications to then lodge to lenders. This process means access to client data is required by multiple parties, which may not be accredited yet.
“The collaboration between fintechs and incumbents will also continue to increase, as incumbents will shift their focus to core business and products.”
[Related: Xero to break into SME lending]
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Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.