Aussie fintechs chasing international growth

The newly released 2021 EY FinTech Australia Census has found payments, wallets and supply chain has continued to be the most common type of fintech (38 per cent) in Australia, followed by lending (24 per cent).

The report from Ernst & Young Australia and peak industry body FinTech Australia has shown the majority of fintechs have international growth ambitions, with 72 per cent aiming to enter or expand into an overseas market within three years.

A little more than half (60 per cent) planned to expand overseas within the next 12 months. New Zealand, which recently doubled down on its research and development (R&D) incentives, has jumped to the top of the list of preferred markets for international expansion, for the first time.

Four in five respondents (80 per cent) reported that Australian fintechs are now internationally competitive, compared to 64 per cent who thought so in 2019.

The majority (88 per cent) of local fintechs are three years or older and 81 per cent that were two years or older are now post-revenue, showing growth and maturity in the sector.

May Lam, EY Oceania fintech leader and EY Asia-Pacific payments leader commented the “value of the Australian fintech sector as a national export has never been clearer”.

The EY report also noted that fintechs will need to team up with incumbent players to combat competition from big tech and large overseas players.

“Incumbents and industry need the agility of fintechs to compete; fintechs need the incumbent customer base to scale,” the census noted.

“There is room for improvement in those relationships with two in three fintechs (67 per cent) viewing their relationship with banks and other financial institutions as unchanged and only 17 per cent seeing an improvement in those relationships.

“There are early signs that collaboration and partnership through joint ventures, investments or transactions are the best way for incumbents and fintechs to co-exist and focus on customer needs and outcomes – rather than disrupting each other. That said, more support is needed to provide fintechs with deeper access to regulated products, services and infrastructure to allow them to grow and scale to a size that makes sense for them to work with incumbents.”

Cathie Armour, commissioner with ASIC had called seeing more collaboration between fintechs and incumbents a “promising indicator of sector maturity”.

In other signs of growth, around 41 per cent of post-revenue fintechs reported having more than 500 customers, while two-thirds (67 per cent) said they had more than 10 employees (up from 59 per cent in 2020), and having 21 full-time employees was the new median (up from 10 in 2020).

However, two in three (66 per cent) said they were finding it more challenging to attract qualified or suitable talent in Australia and 78 per cent wanted easier access to skilled migration visas.

In line with previous years, talent with engineering and software skills was the most difficult for fintechs to attract (62 per cent), followed by product management (31 per cent) and data engineering and data science (30 per cent).

“There’s no doubt that in the post-pandemic rebound race, skilled visa programs and employee retention schemes would help Australian fintechs to grow and attract new talent,” Ms Lam added.

“But there are other issues around diversity and inclusion that will also need to be addressed for the sector to remain attractive in an increasingly competitive talent environment.”

Around 42 per cent of fintechs had successfully applied for the R&D Tax Incentive (RDTI) in Australia, while 11 per cent are in the process of applying.

The vast majority (78 per cent) reported access to the RDTI influences their decision to undertake R&D in Australia, with 80 per cent agreeing that making the scheme more accessible would help improve the sustainability and growth of their business.

Around two-fifths (39 per cent) believed that changes to the Early Stage Innovation Company (ESIC) and the Early Stage Venture Capital Limited Partnership (EVCLP) policy settings and tax incentives would allow greater capital flow into the sector.

Of the fintechs considering overseas expansion, two-thirds (69 per cent) said the main types of support they would value included help understanding the regulatory environment, while 61 per cent voted for funding to expand offshore.

Almost three-quarters (72 per cent) strongly supported increased access and grant assistance to a greater diversity of overseas launch pads.

Malia Forner, EY Private Oceania start-up and entrepreneurship leader commented local fintechs and investors need competitive and stable regulatory, tax and incentive frameworks.

“In the wake of the COVID-19 pandemic, the government has introduced a range of incentives, stimulus and cash grants to help sustain and attract investment, innovation and jobs,” Ms Forner said.

“But beyond the pandemic crisis period, we need policies and programs consistent with their intent to support founders, innovation and encourage further private capital investment for jobs growth.”

Rebecca Schot-Guppy, FinTech Australia chief executive stated fintechs will have a vital role to play by supporting SMEs with digital solutions and faster access to payments.

“The COVID-19 pandemic has accelerated the need for companies to embrace digital models and driven consumers’ relationships with their finances online, accelerating fintech innovation. Today, every consumer-facing business needs a digital payment capability, and this has created an increase in the addressable market for fintechs,” she said.

The research also found a dramatic increase in the proportion of fintechs whose capital raising expectations were either met or exceeded (82 per cent in 2021 versus 57 per cent in 2020), with lower reliance on founder funding.

Close to half (44 per cent) of Aussie fintechs have now raised more than $10 million to date, while 14 per cent have raised more than $100 million.

[Related: Fintech, major bank competition fuelling mergers: Newcastle Permanent]