Australia’s fintechs thrive through COVID-19

  • By Zilla Efrat

Australia’s fintech sector has continued to mature rapidly throughout COVID-19. It has raised record investor capital and enjoyed strong revenue generation from overseas markets, according to the sixth EY FinTech Australia Census.

“This year’s census finds Australia’s dynamic fintech industry competitive on the global stage and poised to support our nation’s economic recovery – as the thousands of new positions on the FinTech Australia jobs board attest,” says Rebecca Schot-Guppy, CEO of FinTech Australia, which collaborated with EY Australia to deliver the latest census.

“With more concerted and coordinated support, the sector’s trajectory will be unstoppable,” she says.

The census finds that where fintechs are three years or older, 88 per cent are post-revenue. Following in their wake, 81 per cent of companies that are two years or older are also post-revenue.

As a result, the number of paying customers has reached a new high among post-revenue fintechs, with 41 per cent reporting more than 500 customers

According to the census, fintech entrepreneurship is also rising in the wake of the pandemic. The overall number of post-revenue participating fintechs is 70 per cent, down from 78 per cent in 2020. A key reason for this is the uptick in new younger fintech start-ups entering the market, a positive sign of the growing size of the pie.

The 2021 census results also confirms that there’s been strong overall growth in capital raising, with a lower reliance on founder funding and higher amounts raised.

Indeed, 82 per cent of fintechs met or exceeded capital raising expectations. This compares to 57 per cent in 2020 and was particularly high among those innovating in payments, wallets and supply chain.

Importantly, 40 per cent of fintechs are generating revenue from overseas and 18 per cent are getting more than half their revenue from international customers. As a result of generating overseas revenue, 88 per cent added new jobs to support this growth.

EY says Australian deals and capital raising are now rating on the global scale. Four in five survey respondents say Australian fintechs are internationally competitive, compared to 64 per cent in 2019.

EY observes that in the past 18 months, the addressable market for fintech has grown larger than ever as COVID-19 has accelerated the consumer relationship with transacting online and, in turn, the need for companies to embrace digital models.

Today, every consumer-facing business needs a digital payment capability as waves of lockdowns have taken all generations of consumers online, notes EY.

As banks realise the urgency of investing in or partnering with fintechs, the proportion of fintechs indicating they have encountered an issue with banks and other institutions continues to decline, EY adds.

Fintechs reporting an improved relationship with incumbents talk about better partnerships, more access, introductions to the “right people” and banks being more open to new ideas, it adds.

The sector continues to support the uptake of open banking. Only 7 per cent of fintechs are already Accredited Data Recipients (ADRs), but a further 25 per cent intend to follow suit – and many more plan on connecting via an intermediary.

This appetite is supported by the recently announced third amendments to the customer data right (CDR) rules which will accelerate increased business participation and empower consumers to get greater value from their data through a broader range of offerings.

Respondents reported already seeing the benefits of CDR in providing a fast and frictionless customer onboarding experience. Open banking pioneers interviewed see great potential in using CDR as a digital identity and to support new ways of risk profiling over traditional credit scoring in the future.

In 2021, payments, wallets and supply chain continued to be the most common type of fintech (43 per cent), followed by lending (30 per cent).

Payments fintechs have had significant success in raising capital, with 18 per cent raising more than $100 million in their last round of funding.