Westpac, ZipMoney deal boosts fintech
Corporate venture capitalists and investors could bring momentum to the Australian fintech sector over the remainder of the year with the recent tie up between Westpac and ZipMoney suggesting further partnerships between incumbents and fintechs are likely after a slow start to 2017.
This week, Westpac announced it would plough $40 million into the listed fintech business and, according to a KPMG analysis, more fintech investment (including insurtech investment) is expected by the market.
"Following a slow start to fintech investment in 2017, the second quarter saw US$115 million invested across nine deals in Australia, up from just US$20 million in the first three months of the year,” KPMG global co-leader of fintech Ian Pollari said.
“We are we are seeing greater levels of participation from corporate venture capitalists/investors, particularly in Asia-Pacific,” he said.
Corporate venture capital investment grew from 22.5 percent in the first quarter of 2017 to a record high of 36.6 percent in the second quarter of 2017. Pollari said the figures revealed “a deep interest in fintech innovation from strategic players in the region".
Open to collaborating
Among the local top 20 fintech deals in the region during that period was the $36.2 million purchase of payments processing business Paycorp by MYOB and the $69 million acquisition of Rubik Financial by software specialist business Temenos.
The recent report by the Committee for Sydney and KPMG also revealed that the number of fintech companies have increased five-fold since 2014.
“Australia's financial institutions are showing that they are open to collaborating with innovative technologies through venture capital investment, acquisition and product/service co-creation,” Pollari said.
The theme of collaboration and partnerships is also growing in the insurance sector. Around 19 per cent of insurers are looking at forming strategic partnerships in the insurtech sector, according to a recent report by financial services technology provider TAS.
However, Insurtech Australia co-founder Brenton Charnley said that collaboration between incumbents and fintechs/insurtechs needs to adhere to a distinct strategic plan that includes clear budget planning around funding and resources.
Importantly, he added that companies need to adopt a ‘test and learn’ mindset that allows for failure but helps businesses better understand what innovations work and what don’t. “It’s innovation at its best,” he said.
As chief commercial officer of fintech business Flamingo, Charnley also had advice for insurtechs who are open to collaboration.
“These businesses need to be transparent and validate their solutions in the market and be clear with their service proposition. Insurtechs shouldn’t try and solve all the problems. They should just focus on providing one solution to a problem,” he said.
Importantly both sectors also need to be mindful of the procurement process, which can often take up to nine to 10 months for larger firms. This process needs to be revisited when dealing with the more agile insurtech/fintech sector.
Echoing the views of Charnley, TAS CEO Shane Baker said a clear strategy for collaboration is needed where there was a “meeting of the minds” between the incumbent and insurtech and where values and objectives were aligned.
He highlighted the approach adopted by Insurance Australia Group in setting up incubation hubs as an effective strategy in ensuring ongoing partnerships.
“From a cultural perspective, it can be hard to engage with smaller businesses like insurtechs. These businesses have a different mindset and adopt different processes to doing businesses. There is often a cultural divide between big businesses and companies like insurtechs,” Baker said.
“An incubation hub can act as a conduit between the mothership – the incumbent – and the insurtech.”