While global fintech investment almost halved last year, the budding Australian sector finally bloomed, according to KPMG International’s latest report.
Heedless of the 47.2 per cent evaporation in total global investment in fintech companies (which dropped from US$46.7 billion in 2015, to just US$24.7 billion last year), Australian fintech funding in 2016 was in full flood, more than tripling over 12 months, after a string of deals and funding rounds.
According to KPMG, Australia’s total fintech investment last year topped US$626 million across 25 deals, a major increase on 2015 – which saw $185M across 23 deals – and a figure contrary to the receding global trend.
Ian Pollari, global co-leader of fintech, KPMG International and head of banking, KPMG Australia, told AB+F after a brief adolescence, Australian fintech was coming of age.
“In just five years, Australia has seen the creation of a healthy and active fintech sector, from an extremely low base of just $51 million of fintech investment in 2012 to exceed $600 million in 2016.”
The gap was bridged largely by some significant merger and acquisitions (M&A) and venture capital (VC) transactions, including the CHAMP Private Equity acquisition of Pepperstone, Stirling Products’ acquisition of Mx360Group, as well as successful funding rounds from established fintech’s like Tyro and Prospa.
According to Pollari, 2016 represents a strategic victory for both established Australian fintech’s and the broader domestic sector as it consolidates among the strengthening architecture of the Asian fintech giants.
“Despite the overall decline in global fintech investment, the continued flow of funding in the Australia market demonstrates the growth in size, quality and momentum of our fintech sector, with some of our more mature fintech companies raising substantial rounds and/or being acquired by incumbent firms,” Pollari said.
“Our research also underscores the ongoing ascension of the Asian fintech market with investment levels reaching a record high in 2016, providing further impetus for Australian fintech companies to look to Asia for international growth opportunities.”
The pronounced global fall in fintech investment, according to the KPMG report 'The Pulse of Fintech', largely reflects the drying up of M&A and private equity (PE) fintech deals, which fell away notably in 2016.
Looming tech giants
VC investment, on the back of China’s fresh obsession with Alt-fi, climbed to a substantial new high of US$13.6 billion compared to US$12.7 billion in 2015. Three Chinese mega-rounds left a significant impression on the shape of global fintech funding last year, led by the Q2 2016 Ant Financial record-setting US$4.5 billion funding round.
Looking ahead, Pollari predicts 2017 will see the increasing participation of looming tech giants in the fintech sector.
Jack Ma, founder of Alibaba Group, was in Australia earlier this month as his Ant Financial continues targeting prospective fintech companies in the early stages of an ambitious global push.
Pollari suggested 2017 will witness the proliferation of more partnerships with established financial institutions, incumbents and new claimants seeking to gain access to new customers and intel of local markets.
“An increasing number of exits will likely only stimulate demand for new investments and transaction activity,” Pollari said.
“And, while the frothiness seen in the market over the past two years dissipates, this will be positive for the sustainability of the market, with 2017 likely to see more transaction activity from corporate VCs and strategic investors seeking to capitalise on opportunities at more realistic valuations.”