Australian fintech Census shows increased industry collaboration between fintechs and incumbents post Royal Commission

• Three-quarters of Australian fintechs surveyed (76%) consider the Financial Services Royal Commission to have provided opportunities for the local fintech sector
• 42% of fintechs say their relationship with incumbent financial institutions has improved over the past 12 months
• Three in four Australian fintechs (77%) are now post-revenue and median revenue has grown 80% from 2018

Australia’s fintechs report improvement in their relationships with major financial services institutions as a result of the Hayne Royal Commission, according to the results of the 2019 EY FinTech Australia Census, launched at the Intersekt Conference in Melbourne today.

Among the impacts of the Royal Commission cited by fintechs, 49% said they had seen a stronger uptake of fintech solutions by consumers and 26% said incumbent financial institutions had become more willing to partner with them.

Now in its fourth year, the fintech Census is based on an online survey of 120 fintechs across Australia, as well as a series of qualitative interviews with fintech leaders, conducted between June and July 2019, and remains the only detailed, industry-backed analysis of the Australian fintech industry. This year, for the first time the research also included interviews with leaders of innovation or digital functions within major Australian financial services organisations, to seek their view of collaboration with fintechs.

Meredith Angwin, Fintech Advisor, Ernst & Young Australia said: “The Australian fintech sector is continuing to mature and grow, becoming increasingly profitable and globally connected. Our latest Census data shows that almost a quarter (23%) of local fintech companies are now running at a profit – up from a fifth (19%) in 2018 – and median revenue has grown 80% from this time last year.”

“A key theme we are seeing this year is an increase in the degree of collaboration between fintechs and traditional financial services players. While still highly competitive, it’s fair to say that there are much more mature, streamlined and effective relationships emerging.”

“The dynamic in the fintech industry has changed dramatically in the four years that we have been running the Census. There is increased recognition of the need for partnerships and collaboration for the benefit of consumers and the financial services sector as a whole. So, it’s positive that two-fifths (42%) of fintechs reported that their relationships with incumbents had improved over the past twelve months, citing more access and engagement, stronger collaboration, growth of their business and an openness to new ideas and innovation as the key reasons for the improvement.”

“The upcoming launch of Open Banking and the Consumer Data Rights (CDR) legislation is also being viewed as a mostly positive development by the fintech sector, with the majority of fintechs (85%) viewing it as an effective growth initiative,” Ms Angwin said.

Talent and diversity

While access to talent remains a key priority, this year’s Census data shows another drop in the percentage of fintech founders who believe there is a lack of experienced start-up and fintech talent in Australia (down to 43% in 2019, from 58% in 2016). This positive development reflects both the increasing maturity of the fintech sector and the continued development of the local tech sector more generally.

The Census also shows that there has been a gradual but steady increase in the proportion of female employees at fintechs over the past four years, growing from 22% in 2016 to 32% in 2019.

Rebecca Schot-Guppy, General Manager, FinTech Australia said: “Significant work has gone into encouraging women in the fintech sector. To see female representation strongly trending positively is incredibly heartening for the industry.”

“While talent is always a key concern for fintech, we’re also pleased to see that it’s becoming less of a burden for emerging companies. We believe this is a product of more financial services talent seeing fintechs as a viable option for advancing their career and challenging their skills,” Ms Schot-Guppy said.

Access to capital

One of the more significant differences noted in this year’s Census is the tightening of access to capital, which is reflective of the wider economic environment. Survey respondents reported local fintech capital raisings were down 5% – from 43% in 2018 to 38% in 2019 – and, of those that have attempted to raise capital, only 45% raised over $1 million in their latest round (compared to 63% in 2018). This is likely also leading to the recent increase in the proportion of founder-funding, which is up significantly, from 60% in the 2018 Census to 75% in the 2019 Census.

“The funding story for the local fintech sector is certainly markedly different to this time last year. Overall, we are seeing less success in capital raisings and lower levels of funds being raised. At the same time, the funding that is available is becoming more conservative and skewing towards the more established and experienced fintechs,” Ms Angwin said.

Despite these challenges, the outlook for the sector remains positive with 81% of fintechs expecting to grow their revenue within the next year, 64% expecting to increase their number of employees, and 51% planning to expand overseas.

Other key findings from the 2019 EY FinTech Australia Census

• The top three types of fintech companies in Australia are now: wealth and investment (30%); lending (18%); and data, analytics and/or big data (18%).
• Pre-revenue fintechs are showing better management of cash reserves, with the average monthly burn rate reduced to $113,000 (down from $121,000 in 2018).
• 25% of fintechs cited government incentives and tax regulations as key external challenges facing the industry.
• Three-quarters of Australian fintechs (76%) indicate that accessing R&D tax helps keep aspects of their business onshore.
• The top three internal business challenges listed by Australian fintechs are product development (45%), product and market fit (44%) and attracting suitable or qualified talent (41%).
• 66% of fintech respondents agree accelerators and incubators are important contributors to the success of the local sector.
• 63% of survey respondents believe Australian fintech companies will be able to compete internationally.
• The top five overseas markets identified for potential expansion are the UK (44%, down from 52% in the 2018 Census), the US (42%, up from 38%), New Zealand (38%, up from 27%), Singapore (31%, up from 30%) and Canada (24%, up from 13%).
• Two in five fintechs (40%) anticipate their organisations will become an accredited provider of CDR in the initial phase. A slightly smaller proportion (37%) state they are unsure, and 23% do not expect to become accredited.
• Among the fintechs who anticipate becoming CDR accredited, the greatest motivators to connect are greater transparency in the process of obtaining consumer data (71%) and more direct / faster data exchange (69%).

The full 2019 EY FinTech Australia Census report is available at https://fintechauscensus.ey.com.