Australian fintech sector creating jobs and raising capital, with sights set on overseas markets

Australia’s fintech ecosystem has been a standout hero throughout the COVID-19 pandemic, with record investor capital raised, new job creation and an increasing number of fintechs preparing for international expansion, according to the new EY FinTech Australia Census 2021.

A collaboration between Ernst & Young, Australia, and FinTech Australia, and co-funded by Austrade, this year’s Census shows a dramatic increase in the proportion of fintechs whose capital raising expectations were either met or exceeded (82% in 2021 compared to 57% in 2020), with lower reliance on founder funding and higher amounts raised.

Key findings from the 2021 EY FinTech Australia Census

 Easing of funding concerns and signs of maturity

• Australian fintech deals and capital raisings are now rating on a global scale, with 44% of companies having raised over $10 million to date and 14% having raised over $100 million.
• 88% of Australian fintechs three years or older and 81% of fintechs two years or older are now post-revenue, another promising sign of the continuing maturity and growth of the local sector.
• The negative impact of the COVID-19 pandemic on fintech capital raising has significantly decreased, from 72% in 2020 down to just 49% this year.
• However, more than half (57%) of survey respondents who have tried to raise capital said they are still struggling to find the right investors.

Further evidence of global growth:

• 72% of fintechs plan on entering or expanding into an overseas market within three years, and 60% plan to do so in the next 12 months.
• 41% of post-revenue fintechs report having more than 500 customers.
• The sector has continued to create new jobs during the pandemic, with 67% of fintechs having more than 10 employees (up from 59% in 2020) and 21 full-time employees the new median (up from 10 in 2020).
• Four in five survey respondents (80%) say Australian fintechs are now internationally competitive, versus 64% who thought the same in 2019.
• In the last 12 months, 88% of fintechs that are generating revenue overseas have created new jobs as a result.

Need for additional government support and talent concerns

• Two in three (66%) fintechs say they are finding it more challenging to attract qualified or suitable talent in Australia and 78% want easier access to skilled migration visas.
• In line with previous years, of those experiencing challenges attracting suitable talent, talent with engineering and software skills is proving the most difficult for fintechs to attract (62%), followed by product management (31%) and data engineering/data science (30%).
• Only one in eight (12%) fintechs have received an Export Market Development Grant in the past, and a further 15% are planning to apply for the grant.
• 42% of fintechs have successfully applied for the R&D Tax Incentive (RDTI), while 11% are in the process of applying. 78% say access to the RDTI influences their decision to undertake R&D in Australia. 80% say making the RDTI more accessible would help improve the sustainability and growth of their business.
• New Zealand, which has recently doubled down on its R&D incentives, has jumped to the top of the list of Australian fintechs’ preferred markets for international expansion for the first time ever.
• 39% of Australian fintechs surveyed believe that changes to Early Stage Innovation Company (ESIC) and/or Early Stage Venture Capital Limited Partnership (EVCLP) policy settings and tax incentives would allow greater capital flow into the sector.

May Lam, EY Oceania fintech leader and EY Asia-Pacific payments leader said, “The value of the Australian fintech sector as a national export has never been clearer, so it was exciting to find that 72% of fintechs plan on entering or expanding in an overseas market within the next three years and 60% have plans to do so within the next year.”

“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. 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.”

“To maintain Australia’s status as a rising star on the global fintech stage, and to keep the country’s innovation and talent onshore, we must build meaningful and globally competitive growth pathways for Australia’s startup sector. Increased certainty around incentives, better coordinated collaboration and strong moves to drive industry diversity will all help us build a world-class fintech export market and attract the best international tech companies to Australia.”

Rebecca Schot-Guppy, FinTech Australia CEO added, “Fintechs also have a vital role to play in helping rebuild our economy as we move to the next stage of pandemic recovery, not just through job creation and innovation, but in supporting SMEs with digital finance 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.”

“Other recent market changes, such as open banking, are positively impacting the sector. While only 7% of fintechs surveyed are already Accredited Data Recipients (ADRs), a further 25% intend to follow suit, with more planning to connect via an intermediary. This will support greater industry convergence and more collaboration with established financial services institutions, big techs, retailers and other non-traditional players.”

“It was also encouraging to see the improvement in gender diversity among fintechs overall in this year’s Census, with 35% of all employees now female (up from 29% in 2020). Importantly, the Census also found that 26% of leadership positions are now occupied by women. These are positive results, but we still have work to do as a sector to foster even greater diversity and build a truly inclusive sector. Almost a third of survey respondents could not provide an estimate of their diversity profile but, those who could reported an average of 25% of employees from a culturally and linguistically diverse (CALD) background. To drive innovation, we need to continue to build and amplify a supportive ecosystem that encourages participation from a diverse talent pool.”

Malia Forner, EY Private Oceania start-up and entrepreneurship leader said, “Australia has long supported programs targeting private capital and innovation investment by businesses, their founders and investors through specific tax incentives. Now is a pivotal time to support structural modernisation of our economy and to grow our nation’s investment into innovation, through leading business and investor incentives that help to attract talent, innovation and capital.”

“With digitalisation greatly accelerated by the COVID-19 pandemic, geographic constraints have been largely removed. The sector is aware of other markets in the region, like Singapore and New Zealand, where launchpads for start-ups are focused on overtly attracting more innovation and jobs. In fact, around two-thirds of Australian fintechs considering expanding internationally said help understanding the regulatory environment (69%) and government support and funding to expand overseas (61%) are the main types of support they would value. Additionally, almost three-quarters (72%) of Australian fintechs surveyed strongly supporting increased access and grant assistance to a greater diversity of overseas launchpads.”

“Local entrepreneur and investor confidence hinges on maintaining stable, globally competitive regulatory, tax and incentive frameworks, where the sector has greater certainty over administration and access. 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. 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.”

Read more about the EY FinTech Australia Census 2021 report at: ey.com/FintechAust2021.