Fintechs must jump many hurdles on the road to disruption

Fintechs must jump many hurdles on the road to disruption

Bendigo & Adelaide Bank was one of the first Australian banks to invest in fintech start-ups. In 2012, Bendigo announced a $1.5 million investment for a 15 per cent stake in Adelaide-based NoQ, a joint venture with former Adelaide Crows AFL player Brad Moran. These days “NoQ” (no queue) provides independent supermarket and liquor retailers with e-commerce solutions.

Bendigo managing director and CEO Mike Hirst has said there are excess profit pools among the diverse product range of the Aussie banks that could be targeted by single product-focused fintechs such as NoQ.

Some big investors say the inexorable forces are clear. Successful fintech innovators are cutting costs and improving service. They can raise the level of transparency and depth of information in financial services, and they often come from the “start-up” culture.

More recently, Mr Hirst has talked about the challenges facing fintech companies to succeed as independent entities.

“As time goes on, the realisation has been for a lot of fintechs that there is a real drain on working capital as they go through the process of building up a customer base and, for many of them, the ability to see that through is becoming more difficult,” he says.

“My view is that more and more will look to partner with a bank because they already have the customers.”

Mr Moran left NoQ about two months ago. It is understood that Bendigo no longer has board representation with the company but maintains its equity investment. A NoQ spokesman declined to comment on the trading performance of the business or the reasons for Mr Moran’s departure.

Numerous challenges

David Kirk, co-founder and managing partner of listed Bailador Technology Investments, says numerous challenges face fintechs that don’t confront innovators in other sectors. One of these is that margins in financial services are typically very low, so a fintech disruptor needs to achieve huge scale to succeed. “In payments, for instance, you really need millions of transactions before you get to anything like millions of dollars worth of revenue,” he said.

Generating millions of transactions can be hard to achieve in the relatively small Australian market. Another difficulty for innovators in financial services is that there are established incumbents with deep pockets, ie, the big banks, who have “a lot to lose and plenty to invest”.

At a broader level, the Australian Securities Exchange has seen the successful listing of technology plays, including fintechs, spurring hope that innovation isn’t dead.

For instance, shares in online payments company Afterpay have risen to $2.50 from a listing price of $1 in April. The latest technology company speculated to be heading for the ASX is Soprano Design – a Sydney-based mobile messaging software solutions provider for enterprises and governments internationally. It counts Telstra, Vodafone, National Australia Bank, Accor, Transurban, Visa and Qantas among its clients.


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