Australian fintech sector maintains momentum, despite COVID-19 and capital constraints

  • 39% of local fintechs surveyed now have more than 500 paying customers, up from just 27% in 2019
  • 72% of fintechs say the COVID-19 pandemic has had a negative impact on their capital raising ability
  • Payments, wallets and supply chain (30%) and lending (20%) are now the top two types of fintech services, largely driven by a step-change in consumer digital adoption and the rise of the buy now pay later sector

Despite the challenges of operating during a global pandemic, the Australian fintech industry is still managing to sustain its revenue base, attract more paying customers than ever before and plan for future global expansion, according to the EY FinTech Australia Census 2020 (“Census”).

Now in its fifth year, the Census found the proportion of post-revenue fintechs with more than 500 paying customers had increased by an impressive 12% since 2019, to 39%. And, despite current global challenges, Australian fintechs also remain largely optimistic about offshore opportunities, with 88% intending to expand overseas in the future.

Meredith Angwin, Fintech Advisor, Ernst & Young Australia said: “Fintechs by definition are agile organisations, so they have been able to respond quickly to the COVID-19 crisis and make the most of the new opportunities it has presented.”

“As people have adjusted to new ways of working and living during the pandemic, we have seen a significant increase in consumers’ use of digital payments and transactions. At the same time, the buy now pay later sector has expanded at pace, both here and overseas. This is reflected in a change in the top fintech categories identified in this year’s Census, with payments, wallets and supply chain (30%) now in the top spot, followed by lending (20%) and data and analytics (22%).”

“But it’s not all smooth sailing. While the industry continues to face its usual headwinds of regulatory concerns and competitive pressure, it is now also contending with added difficulties emerging from the pandemic, such as the tightening of capital and concerns that consumers may return to the perceived safety of major incumbent institutions for their financial services needs in uncertain times.”

Access to capital is a particular challenge. This year, more than one in three post revenue/profit fintechs (39%) reported not meeting their capital raising expectations. However, they still fared better than the early stage (pre-revenue/launch) respondents, where 54% reported their expectations were not met. Overall, nearly three-quarters (72%) of respondents reported that the COVID-19 pandemic had worsened their capital raising situation.

R&D tax incentive changes welcomed by fintechs

Over the last few years, policy and infrastructure initiatives to foster financial services innovation have gained momentum and supported the industry’s growth. Ministerial representation has increased the sector’s visibility and opened a direct channel between fintechs and key federal policymakers.

However, there is still more that can be done in this space and 93% of fintechs surveyed said making the research and development (R&D) tax incentive more accessible would be the most effective potential growth initiative. Additionally, four out of five fintechs said that having access to the R&D incentive increases the likelihood of keeping at least part of their business onshore.

Rebecca Schot-Guppy, CEO, FinTech Australia said: “Much work has gone into shaping policy and creating regulatory settings that allow fintechs to thrive. This Census shows that this effort is having an impact, but more still needs to be done.”

“It was pleasing to see the increased R&D spend announced in the recent federal budget. But this Census’ findings also show why it is crucial for the start date of this policy to be brought forward from its’ July 1, 2021 start date. Raising capital is usually a lagging indicator of the health of the sector, so it is concerning to hear that the pandemic is already having an impact,” Ms Schot-Guppy said.

Open banking and Consumer Data Right (CDR) accreditation on the agenda

On 1 July 2020, the long-anticipated change to allow consumers greater access to their own data went live. While there is still significant work to be done and initial consumer uptake is predicted to be slow, fintech founders remain positive overall towards the initiative. In fact, 48% of fintechs surveyed plan to become CDR accredited. Of these, three in ten (31%) intend to become an accredited data recipient (ADR) within the next six months and 71% within the next 12 months. More than quarter (28%) of respondents said they will connect through an intermediary when the rules allow.

“Many fintechs see the potential benefits of being part of the CDR, such as greater transparency, increased customer engagement and increased volume and speed of data exchange. However, they also reported that they would like to see some streamlining of the complex and costly accreditation process, with a tiered system so those with scale can support smaller players. The ability to access the scheme via a third-party intermediary was also viewed by many as a necessary step to support small and medium-sized fintechs participation in the system,” Ms Angwin said.

Other key findings from the 2020 EY FinTech Australia Census

  • The Australian fintech industry continues to mature, with 78% of fintechs surveyed now post-revenue and 91% having been in operation for two or more years.
  • Employment within the sector is also continuing its gradual increase, with the median number of employees now at 10 full-time and two part-time.
  • Though hiring has slowed for now, with a view to the future, the number of fintechs stating that easier access to skilled migration would be an effective mechanism for growth jumped to 72% (from 66% in 2019).
  • B2B fintechs dominate the sector, with 80% of respondents identifying as either B2B or B2B-2C.
  • When it comes to overseas expansion, Australia fintechs have broadened their outlook to include new markets such as Ireland (22%), Germany (17%), Indonesia (17%) and the UAE (17%).
  • 61% of fintechs surveyed have applied or are applying for the R&D tax incentive, with 56% already being successful.
    • In addition to making the R&D tax incentive more accessible, other policy initiatives that fintechs consider would be the most effective in driving growth include: offering capital gains tax relief for tech start-ups first incorporated in Australia (89%); reducing taxes, such as payroll taxes, that apply when hiring employees (87%); and allowing access to Open Banking via an intermediary (86%).
  • Fintechs are highly supportive of Australia adopting a Digital ID framework, similar to those already being implemented in Asia and Europe, with 59% of Census respondents believing it would deliver cost savings to their organisation, mostly in customer onboarding.

The full EY FinTech Australia Census 2020 report is available at: www.ey.com/en_au/financial-services/how-australian-fintechs-are-planning-to-emerge-stronger-from-the-crisis.

Rebecca Aley
Ernst & Young Australia
+61 418 835 849
[email protected]

Harrison Polites
FinTech Australia
+61 409 623 618
[email protected]


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About the EY FinTech Australia Census 2020

This year’s Census is based on an online survey of 111 fintechs across Australia, as well as a series of qualitative interviews with fintech leaders and the leaders of innovation functions within major Australian financial services organisations, conducted between July and August 2020.

About EY

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

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This news release has been issued by Ernst & Young Australia, a member firm of Ernst & Young Global Limited.

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About FinTech Australia

FinTech Australia is a national association for the Australian FinTech Startup community. Our vision is to make Australia the leading market for FinTech Innovation and Investment by working with both sides of Government, Industry and the Australian FinTech community to create a supportive environment and partner ecosystem in Australia and abroad.

For more information visit www.fintechaustralia.org.au.