skip to log on skip to main content
Article related to:

Banking & Finance

Aus fintechs: riding the investment wave

Banking Lead, Accenture Australia and New Zealand

2019-10-23 09:18

Australia’s fintech industry is booming and shows no signs of slowing down.

Over the past year, four fintechs have been granted full banking licences, several fintechs have publicly listed on the ASX and a “unicorn neobank” arrived on Australian shores.

" Should the big four be concerned that their oligopoly may be ending?”

In recent decades, the Australian banking sector has consolidated around the four major banks as state banks were privatised and several regional banks were taken over.

However, following a turbulent time for established banks with increased scrutiny and lower levels of trust, the incumbents are increasingly taking notice of fintechs, who have their sights firmly on their customers.

Fintechs are not encumbered with legacy technology and established organisational structures, allowing them to be more nimble and focused on the customer. They also promise a new, digital first alternative to the banks.

Should the Big Four be concerned their oligopoly days may be numbered?

Very real threat

Banks around the world, including those across the Asia Pacific, are waking up to the fact fintechs and big technology companies are a potential and very real threat.

In response traditional banks are revamping their digital business strategies and user experience while boosting investment in new technologies and product offerings. They are also revamping their banking apps with more data analytics and personalised services.

Regulatory changes sweeping the globe are also forcing the big traditional players to share customer data with fintechs and new market entrants. We’ll soon see this in Australia too, with open banking slated to launch to consumers in early 2020.

Banks are also increasingly partnering with fintechs - focusing on collaborating rather than competing. Some of the big four are providing warehouse funding facilities for lending startups and buy-now-pay-later companies or offering wholesale funding for online mortgage lenders.

In the venture capital market, investment into Australian fintechs has jumped threefold in the first half of 2019, underscoring the optimism and opportunities investors and startups alike see in the country.

But can that strong pace continue, particularly as competition intensifies and incumbent players up their game?

As the old saying goes, it’s difficult to make predictions, especially about the future. And in a market that’s as cyclical, volatile and high risk as venture capital, that’s even harder to foretell.

But there’s good reason to expect the growth in investments and overall fintech activity will last longer. More startups and investors are looking to surf the wave of opportunities opening up as a result of open banking.

Bodes well

Fintech fundraising in Australia more than tripled to $US401 million in the first half of 2019 from $US122 million in the same period last year, making the country the fourth biggest fintech market by funds in Asia Pacific (behind China, India and Singapore). The number of deals in the country also rose 10 per cent to 23 in that period.

{CF_IMAGE}

The increase both in deal values and the number of deals is a good indicator of what’s to come and bodes well for the future development of cutting-edge financial technology in Australia.

There’s a lot brewing in the Australian fintech ecosystem and this pick-up in activity and funding shows the confidence investors and the startups have in the industry’s future growth potential. That investment value jumped at a faster rate than the number of deals means the average size of transactions was much higher - again demonstrating growing investor confidence.

Looking across the region, Australia’s figures are healthy compared with regional behemoths China and India which are actually facing steep declines in fintech fundraising, of 95 per cent and 25 per cent respectively. Activity also slowed sharply in both countries with the number of deals down nearly 50 per cent and 21 per cent.

Singapore, which has become a hub for many fintechs vying for a presence in the fast-growing economies of Southeast Asia, was another regional bright spot in the fintech world this year, with startups in the country raising $US453 million, nearly quadruple the $US118 million in the first half of 2018.

{CF_IMAGE}

The vast majority of venture capital fintech funding in Australia so far in 2019 went into lending startups and payments companies, 71 per cent and 28 per cent respectively, following a similar trend from previous years.

That’s a big concentration in just two areas, underscoring where investors see the best chance for fintechs to succeed. But it’s surprising when you compare where the focus has been elsewhere in the Asia Pacific and globally.

Payments and lending were also the two biggest areas of investment elsewhere but to a much lesser extent than in Australia, accounting for 26 per cent and 20 per cent in Asia Pacific and 28 per cent and 25 per cent globally in 2019.

Growing further

While investments into insurtechs and startups in wealth and asset management combined made up nearly 20 per cent of both global and regional fintech investments, there were no disclosed deals in those segments in Australia so far this year despite the country’s large insurance market and wealth advisory industry.

Over the past five years, the value of funding to insurtech and wealthtech firms combined made up just 2 per cent of the fintech total raised in Australia. This underscores the potential for those two areas to expand further as opportunities emerge from The Australian Competition and Consumer Commission to use consumers’ banking data to speed up onboarding at asset managers and insurance firms or provide more real-time financial advice based on spending and savings patterns.

As consumers share their financial data with third parties - through open banking - in search of the best rates and products, fintechs in the lending space are likely to grow further and need more funds. This will spur the development of other startups with supporting technology in credit analytics, risk assessment and other areas.

The anticipated launch and initial public offerings (IPOs) of local neobanks also means there will be a lot of activity in the digital banking and payments space in Australia. Sectors that so far have shown slow activity and fundraising, particularly insurtech and wealthtech, also look poised to expand and catch up to what is happening in the rest of Asia Pacific and around the world.

The banking sector in Australia, and across APAC, is undoubtedly facing a major shake-up as a result of evolving consumer expectations, regulatory pushes and new market entrants.

If these investment figures are anything to go by, it’s clear the big four can no longer rest on their laurels, and must take the impending threat of the fintechs seriously.

Alex Trott is Banking Lead for Accenture in Australia and New Zealand

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

anzcomau:Bluenotes/Banking,anzcomau:Bluenotes/technology-innovation
Aus fintechs: riding the investment wave
Alex Trott
Banking Lead, Accenture Australia and New Zealand
2019-10-23
/content/dam/anzcomau/bluenotes/images/articles/2019/October/TrottFintechInvestment_banner.JPG

EDITOR'S PICKS

Top