Australian fintech startups are having a good year. Investment has been increasing and the industry is becoming a mainstream player in the AUS$150 billion financial services sector. What’s ahead for the industry now?
Strong investment drives the change
Much of the strength in the industry has been driven by increased investment in Australian fintech startups. In 2015, the industry attracted investment worth $185 million. But last year, the figure had risen to a stunning $656 million. What’s interesting is how the rest of the world saw fintech startup investment decrease over that period, according to KPMG. Australia was able to beat the trends and attract investment.
While global fintech investment funding stood at $46.7 billion in 2015, the figure had dropped to $24.7 billion last year. Overall, private equity investment was down and fewer M&As. Warren Mead, KPMG’s global co-leader of fintech, said at the time investors are seeking “more proof that innovative solutions can be scaled and commercialised”.
However, the opposite can be said of Australian fintech performance. According to Ian Pollari, KPMG Australia’s global co-leader of fintech, the increase was largely driven by private equity transactions and M&A activity. “Similarly to what we have seen globally in 2016, Australia’s performance was driven by some large deals,” Pollari said.
The year witnessed the biggest fintech VC investment ever in Australia. Small business lender Prospa clinched AUS$25 million in an investment round led by AirTree Ventures. Other big deals also took place throughout the year. BigCommerce, an online retail facilitator, completed an AUS$41 million funding round last spring in Silicon Valley. Afterpay and Touchcorp merged to form a fintech giant worth AUS$350 million.
Consumer behaviours changing
Furthermore, customers are changing their habits – customers want reduced complexity, fast service and better information and these are often at the heart of fintech innovation. In Australia, the shift in customer behaviour is evident in banking and more specifically how people pay and withdraw money. Business Insider reported in February how the country’s largest bank had noticed huge reductions in the use of ATM and branch transactions. Commonwealth also noted that cardless cash and pay systems are surging.
Indeed, the bank’s mobile app facilitated around AUS$1.5 billion worth transactions per week in June 2014, while last December the transactions had risen to amount AUS$5.5 billion per week.
The final boost to Australian fintech startups came in the form of easing regulations. The Australian Securities and Investments Commission laid down a range of measures, including licensing exemptions. In addition, a new blockchain standards roadmap has been published, which could lead to further innovation in the sector.
Danielle Szetho, FinTech Australia’s CEO, applauded the roadmap and said it “has almost unlimited potential to transform financial services, particularly in regard to international transactions”.
The government’s decision to ensure big banks allow enhanced access to customer data for fintechs could also push innovation. The move means fintech are better able to develop and test products – allowing them to provide their customers with the kind of services they want to use. For investors, Australian fintech could be a lucrative opportunity in the coming months.