The rapid evolution of Australia’s fintech sector

The local fintech scene has really come a long way in just a few years – evolving from a sector that lacked definition and structure to one that is now helping to re-shape the provision of financial services in Australia.

The 2018 EY FinTech Australia Census shows the sector is now well-established and coming into its own as a viable alternative within the broader financial services landscape, with many businesses and consumers now looking to fintech as a genuine first choice when it comes to selecting their financial services providers.

EY FinTech Australia Census 2018

In the words of one of the successful Australian fintech founders interviewed as part of this year’s Census, “Three years ago when I founded my business, there was low confidence that the Australian fintech industry would be successful. Now it feels different, like we are on the verge of something big.”

It’s a sentiment that was echoed by most of the founders we spoke to and one that is also reflected in the survey results which show much greater confidence among sector participants than in previous years, as what was once in the fringe of the financial services industry becomes more mainstream.

This bullish outlook is backed by an impressive industry growth story, with one in five local fintech companies now profitable – compared to only one in seven last year – and median revenue growth up an impressive 2.25 times from last year.

The overall scale of the sector is impressive, with recent estimates put the number of fintech companies operating in Australia as now approaching 700 and we are also seeing an overall maturing of the sector, with fintech companies aged three years or older now making up 43% of the local industry (up from 31% in 2017 and just 20% in 2016).

Importantly, this year’s Census also shows much greater diversification within the sector. Payments, wallets and supply chain (24%), wealth and investment (23%) and data, analytics and/or big data (21%) make up the top three types of fintech companies currently operating in Australia. But other areas such as insurtech are also growing rapidly. 

EY FinTech Australia Census 2018

Australian fintechs are also bullish about their overseas expansion prospects, with more than half (54%) of those surveyed saying they were planning to either expand or further expand overseas in the coming year. And, despite the prospect of overseas competitors entering the market, Australian fintechs believe they have a home-ground advantage and are positive about the local industry’s outlook.

Check out Actuaries Digital series: “Fast five with Fintechs” to meet the actuaries behind Australia’s fintech’s.

For the Australian industry to continue to grow and realise its full potential though – both at home and abroad – will require a continued joint effort from all players in the ecosystem, including government and incumbent financial services providers, as well as the fintechs themselves.

Although there has been considerable investment by major institutions in establishing the internal structures required to foster innovation and actively engage with fintechs in recent years, there is continued frustration within the fintech community about the extent this is actually being realised. In fact, 46% of fintechs surveyed this year identified building partnerships with banks and other financial institutions as a key external challenge – up from 40% in 2017.

In the short term at least, this is likely to continue as much of the focus of the incumbent players is taken up by the Financial Services Royal Commission.

Fintechs generally expect the Royal Commission to be a ‘nett positive’ for their sector in the medium term – seeing it as an opportunity to grab consumer mindshare and differentiate their offerings in the market. 

But they also believe it will likely slow the innovation focus for the next 12-18 months, as the wider financial services industry deals with the impact of the final report that will be delivered in early 2019.

Sourcing the right calibre of talent is another key issue for local fintechs, with 45% agreeing that attracting qualified or suitable talent is an internal challenge – particularly within the engineering/software (77%), design/user experience (36%) and sales (33%) areas.EY FinTech Australia Census 2018

Despite these challenges though, the Australian fintech industry, and the demand for its services, continues to grow and mature. The increase in the breadth of the sector, the doubling of the median revenue, and positive policy changes in areas such as equity crowd funding, opening banking and comprehensive credit reporting, all point to an industry that is moving forward with confidence.

The views expressed in this article are the views of the author, not Ernst & Young. The article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.

Meredith Angwin is a Financial Services Partner and fintech advisor at Ernst & Young Australia.

CPD: Actuaries Institute Members can claim two CPD points for every hour of reading articles on Actuaries Digital.

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