Despite the fintech sector in Australia enjoying significant success and demonstrating growing maturing, some of its local success stories are increasingly tempted to focus their efforts offshore, EY has revealed.
Limited local capital, complex regulatory hurdles, and overseas direct investment strategies are some of the most significant factors driving Australian fintechs abroad, according to the eighth EY FinTech Australia Census. Fifty per cent of the Australian fintechs surveyed are now generating revenue overseas, up from 40 per cent in 2022.
The Census, a collaboration between Ernst & Young Australia (EY), and FinTech Australia, highlights that the region’s fintech sector is still vibrant, but is in need of a refreshed focus to continue to drive economic growth and remain a world leader.
In total, 88 per cent of fintech respondents reported that they are post-revenue, the highest proportion recorded since the Census’ inception, and 43 per cent are now turning a profit, compared with 30 per cent last year.
However, EY also found significantly fewer younger companies in the fintech ecosystem. Just three per cent are one year or younger, compared with 10 per cent in 2022, suggesting that start-ups may be facing significantly higher barriers to entry than they were 12 months ago.
These entry barriers are reflected in data around raising capital, which reveals a two-speed economy for fintech funding in Australia, with early-stage start-ups struggling more than mature companies.
In an uncertain macroeconomic environment, capital raising is also becoming more difficult across the sector, with the overall proportion of fintechs that said they had not met their capital raising expectations in the past 12 months surging to 41 per cent in this year’s Census – up from 29 per cent in 2022.
Fintechs rank raising equity capital as their top concern for the year ahead, with 61 per cent of Census participants citing it as their biggest challenge, well ahead of the uncertain economic climate which ranked second at 47 per cent.
With traditional funding down, fintechs increasingly rely on founder funding, with 57 per cent of founders dipping into their own funds to meet companies’ goals (up from 50 per cent in 2021 and 2022).
Malia Forner, EY Oceania fintech leader, said: “The Australian fintech sector has a strong track record of innovation, transformation and growth but, to continue this positive trajectory, it’s clear some immediate changes are required to make Australia a more attractive environment to start and grow a business.
“In the coming years, embedded finance and other fintech trends will be increasingly essential components of the digital commercial infrastructure required to drive the next growth stage in Australia’s financial and non-financial sectors. After a decade of investment in fintech success, we can’t afford to let this important growth sector fall behind other global financial hubs just as it is about to move to the next level.”
Innovative use cases
Throughout the next 12 months, fintechs are planning more investment in growth areas that will deliver strategic advantage, such as artificial intelligence and machine learning (85 per cent); cybersecurity (77 per cent); APIs (74 per cent); cloud systems (61 per cent); and mobile and internet applications (57 per cent).
Rehan D’Almeida, general manager at FinTech Australia, also commented: “We’ve hit a critical inflexion point where we are either going to see the ecosystem spring up or spiral down. The challenging investor landscape and a lack of new entrants highlight an urgent need for renewed government focus and support from visionary investors. It is crucial we keep our best and brightest fintechs focused on Australia to empower our nation’s continued economic vitality.
“We are seeing a range of innovative use cases, such as new fintech models enabling renters to access the housing market, changing how and when workers access their pay, managing and measuring diversity, equity and inclusion, improving money management and education, helping financial institutions deliver new digital consumer services, and even using banking data to track individual carbon footprints. This is what a mature, innovative and successful fintech sector looks like.”