FinTech is rapidly scaling in Australia as well as globally. As per EY FinTech Australia Census 2019, the industry is getting profitable albeit consistent revenue growth, while the sector is being dominated by ‘buy now pay later’ – BNPL players.
EY noted that since the first edition of Census, the industry has gotten matured immensely. Consumer take-up is increasing in areas like peer-to-peer lending, B2B lending, and rise of BNPL.
FinTechs are collaborating with incumbent companies to improve the existing standard of service delivery. New avenues like RegTech are gathering momentum at the backdrop of increasing regulatory scrutiny driven by the ramifications of Haynes Royal Commission.
Royal Commission vs Fintech – Positive Angle
Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry largely believed to have a positive impact on the domestic FinTech industry.
Incumbent financial services businesses are embracing partnerships with FinTechs.
EY survey highlights the commentary by FinTech companies on Royal Commission; FinTechs acknowledged more business opportunities, demand for regtech, high level of consumer awareness, transparency in advice business etc.
Royal Commission is considered to have more positives than negatives for the FinTech. Banking and financial services companies are increasingly emphasising on the need for technology to deliver robust outcomes.
One of the many challenges the FinTech industry has been facing is talent. Companies are faced with numerous challenges, including accessing and sponsoring skilled migrants, shortage of skilled workforce domestically.
FinTech companies also facing hard time developing the right product for the market that may have the potential to satisfy the demand and expectations of the end users.
Although the industry is growing rapidly and becoming mature, the companies are increasingly spending resources for customer acquisition, market entry strategies and product innovation.
Fintech Space Amidst COVID-19 Scenario
Capital is perhaps the most critical element in growth and the success of businesses, and it applies to Australian FinTech businesses as well. For budding companies, the stage funding and effective utilisation of capital becomes imperative, in fact – the results achieved by the past capital allocation decisions are likely to impact the future capital raising plans of the FinTech start-ups or even listed unicorns.
At the same time, it is important to note that the evolving global economic environment impacts the investor sentiments, which may in turn affect the capital raising practices of FinTech companies or any other start-ups.
Trade wars, de-globalisation, and even exogenous shocks like COVID-19 – are well capable of turning the investor sentiments – and lacklustre, capital intensive or unproven business models may suffer liquidity crunch.
Consider the fate of OneWeb, which has recently filed for bankruptcy, the consequences may prove to be damaging when investors are not willing to invest further.
Communications company, OneWeb sought to deliver high-speed internet to masses. It had ambitious plans to provide 375Gbps above the 60th parallel North.
It was looking to send 648 satellites into the space to provide communications, but the plans are in jeopardy now as securing financing is becoming difficult for the business at the backdrop of COVID-19.
Meanwhile, touchless payment systems are gathering momentum as social distancing ethics are embedding into the daily lives of humans across the globe, which adds further tailwinds to FinTech companies engage in payments.
Fintech space is increasingly driven by growing trend of online learning, e-commerce, digitisation and social distancing amidst virus imposed restrictions worldwide.
Although OpenBanking is delayed but not evicted, the new date for the major banks to initiate sharing various types of data is 1 July 2020, which may see further extension given the implications of COVID-19.
It is important to note that consumer awareness would play a critical role in the up-take of OpenBanking regime among the Australian consumers, and FinTech businesses looking to leverage OpenBanking should emphasise on consumer awareness.
Nonetheless, OpenBanking is pegged to be a disruptor in the banking and financial services industry. It would enable consumers to share information with other service providers to get the best available product or services.
Government and Regulations
Federal Government empowers technological advancements, including the financial sector. As far as policy initiatives are concerned, the Government has R&D tax incentives to promote innovation in the country by businesses.
The Government had also launched the Export Market Development Grants, which empowers the domestic exporters. The scheme encourages SMEs to tap export markets and reimburses a notified level of expenses incurred on export promotion.
FinTech business creates opportunities for regulators as well. Regulatory technology businesses are likely to enhance the processes undertaken by the financial regulators in any country.
Regulatory oversight through extensive data leverage and sophisticated analytical tools would enable the regulators to be ahead of the curve while tracing risks and remediation of those same risks.
Last week, Australian FinTech business, Airwallex secured funding of USD 160 million, which was the largest funding to date. Investors include DST Global, Hillhouse Capital, Horizons Ventures, Sequoia Capital, Tencent, Salesforce Ventures and ANZi Ventures.
Funds would be used to expand the business in the US, Europe and new markets. It intends to develop new products to include payment acceptance solutions, and look for acquisition opportunities, especially in the payments space.
Now, the company has raised over USD 360 million since inception in 2015. Last time, the business raised funds through Series C funding in March 2019. It has been developing the product base and partnering with incumbent companies, including the integration with Xero.
Innovative technology supports cost cutting initiatives and productivity gains, which are quite crucial for businesses to ensure their survival amidst tough pandemic scenario, as we sail through recession. Moreover, technology is likely to be in high demand over the near to medium term.
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