Outlook and optimism

The challenges confronting any start-up in any industry are recognised as being profound – and it was a sentiment that echoed through our interviews with the industry leaders about the fintech segment. They talked of the wide range of potential challenges that can emerge on the journey to having true market impact and that they can’t all be overcome by the passion and focus of the team. However, what has emerged in the study is that there is deep self-belief and a bullish outlook prevailing in the industry.

Among post revenue fintechs, year on year revenue growth is substantial. Fintechs indicated median growth of 208% on their revenue in June 2016, driven by a cohort of 24% of fintechs that have experienced growth in excess of 700%. Higher growth rates are also experienced by fintechs under three years in existence, starting from their lower bases. Revenue growth stabilises somewhat once fintechs generate in excess of $100k revenue a month (127% growth rate on June 2016).

The assured outlook is further emphasised when we look at perceptions around the relative competitiveness of fintechs in Australia...

  • Internationally competitive...Two thirds (63%) of fintechs agreed that Australian fintechs will be able to compete internationally. Forty-five percent agreed that Australian fintech organisations will be able to ‘win’ against international peers.
  • Local competition...There are mixed views on the perceived quality of domestically based organisations (34% ‘agreed’ that there is a lack of quality fintechs in Australia; while 38% disagreed).

There is a positive outlook in the industry, founded on a belief that there is a competitive advantage for Australia fintechs. The three key elements of this potential competitive advantage are considered to be...

  • Regulatory environment...Australia’s sophisticated and trusted regulation of financial services provides a solid foundation for the development of solutions.
  • Advanced financial services industry...Australia’s advanced financial services and wealth management sector delivers both commercial experience and creates opportunities.
  • Access to Asia...Australia is a good starting point to develop their export solutions – particularly in the Asia Pacific region and proximity to capital sources from major Asian centres such as China.
Global reach

Each major fintech centre around the world has its own unique dynamics – creating both opportunities and boundaries for those domiciled in each location. These are defined and influenced by a wide range of factors that predominately revolve around the five ecosystem pillars. Some fintechs operate within these parameters, seeing themselves as more domestic or regionally oriented solutions, others have international aspirations (if not current presence).

The Australian landscape is acknowledged as unique, as many of the fintechs operating here need to do so within a heavily regulated environment. They also have the challenges relating to talent, capital, demand, policy and environment.

These ‘constraints’ are real and need to be recognised, but it was also interesting that several leading industry commentators felt the Australian fintechs could be more globally ambitious. This was not intended as a criticism per se, more a recognition of the calibre of the proposition and the potential to cross borders. It was felt that other international hubs, like the UK, are perhaps more geared to driving globally-scaled disruptive innovation. It’s a point that will no doubt provoke considerable discussion and debate and that is, in itself, important for the industry.

Regardless of the perception and the belief that some fintechs could be more globally assertive, there is significant pending focus across borders. More fintechs are intending to “Expand or expand further overseas” in the next 12 months; this has increased from 38% to 54% of fintechs this year. Among the fintechs that are looking to expand, the top three markets for expansion are the United Kingdom (49%), Singapore (40%) and the United States (38%).

An effective ecosystem

In the fintech sector in Australia, optimism abounds, however there is an undercurrent of realism in the community and amongst astute observers that tempers the enthusiasm. There is recognition that while Australian startups are progressive and agile, to truly succeed will require significantly more support. While there are many strengths, Australia doesn’t have the financial services scale, capital for investment or tech industry presence of some global peers. In that context, the need to create the most effective ecosystem to foster and support growth is all the more important.

As outlined in this research and supported by broader global EY analysis, the most effective ecosystem is one that has five pillars – talent, capital, demand, policy and environment. This research plays a pivotal role in helping to give life to the ecosystem as it not only profiles and defines the fintech start-ups, but provides insight into how they are performing and what is required across each of these dimensions.

The research has shown that there is a buoyant and vibrant industry in Australia. It has also affirmed that there is no doubt Australia is regarded as a tier one fintech nation and the potential for success is profound. However, what we have also seen through this study and others conducted by EY is that the gulf between the leading nations (and cities) and those left in their wake will become greater as fintech solutions are embraced in the mainstream. Time is tighter than may be assumed.