FROM XERO TO HERO: Here’s what’s happening in New Zealand’s $2bn fintech export sector

The first thing you need to know about New Zealand is that sheep are not its biggest export.

Or Hobbit movies. It’s dairy, worth around NZ$16 billion – nearly 30% of the nation’s export income.

The second thing you should know is that the tech sector is no 2 after dairy as a source of offshore revenue.

And the fast-growing fintech sector is unofficially Aotearoa’s 6th biggest export generating around NZ$2 billion

The value of fintech to the nation that gave Xero to the world has been revealed in a new report by Technology Investment Network (TIN).

TIN’s inaugural Fintech Insights Report delivers a deep dive into $2 billion into the sector, looking at a range of benchmarks including size and significance, key export markets, investment challenges and opportunities, along with a comprehensive directory of 84 early-stage Fintech companies based in New Zealand.

TIN managing director Greg Shanahan said Kiwi fintech has been one of the fastest growing market sectors in the TIN Report for more than a decade, with a five-year compound annual revenue growth rate is 32%.

In 2021, Fintech was the second largest market sector in the TIN Report in dollar value growth – generating almost a quarter of all growth – and third largest in terms of total revenue.

“The continuing growth of cloud-based financial management and payment systems, accelerated by the COVID pandemic, will only serve to strengthen the importance of the New Zealand Fintech sector as more tech companies and investors seek opportunities,” he said.

“In addition, the constant flow and high cost of implementing global financial regulations has provided a robust revenue stream for the sector, as well as the potential for further exciting innovation and entrepreneurship. As a result of its exceptional growth in the sector, it’s also been at the forefront of investment and M&A activity, particularly over the past two years.”

There were 19 fintech companies in the TIN200 rankings in 2021 and between them they generated a combined $1.8 billion in revenue, or 13.1% of the total TIN200 revenue. (The annual TIN Report benchmarks the country’s top 200 high-tech companies and their global impact.)

Shanahan said total offshore revenues for these companies was $1.5 billion and grew by 21% in the 2021 financial year.

TIN expects toal global revenues for NZ Fintech companies to top $2bn for the financial year to March 2022.

The fintech sector’s growth in 2021 was $358.7 million; a 25% increase on the previous year, with Wellington-based accounting software company Xero accounting for more than 46% of sector revenue.  

Unlike the TIN200, double digit growth was seen across all company revenue bands. Growth was highest for those companies with revenues between $100 – $199 million which increased by 122.6%.

Here are the key insights from the Fintech Insights Report:

• Growth in overseas revenue for TIN200 Fintech companies has increased by 26.2% and is significantly higher than the average TIN200 export growth rate of 14.4%.
• The largest export market was Australia, generating revenue of $586 million; an increase of $111 million or 23.4%.
• TIN200 Fintech companies increased their profitability (EBITDA) by 38.3% in 2021, with EBITDA representing 20.9% of revenue (the second highest of all TIN secondary sectors) and higher than the TIN200 average of 18.4%.
• Fintech companies grew their workforce by over 950 people in 2021; representing growth of 14.2% which is more than double the TIN200 average of 6.0%
• The six publicly-listed Fintech companies account for two thirds of the TIN200 Fintech company revenues, with Xero and Pushpay’s revenues of $848.8 million and $270.1 million together contributing 61.1%.
• The Fintech sector has the second highest average annual wage at over $100,000; 16.9% higher than the TIN200 average of $88,005.
• Total wages and salaries for Fintech companies account for 43.1% of revenue, higher than the TIN200 average of 36.1%.
• The Fintech sector increased its investment in research and development (R&D) by 36.9% to be 20.5% of revenue, aided by the Government’s Research and Development Tax Incentive

The 2022 Fintech Insights Report can be downloaded here.