EY FINTECH CENSUS: The Hayne royal commission was a blessing, but now money is tight

• The 2019 EY FinTech Australia Census reveals the Hayne Financial Services Royal Commission was good for the local fintech sector
• 42% of fintechs say relationships with existing financial institutions improved over the past year
• 77% of fintechs are now post-revenue and median revenue has grown 80% from 2018
• Nearly half report a stronger uptake of fintech solutions by consumers

Australia’s fintechs have better relationships with major financial services institutions as a result of the Hayne Royal Commission the 2019 EY FinTech Australia Census reveals.

The impending launch of Open Banking and the Consumer Data Rights (CDR) legislation is also being viewed as a boon for the sector, while 49% of fintechs reported they’d seen a stronger uptake of their solutions by consumers, and 26% said incumbent financial institutions were now more willing to partner with them.

The EY census surveyed 120 fintechs online, alongside qualitative interviews with fintech leaders. It spoke with leaders of innovation or digital functions within major Australian financial services organisations for the first time for the 2019 report.

EY Australia Fintech Advisor Meredith Angwin said the latest data shows nearly a quarter (23%) of local fintech companies are now running at a profit – up from 19% in 2018

“Median revenue has grown 80% from this time last year,” she said.

“A key theme we are seeing this year is an increase in the degree of collaboration between fintechs and traditional financial services players. While still highly competitive, it’s fair to say that there are much more mature, streamlined and effective relationships emerging.”

Angwin said the industry dynamic had change dramatically in the four years they’ve conducted the census.

“There is increased recognition of the need for partnerships and collaboration for the benefit of consumers and the financial services sector as a whole,” she said.

“So, it’s positive that two-fifths (42%) of fintechs reported that their relationships with incumbents had improved over the past 12 months, citing more access and engagement, stronger collaboration, growth of their business and an openness to new ideas and innovation as the key reasons for the improvement.”

Talent fears subside

This year’s census data sees a continuing drop in the number of fintech founders who believe there is a lack of experienced startup and fintech talent in Australia, down to 43% in 2019, from 58% in 2016.

Diversity is also improving, with a gradual but steady increase in the proportion of female employees, up from 22% in 2016 to 32% in 2019.

That shift was welcomed by FinTech Australia GM Rebecca Schot-Guppy, who said the positive growth in female representation was “incredibly heartening”.

“While talent is always a key concern for fintech, we’re also pleased to see that it’s becoming less of a burden for emerging companies,” she said.

Funding slows

One cloud on the horizon for the sector is the irony of tightening  access to capital.

Local fintech capital raisings were down 5% – from 43% in 2018 to 38% in 2019 – and, of those that have attempted to raise capital, only 45% raised over $1 million in their latest round, compared to 63% in 2018.

This is likely also leading to the recent increase in the proportion of founder-funding, which is up significantly, from 60% in the 2018 Census to 75% in the 2019 Census.

Angwin said that’s a marked difference to last year.

“Overall, we are seeing less success in capital raisings and lower levels of funds being raised,” she said.

“At the same time, the funding that is available is becoming more conservative and skewing towards the more established and experienced fintechs.”

She said that nonetheless, the outlook for the sector remains positive with 81% of fintechs expecting to grow their revenue within the next year, 64% expecting to increase their number of employees, and 51% planning to expand overseas.

The full 2019 EY FinTech Australia Census report is available here.

Here are the other key highlights in the 2019 EY FinTech Australia Census

• The top three types of fintech companies in Australia are now: wealth and investment (30%); lending (18%); and data, analytics and/or big data (18%).
• Pre-revenue fintechs are showing better management of cash reserves, with the average monthly burn rate reduced to $113,000 (down from $121,000 in 2018).
• 25% of fintechs cited government incentives and tax regulations as key external challenges facing the industry.
• Three-quarters of Australian fintechs (76%) indicate that accessing R&D tax helps keep aspects of their business onshore.
• The top three internal business challenges listed by Australian fintechs are product development (45%), product and market fit (44%) and attracting suitable or qualified talent (41%).
• 66% of fintech respondents agree accelerators and incubators are important contributors to the success of the local sector.
• 63% of survey respondents believe Australian fintech companies will be able to compete internationally.
• The top five overseas markets identified for potential expansion are the UK (44%, down from 52% in the 2018 Census), the US (42%, up from 38%), New Zealand (38%, up from 27%), Singapore (31%, up from 30%) and Canada (24%, up from 13%).
• 40% of fintechs anticipate their organisations will become an accredited provider of CDR in the initial phase. A slightly smaller proportion (37%) state they are unsure, and 23% do not expect to become accredited.
• Among the fintechs who anticipate becoming CDR accredited, the greatest motivators to connect are greater transparency in the process of obtaining consumer data (71%) and more direct/faster data exchange (69%).