By James Eyers
Two-thirds of fintech start-ups expect to increase employee numbers over the next year as the census showed more venture capital is being put into the sector.
Indeed, fintech received more funding than any other start-up category in 2018, with 70 per cent accessing private funding and two-thirds tapping commercial lines.
The amount of new capital pouring into the sector comes after one-third of new entrants on the AFR Young Rich List, published in The Australian Financial Review Magazine on Friday, came from fintech.
One in four fintechs are based in Melbourne, while 55 per cent are set up in Sydney, EY found. Fifty-four per cent want to expand overseas, up from 38 per cent a year ago, with the UK the most popular market. One third have more than 500 paying customers, but one quarter have none. The average fintech start-up has 10 employees.
Growth is being driven by high smartphone usage and Australian familiarity with digital banking and growth is expected to continue under government policies like open banking.
The census found one-third of fintechs are experiencing revenue growth of between 1 and 100 per cent, 27 per cent report growth of between 101 and 300 per cent, while 27 per cent say it’s above 300 per cent. Only 4 per cent say revenue is declining.
Lending down, adoption up
The census also reveals fewer fintechs are competing with banks in lending, 19 per cent of start-ups, down from 23 per cent a year ago.
The most popular area for fintechs is in payments, wallets and supply chain – the focus of last week’s Sibos conference – followed by wealth and investment, although this is down to 23 per cent of start-ups, from 30 per cent.
The biggest market is China, with 69 per cent adoption, and its fintech giants include the likes of Ant Financial, Tencent Holdings and JD.com.
The average Australian fintech has raised $4.5 million in capital over 2018 and there were 111 fundraisings, according to Techboard, with almost $1 billion hauled in over the year. Only 4 per cent said they failed to raise capital, with another 4 per cent saying they couldn’t raise what they wanted.
While it appears access to capital is not an issue, access to skills is becoming one.
Access to technology skills is also an issue for National Australia Bank, which is trying to hire 4000 new tech-savvy bankers as part of its transformation. It will provide an update on progress at its full-year profit result on Wednesday.
EY found 45 per cent of fintechs say attracting qualified or suitable talent is an internal challenge, with the top three talent shortages relating to roles in engineering/software (77 per cent) and design/user experience (36 per cent).
And in an ominous sign for the success of open banking, 46 per cent of fintechs say it’s a challenge to build relationships with incumbent banks – up from 40 per cent last year.
“There is still a way to go” on gender diversity, said FinTech Australia chair Alan Tsen. But half the speakers at Intersekt are women and the FinTech Australia board has an equal gender balance.
The industry group “remains committed to driving tangible actions and initiatives to help further increase female participation in the sector,” he said.
Better access to R&D, NPP
Prime Minister Scott Morrison put a lot of focus on fintech industry, while Treasurer. EY said the sector is facing skills shortages which will become more pronounced as artificial intelligence (AI) and machine learning “become increasingly integral to fintech offerings”.
EY said policy answers may include “tempting expat Australians back to the local industry, and recruiting for cultural fit and attitude (rather than skills), and upskilling in-house”.
Fintechs also want the R&D tax incentive to be made more accessible as the top initiative to support the industry’s growth, and three in four say more transparent access points to connect to the New Payments Platform will also drive growth.
“The overwhelming impression is of a rapidly maturing industry that, given the right government support, has huge potential both here in Australia – and in other jurisdictions,” said EY fintech adviser Meredith Angwin.
Fintech has “evolved markedly in a short space of time, from one that lacked definition and structure to one that is re-shaping the provision of financial services in Australia”, EY said.