Fintech revenues up by 125%

According to the Ernst & Young (EY) FinTech Australia Census 2018, which involved an online survey of 151 fintechs across Australia, as well as a series of 12 qualitative interviews with fintech leaders, one in five fintechs are now profitable, compared to one in seven in 2017, with the research also finding that fintech revenue growth increased by 125 per cent year-on-year.

According to EY, the revenue increase corresponds with an overall maturing of the sector, with fintech companies aged three years or older now making up 43 per cent of the local industry, up from 31 per cent in 2017 and 20 per cent in 2016.

Reflecting on the figures, Ernst & Young Australia fintech advisor Meredith Angwin noted: “In the three years since our inaugural census, we have seen significant growth and a developing maturity within the Australian fintech ecosystem.

“The sector has evolved from one that was initially quite fragmented and primarily driven by the belief and passion of early founders, to one that is now increasingly becoming a first choice for many Australian businesses and consumers when selecting a financial service provider.”

Ms Angwin also said that the outlook among surveyed fintechs was “positive and bullish”, stating that 83 per cent of “post-revenue fintechs” said that they believe their company would grow in revenue over the next 12 months.

The research found that 54 per cent of fintechs surveyed said that they were planning to either expand or further expand overseas in the coming year, with the UK (52 per cent), US (38 per cent), Singapore (30 per cent), Hong Kong (30 per cent) and New Zealand (27 per cent) their top five target markets.

Ms Angwin added that an increase in growth ambitions among fintechs has coincided with an increase in the amount of capital and level of funding available.

The survey also revealed that most Australian fintechs have received private funding (70 per cent), with 63 per cent of respondents stating that they have also accessed commercial funding.

However, the research also found that while the overall outlook for the fintech sector was positive, respondents identified areas that they believe need to be improved.

According to the survey, 46 per cent of fintechs identified building partnerships with banks and other financial institutions as a “key external challenge”, up from 40 per cent in 2017.

“Although there has been considerable investment by major institutions in establishing the internal structures required to foster innovation and actively engage with fintechs in recent years, there is continued frustration within the fintech community about the extent this is actually being realised,” Ms Angwin said.

Ms Angwin claimed that such a trend was likely to continue off the back of scrutiny from the financial services royal commission.

“While fintechs generally expect the royal commission to be a ‘net positive’ for their sector in the medium term, seeing it as an opportunity to grab consumer mind share and differentiate their offerings in the market, they also believe it will slow the innovation focus for the next 12 to 18 months, as the wider financial services industry deals with the impact of the final report that will be delivered in early 2019,” Ms Angwin added.

FinTech Australia chair Alan Tsen said that the survey reflected the continued strength of the fintech industry.

“With the increase in the breadth of the industry and doubling of the median revenue, along with changes to the regulatory landscape, as an industry group we are moving forward with confidence,” the chair said.

“The role that we and our leading fintech trailblazers have played is these policy areas has been significant in shaping the financial services landscape we have today.”  

Mr Tsen also noted the increase in female participation in the fintech space, which grew from 24 per cent to 28 per cent.

“While this momentum is pleasing, and the number of notable female founders and co-founders of Australian fintechs is a testament of the attractiveness of start-up businesses, there is still a way to go,” Mr Tsen said.

“The Fintech Australia board, which is 50:50 gender balance, remains committed to driving tangible actions and initiatives to help further increase female participation in the sector.”

Other key findings from the EY FinTech Australia Census include:

• 67 per cent of fintechs surveyed said that they expect to increase their employee numbers in the next year
• 68 per cent of Australian fintechs are now post-revenue
• The average capital raised to date by Australian fintechs surveyed is $4.5 million, an increase from $4.1 million in 2017 and $3.9 million in 2016
• Australian fintech companies have an average of eight full-time and two part-time employees
• 45 per cent of fintechs agree that attracting qualified or suitable talent is an internal challenge, with the top three talent shortages relating to roles in engineering/software (77 per cent), design/user experience (36 per cent) and sales (33 per cent)
• 68 per cent agree that accelerators/incubators are important contributors to the success of the sector
• The top three types of fintech companies in Australia are payments, wallets and supply chain (24 per cent); wealth and investment (23 per cent); and data, analytics and/or big data (21 per cent)
• 80 per cent of fintech offerings involve B2B distribution and 16 per cent involve B2C-only models
• Australian fintechs see their biggest competitors as incumbents (37 per cent), followed by other local fintechs with a similar offering (27 per cent) and overseas fintechs (23 per cent)

The research was conducted as part of the Intersekt Conference held in Melbourne.

[Related: ASIC signs internal fintech agreements]