Fintechs are facing multiple headwinds, including talent shortages and a tight capital raising market. But they may be well-positioned to weather the storm, new data finds.
Key Takeaways
- 66% of fintechs say rising employee salaries are a challenge, and 29% failed to meet their capital raising expectations in 2022
- 78% of fintechs say they are now post-revenue, and the percentage of post-profit fintechs remained steady at elevated levels of 30%
- EY experts say the fintech industry can improve its resilience by focusing on greater collaboration and partnerships within and beyond the sector, but that government and regulatory support is also needed
Australia’s fintech industry is set to face a challenging 2023, but the sector is apparently well-positioned to weather the storm, according to the 2022 EY and FinTech Australia Census that surveyed 149 fintechs across the country.
Talent shortages and raising capital are the two major headwinds facing the industry in 2023, with two-thirds of respondents saying rising employee salaries are a challenge, and nearly one-third (29%) failing to meet their capital raising expectations in 2022 (payments, wallets and supply chain fintenchs were most successful, with 21% of this segment raising more than $100 million).
“There has definitely been a strong bull run of interest in fintech this past decade … We may be seeing some normalisation of that.”
– Tom Humphrey – Principal at Blackbird
What’s more, the percentage of respondents who believe Australian fintechs are internationally competitive fell from 80% to 69%, which puts the sector’s confidence back to near-2019 levels.
But the challenges facing the fintech industry are largely in line with the wider tech industry, Principal at Blackbird, Tom Humphrey says.
“Businesses across all sectors are seeing an overall pullback in capital markets and the competition for talent with big tech. Fintech is not unique in that regard,” Humphrey says.
“There has definitely been a strong bull run of interest in fintech this past decade, similar to the surges we’ve seen for Web 3 and artificial intelligence, spurred in part by the enormous success of companies like Stripe, Afterpay, and Adyen. We may be seeing some normalisation of that.”
Looking forward, Humphrey says there are still opportunities for fintechs – particularly for businesses operating at the infrastructure layer (payments, data integration and banking as a service platforms). Fintechs operating in alternative assets, like Alts and Coinjar, are also poised to do well.
“When it comes to fintech, we love businesses that are able to ‘clip the ticket’ through usage-based pricing, that are global from day 1, and that can demonstrate clear customer value,” he says.
“Afterpay is a great homegrown example of this – their evidence that “businesses offering Afterpay have seen an average 22% increase in cart conversion and 40% increase in average order value” is an incredibly clean customer value proposition.”
Of all the fintech players in the industry, buy now pay later companies have certainly been hit the hardest. Zip has seen its share price fall around 90% in the last 12 months to $0.62. At its peak, Zip was valued at more than $6 billion. Today, it’s valued at around $430 million. Block (formerly Square), which acquired Afterpay in 2021 for $39 billion, has seen its share price fall nearly 45% in the last 12 months. Humm’s share price is also down around 46% in the same time period.
But Zip’s co-founder and chief operating officer, Peter Gray, says buy now pay later is here to stay.
“BNPL has quickly become the budgeting tool of choice for savvy everyday consumers, particularly in a rising cost environment,” he says. “We expect to continue to grow, especially as we branch into different verticals including travel and everyday spend categories.”
Despite the challenging landscape, EY and FinTech Australia data reveals some positive indicators that the fintech industry will remain strong in the year ahead. The majority of fintechs (78%) are now post-revenue, and the percentage of post-profit fintechs remained steady at elevated levels of 30%.
General manager of FinTech Australia, Rehan D’Almeida, says the market is still highly attractive and competitive.
“From an overseas investor and global fintech landscape perspective, Australia’s innovative and sophisticated financial and consumer markets and evolving regulatory environment make it a great place to develop innovative fintech businesses with the potential for global scale,” he says.
Gray also says consumers are “as hungry as ever” for better products and experiences, and that fintechs will continue to innovate and leverage technology to beat incumbents.
“Technology provides fintechs with the opportunity to adapt to regulation and be more nimble than big slow incumbents,” Gray says.
“With the recent increase in cyber security incidents, people are becoming increasingly concerned about the risks of using credit cards online and are actively looking for alternatives offered by fintechs.”
EY experts say the fintech industry can improve its resilience by focusing on greater collaboration and partnerships within and beyond the sector, but that government and regulatory support is also needed.
“Census respondents believe the new Federal Government should focus on greater founder and start-up support via incentives, supporting greater capital flow for investment, and greater support for tax incentives and grants for Australian based R&D and commercialisation,” EY Oceania startup and entrepreneurship leader, Malia Forner says.
“Incentives also provide governments with the opportunity to align growth with other policy goals such as sustainability, digital transformation or social equality. So, it’s both pleasing and critical to see growing commitment to incentivise investment, innovation, entrepreneurship, and R&D, and the economic opportunities and jobs it generates.”