Steady growth, but tighter funding: Insights from EY’s latest Australian fintech survey
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Consulting firm EY has taken its latest gauge of the Australian fintech landscape, yesterday releasing results from its 2019 FinTech Australia Census.
The survey showed that Australian fintechs continue to integrate with the domestic financial system and remain optimistic about growth, although capital is no longer flowing as freely to the sector.
And there were some notable changes from the prior year, with various trends — from industry regulation to company revenue metrics — reflective of the local sector’s ongoing maturity.
Among the notable trends, more than three quarters of companies surveyed (77 per cent) reported they had moved on from the pre-revenue stage and were now income-generating, up from 68 per cent last year.
Of those, almost a quarter are running at a profit (23 per cent), continuing a steady uptrend from 14 per cent when the survey was first run in 2016.
Speaking with Stockhead, EY fintech advisor Meredith Goodwin said that revenue story has also been accompanied by a change in the investment environment. In particular, capital flows are moving towards more mature business models.
“What we’re seeing is that if you’re in the startup realm, there’s more self-funding at that level because there’s been a tightening at the seed-stage / angel investment level,” Goodwin said.
“But as you move into the more experienced fintechs, money’s moving into that space across the broader market. In short, investment flows are shifting towards the scale-ups, rather than the startups.”
The number of respondents who self-funded their early-stage operations rose notably to 75 per cent in 2019, up from 60 per cent in the year prior.
But even for the more experienced players, this year’s survey indicated a broader tightening of the purse strings among fintech investors.
For starters, only 38 per cent of companies had their expectations met when raising capital. The report also cited a sharp decline in the number of mature fintechs who raised at least $1m in their latest funding round — to 57 per cent, down from 80 per cent in 2018.
“This trend is not just isolated to Australia, with a recent global downturn in investment due to the US-China trade war,” the report said.
However, two sectors — payments platforms and neobanks — had proven to be more immune to the capital outflows.
Another key point highlighted by EY in this year’s survey was an improvement in dialogue between fintech entrants and incumbent players in the financial services sector.
More that two in five respondents said their business relationship with established competitors had improved, with an increased willingness to collaborate and openness to new ideas cited as two primary reasons for the change.
And perhaps not surprisingly, the vast majority of respondents (85 per cent) welcomed incoming changes to regulation that are partially aimed at levelling the financial services playing field, including Open Banking laws due to come into effect in February.
Now in its fourth year, the Census compiles data from a survey of 120 local fintechs, together with interviews with industry leaders. This year marked the first time that EY sought commentary from senior management in exisiting financial services companies.