Australia’s fintech sector has matured significantly over the past 12 months, with the majority (78%) of fintech now outperforming revenue, up from 70% in 2021, but founders expect significant headwinds in 2023 , according to the latest EY FinTech Australia Census report.
A collaboration between Ernst & Young, Australia (EY) and FinTech Australia, supported by Austrade and Visa, this year’s census revealed that while the sector is robust and continues to grow, challenges in raising capital and competing with big tech companies for talent is now on the minds of fintech founders.
Talent remains scarce, with two-thirds (66%) of fintechs indicating that raising employee salaries was a challenge. Meanwhile, almost a third (29%) of fintechs said they failed to meet their expectations for raising capital in 2022.
Overall, however, the sector remains solid. The number of paying customers continued to grow year-over-year among post-revenue fintechs, with 45% reporting more than 500 customers, up from 41% in 2021. Also, a positive sign that the sector is using its infrastructure agile digital to maintain margins in the face of rising costs, the percentage of post-profit fintechs has remained stable at high levels of 30%.
May Lam, FinTech Leader, EY Oceania and Head of Payments, EY Asia Pacific, said: “In today’s environment, FinTech has a vital role to play in unlocking innovation-driven value. local and global economies, and to help unbundle traditional value chains and create new business models. To meet the market challenges ahead, fintechs can further improve sector resilience by focusing on greater collaboration and partnerships both within and beyond the sector, reinvesting in the ecosystem, strengthening their ESG capabilities and opening up the talent pool by considering diverse and alternative. hiring strategies.
Rehan D’Almeida, Managing Director of FinTech Australia, said: “It is pleasing to see this year’s census showing that the local fintech sector and market remains very attractive and competitive. From the perspective of overseas investors and the global fintech landscape, Australia’s innovative and sophisticated financial and consumer markets and evolving regulatory environment make it an ideal place to develop innovative fintech companies with growth potential. global scale. But, with access to capital and talent tightening, collaboration across the fintech ecosystem and targeted government support will be needed to keep the sector on its growth trajectory.
“While we are encouraged that the representation of women in fintech remains consistent, with partial increases in representation in leadership and board positions, this census shows that we still have work ahead of us. to promote even greater diversity within the sector. In addition to our efforts here, we will also be focusing on ESG policy in fintech for the coming year, creating resources for our members. Not only is there a moral imperative for fintechs to actively and positively contribute to societal and environmental issues, but if they do not act, they could miss out on other trends in capital and consumer behavior related to this movement.
Malia Forner, Startup and Entrepreneurship Leader at EY Oceania, said: “Government and regulatory support remains paramount to the continued growth and development of the fintech industry. Census respondents believe the new federal government should focus on more support for founders and start-ups via incentives, supporting greater flow of capital for investment and greater support for tax incentives and grants for R&D and commercialization based in Australia. Incentives also offer governments the opportunity to align growth with other policy objectives such as sustainability, digital transformation or social equality. It is therefore both pleasing and essential to see a growing commitment to encourage investment, innovation, entrepreneurship and R&D, and the economic opportunities and jobs they generate.
“The stage is set for greater opportunities for innovation in alternative financing and incentives beyond venture capital or traditional forms of financing. This will create markets and consumers for new and established financial services companies with alternative and non-dilutive financial services solutions There is still capital to be invested, but it is deployed differently.
Key results from the 2022 EY FinTech Australia Census
Warning signs in the capital raising environment
The past 12 months has seen a consistent level of successful fintech capital, with 45% of respondents raising over $10 million (44% in 2021).
But the proportion of fintechs exceeding their capital-raising requirements has fallen from 21% in 2021 to 17% this year.
Payments, wallets and supply chain fintechs were the most successful, with 21% of this segment raising more than $100 million, compared to an industry average of 13%.
Outside of founder funding (54%), capital raising came largely from venture capitalists (33%), angel investors (32%) and strategic investors (29%).
However, interest in and use of alternative funding sources is also growing, with one in five fintechs (20%) citing government grants, including the R&D tax incentive, as a source of funding this year.
Attracting and retaining talent remains a top priority
Fintechs said the top three challenges or barriers to attracting and retaining talent are increasing employee salaries (66%), access to skilled domestic workers (58%) and competition from big technologies (52%).
In line with 2021, the rarest areas of talent in industry remain engineering/software (66%), data engineer/data scientist (40%), product management (29%) and sales (29%).
Fintechs are widely encouraging remote or hybrid working models. While the vast majority (87%) of fintechs have a physical office, only 8% support purely desktop work.
ESG and diversity considerations identified as areas for improvement
Only 30% of fintechs currently measure their business sustainability or carbon footprint, only 19% have a sustainability goal, and only 27% have implemented sustainable business practices.
Female representation remains stable but low at all levels: 34% in the sector (35% in 2021), 28% in leadership (26% in 2021), 28% in founders (24% in 2021) and 25% in advisory boards (23% in 2021).
Culturally and linguistically diverse (CALD) participation in the fintech workforce is growing, but remains low at 28% (from 25% in 2021).
R&D tax incentive remains a crucial lifeline for industry
79% of fintechs say the R&D tax incentive improves the sustainability or growth of their business and 72% say it encourages onshore operations.
Similar to the 2021 census, half (51%) of fintechs surveyed have either successfully applied for the R&D tax incentive or are in the process of applying, with 43% having been successful applicants in the last two years at the time of the closing of the census.
Yet 64% of fintechs are not confident, or only somewhat confident, that they understand the incentive eligibility criteria, indicating the need for more clarity and commitment.
Meanwhile, the Export Market Development Grant (EMDG) continues to have very limited reach in the sector. Only 8% of respondents say they have received the grant in the past, and 8% intend to apply for it in FY23.
Confidence falls on international expansion plans
The percentage of respondents who believe Australian fintechs are internationally competitive has fallen to 69% from 80%, bringing confidence in the sector back almost to 2019 levels.
Confidence that Australian fintechs can win against international fintechs has also fallen to 57%, down from 67% in 2021.
Despite this perception, the percentage of Australian fintechs generating revenue overseas remains stable (at 40%) and of these, 43% derive nearly half of their revenue from overseas sales.
For fintechs planning to expand overseas over the next three years, the US, UK and New Zealand remain the three most attractive markets. With Singapore in fourth place, Canada has now solidified its position in the list to be the fifth most popular destination for expansion, with fintechs starting to see greater opportunities there.
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About the EY FinTech Australia Census 2022
This year’s census is based on an online survey of 149 fintechs across Australia, as well as a series of qualitative interviews with fintech leaders and leaders of innovation functions within key organizations. financial services industry, conducted between July and September 2022. This is a collaboration between Ernst & Young, Australia (EY) and FinTech Australia, supported by Austrade and Visa.
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About FinTech Australia
FinTech Australia is a national association for the Australian FinTech startup community. Our vision is to make Australia the leading market for FinTech innovation and investment by working with both sides of government, industry and the Australian FinTech community to create an enabling environment and ecosystem of partners in Australia and overseas.
For more information, visit www.fintechaustralia.org.au.