Fintechs face opportunities and challenges in evolving macro-economic environment

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Australia’s fintech sector has come of age, with local fintechs continuing to challenge incumbents and disrupt the traditional finance industry, according to the recently released inaugural KPMG Australian Fintech Survey Report. However, the sector could face headwinds due to talent and funding constraints this year.

Over the course of 2021, KPMG Australia surveyed over 70 leading Australian headquartered fintech firms across a range of topics including revenue, funding, resources and customers.

The report found that while 95 percent of the fintechs surveyed planned to hire talent in Australia this year, only 31 percent were very or totally satisfied with their ability to recruit in the areas they need. With only one in five respondents saying they did not plan to raise funding in 2022, the changing capital environment could also impact fintechs.

Daniel Teper, Partner, Mergers & Acquisitions and Head of Fintech (Australia) KPMG Australia, commented: “Between 2019 and 2021 we saw AU$10.6 billion of fintech capital investment in the form of venture capital, private equity and M&A activity. As we look to the remainder of 2022, we are however starting to see some headwinds develop as the market dynamics shift, and whilst we believe this presents an opportunity for fintechs to flourish, the ability to raise capital, maintain and hire key talent, and quickly establish a sustainable business model will become more critical than ever.”

The report shows that technological advances are empowering nimble and more specialised fintech businesses with disruptive data-driven business models to compete on operational efficiency and cost reduction. The data collected shows several key trends emerging from the sector:

Embedded finance: To leverage existing customer databases and complement current offerings, non-financial businesses from an array of sectors are partnering with financial institutions to expand their products and services.

Open banking: The big four banks are mandated to provide data to customers when switching between providers. Australian neobank 86 400, which was recently acquired by NAB and merged with their digital bank, ubank, was one of the first Australian fintechs to leverage open banking product data to provide greater transparency.

Decentralised finance: While much of the development to date is speculative, there are numerous examples of protocols and projects successfully providing peer-to-peer financial services powered through blockchain technology, such as Perth-based Powerledger.

Payments: The risk of coronavirus transmission through cash payment drove continued adoption of electronic solutions, with the nationwide New Payments Platform (NPP) scheme and PayID service both seeing increased adoption.

Digital native banks: The Australian Banking Association reports that more than 80 percent of Australians now prefer to transact finances online. Digital native banks are well-positioned for strong future growth with competitive advantages around operational costs, financial data analytical capabilities and advanced digital user experiences.

Daniel Teper, Partner, Mergers & Acquisitions and Head of Fintech (Australia) KPMG Australia, commented: “The changing market environment will bring opportunities and potential risks to fintechs – and those that are able to move swiftly to adapt to the conditions will be the ones that thrive. The report’s findings evidence the Australian fintech sector’s ambitions, resilience and continued growth, with innovation and rising investment occurring across the full eco-system. We expect that as start-ups mature, incumbents adapt and business models evolve, successful Australian fintechs can and will continue to attract the interest of international investors and highly-skilled talent alike.”

About Prof Janek Ratnatunga 1129 Articles
Professor Janek Ratnatunga is CEO of the Institute of Certified Management Accountants. He has held appointments at the University of Melbourne, Monash University and the Australian National University in Australia; and the Universities of Washington, Richmond and Rhode Island in the USA. Prior to his academic career he worked with KPMG.
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