May 10, 2021

Share The Australian fintech sector continued its meteoric run in 2020, notching up $US1.4 billion worth of investments and expanding to more than 730 local players to cement the country as one of the fastest-growing fintech sectors in the world. A very strong fourth quarter of 2020 saw the $US577 million acquisition of B2B payments company eNett by US-based WEX, a $US209 million funding round by neobank Judo Bank, and a $US84 million raise by solar power financing company Brighte. The burgeoning sector shows little signs of slowing down with AfterPay and Airwallex raising $1.5 billion and $131 million respectively in the first quarter of 2021 as major homegrown players continue to make a strong push into overseas markets. Accenture Managing Director Andrew Charlton says the pandemic-driven boost for fintechs is here to stay. Peter Braig We also saw the use of fintech apps increase by as much as 61 per cent, as the way we manage our finances shifted dramatically in light of the coronavirus pandemic. Additionally, Juniper Research forecasts online and mobile banking users will exceed 3.6 billion by 2024, a 54 per cent increase from 2020. With the global pandemic making digitisation a priority for businesses of every shape and size, experts such as Accenture’s Managing Director Andrew Charlton believe this is just the beginning of the tidal wave of changes in this space, forecasting “exponential growth” in the years ahead for the local fintech sector. Advertisement “COVID has been an accelerator but I don’t see it as a temporary one like it has been for companies in other sectors such as Netflix, Coles and Woolworths, who are now coming back down from a one-off behavioural response to the pandemic,” he says. “For the Australian fintech sector, it sped up the existing tailwinds that were already there with the massive growth of digital wallets, cryptocurrency and different payment nodes driving how we pay, what we pay with and who pays.” Charlton points to emerging markets such as China as the yardstick, where there is more than 90 per cent penetration of digital wallets and widespread adoption of “super apps” that combine investing, borrowing, paying, running a business and managing household finances. “That’s the direction of travel,” Charlton says. “We’ve still got a long way to go.” KPMG’s fintech lead Daniel Teper concurs that despite the impacts of COVID on the economy, the fintech market continues to mature, providing more confidence around the ever-increasing opportunities in the sector, which in turn has driven entrepreneurs and founders to innovate in the space and investors to support these businesses. “Going forward, we expect to see continued growth in the top-line revenue as start-ups progress to scale-ups, and bigger players look to scale and expand.” Advertisement Local fintechs look to become global players Digital debt collection agency Indebted raised $10 million earlier this year to fund the acquisition of US-based competitor Delta Outsource in a bid to crack the US market. Founder and CEO Josh Foreman says the main benefit of being an Australian fintech is having a global mindset “drilled into you” from the outset. “While the Australian financial services market is very well-established and large in its own right, we are still only a country of 25 million people. InDebted has had a global focus from day one, and we are starting to see that play out now as we rapidly expand into many new markets around the world.” Indebted is an automated system that discreetly contacts people in arrears through digital channels such as WhatsApp or email with a one-click self-service portal where debtors can resolve their outstanding payments. Advertisement Indebted’s unique use of technology means more than 90 per cent of all money it recovers for its clients does not involve any human interaction, enabling the company to maintain a ratio of one customer service headcount to every 25,000 accounts. The result is gross profit margins far higher than experienced by traditional debt collection firms. The five-year-old company has processed more than $1 billion of debt and Foreman says it plans to continue to grow the business at more than 100 per cent year over year as it expands its presence in the US and launches into new markets in the UK, Europe and south-east Asia. Fintechs, incumbents accelerate collaboration The fintech sector is built on Australia’s $10 trillion financial services sector, one of the largest in the Asia-Pacific, which contributes 9.4 per cent to Australia’s GVA and employs more than 450,000 people. This has led to healthy competition between incumbents and fintechs but also, in recent times, increasing collaboration and direct investment as the big banks look to adapt to the surge in customer adoption of digital and self-service solutions. The creation of Westpac’s Reinventure in 2014 triggered a wave of interest in fintechs across the major banks in Australia that is still swelling. Advertisement National Australia Bank and ANZ Bank followed by creating NAB Ventures and ANZi, while Commonwealth Bank followed in early 2020 with x15 Ventures, a different model under which it controls the start-ups through majority investments. Thomas Paule of Findex says fintechs have benefited from increased agility within banks. Westpac’s Reinventure, which includes investments in buy now, pay later Zip Co and lending finance digital platform SocietyOne, recently raised a fourth venture capital fund targeting start-ups working on decentralised financial services infrastructure. It’s no secret that there is often a mismatch in culture and expectations when small nimble fintechs collaborate with large incumbent financial institutions, who are often grappling with legacy technology stacks and stringent operating models. However, Findex’s Chief Digital Technology and Marketing Officer Thomas Paule sees an important shift in the relationship since COVID, noting banks are taking bolder bets to counter roadblocks. “The pre-COVID frustration between the banks and fintechs was rooted in how to meaningfully collaborate to get results,” Paule says. Advertisement “COVID forced us to change our behaviours, and fast, if not immediately. Fintechs have largely been the key beneficiary of this increased agility within banks.” Emerging asset class The number of new cryptocurrency and blockchain companies exploded in 2020 by 153 per cent, making it the fastest-growing fintech sector in Australia. The growth in blockchain and cryptocurrency activity speaks to the rise of institutional investors in the virtual asset space driving demand for products and services. Co-founder of blockchain-based travel booking platform TravelbyBit, Caleb Yeoh, says the staggering increase in the number of new cryptocurrency and blockchain fintechs is also partly due to the ease in which start-ups can raise capital and investment in an unregulated space through decentralised finance. “It’s only logical start-ups turn to fundraising in the blockchain space. In the crypto world, entrepreneurs get access to capital from all over the world and with the boom in decentralised finance this has opened doors for start-ups to opportunities that otherwise wouldn’t exist in traditional finance.” Advertisement TravelbyBit enables merchants to accept payments in digital currencies such as bitcoin and provides booking services for digital currency travellers. TravelbyBit got its start from a $100,000 Queensland state government grant in 2017 that Yeoh says he turned into more than $500,000 in working capital just by holding bitcoin. The company rolled out its network of cryptocurrency payment terminals to mainstream businesses such as IGA after a successful implementation at Brisbane Airport earlier that year. With the help of a $3.5 million investment from global cryptocurrency exchange giant Binance in 2018, TravelbyBit launched their online booking platform, where users can book every part of their travel using cryptocurrency. In 2020, the company merged with UK-based travel company Travala.com to form the world’s largest blockchain-based online travel agency. Yeoh says while the pandemic hit the business hard initially, the price rally in crypto that followed created an influx of new users desperately wanting to get out and travel again. “The merger proved to be extremely successful, as while TravelbyBit’s revenue was mostly driven from international flights, which ground to a halt, Travala.com’s business centred around accommodation bookings which, during COVID, experienced growth in the domestic travel and longer-term holiday home rentals.” Advertisement Yeoh says the demand for luxury travel by newly made cryptocurrency millionaires in particular is “booming”, prompting the company to launch a dedicated luxury concierge service to keep up with demand. The company is now looking to capitalise on the influx of blockchain businesses and start-ups that have raised capital through digital assets, which Yeoh expects will translate to a growth of blockchain conferences and business travel. The Australian Securities Exchange is looking to bring cryptocurrency investment to the mainstream with an exchange-traded fund reportedly in the works , further bolstering the long-term prospects of local cryptocurrency and blockchain businesses such as TravelbyBit. “The fortunes of our business is tied closely to cryptocurrency prices and the growth of adoption of blockchain tech,” Yeoh says. “I believe we are only at the beginning of this movement.” Krishan is a multi-award-winning Australian technology journalist. Connect with Krishan on Twitter . Save