January 28, 2016
While exploring the hottest FinTech hubs around the world we couldn’t pass by Australia as its FinTech industry is seeing breathtaking growth and provides outstanding opportunities.
According to WSJ, Australia in 2014 was on the third place by the investment fund assets size with $1.6 trillion ready to fuel the ecosystem. There are other interesting details about Australian FinTech proving the forward-thinking culture of the financial industry. For example, according to Westpac, contactless payments via mobile were estimated at AUD $3 billion in Australia last year. Mobile-based contactless payments have accounted for 60% of all debit card transactions in the past in 2014.
Moreover, 14% of more than a billion dollars raised by FinTech around the world in December 2015 were raised by Australian FinTech startups. Interestingly, they represent just 5% of all startups that raised funds at the time.
The Australian government also takes attempt to attract capital and investments to the country by allowing foreigners to stay in the country permanently if they invest at least AUD $500,000 from a total AUD $5 million investment in Australian companies into venture-capital or private-equity funds supporting growth startups in the country.
US FinTech startups and investors are also keeping an eye on the Australian market. During mid-2015, Silicon Valley-based trading platform Robinhood chose Australia as the first international market to launch in.
For a better understanding of Australia’s FinTech, the LTP team had the pleasure talking to Tom Rundle, Global Head of Payments at OFX, a global provider of online international payment services for personal and business customers, formerly known as the OzForex. As Australia’s FinTech is heating up, now is the best time for VCs to jump in a cut a piece of pie for themselves. In order to make the right choice, it’s important to know where the right sector is.
As Mr. Rundle explained, the first big segment to get interest has been nonbank lending. SocietyOne was the first personal lending site to get traction and there are now many others targeting that space often with slight differences in proposition and credit model. Prospa Advance emerged over the last 18 months as the fastest scaling lender to small and medium-sized corporate customers. While this trend seems to be mirroring trends in the UK and the US, for FinTech, it makes sense in Australia as the nation has faced a relatively high-interest rate environment for generations and the retail banks in Australia tend to charge higher margins for mortgages than elsewhere setting a benchmark in Australian markets allowing relatively high margins in lending.
However, it doesn’t mean that lending is the only segment to magnet funds. While alternative lending businesses continue to proliferate, many new entrants are looking at payments and specifically payment services for marketplace operators and online merchants, Mr. Rundle added.
PromisePay has built great momentum in their first year and are already preparing to launch in the US. OFX is preparing to support merchants selling on international marketplaces soon.
The other trend that Mr. Rundle believes is worth looking out for is the big end of town and how they work with FinTech.
Prime Minister Malcolm Turnbull is pitching a policy supporting tech innovation and while the initiatives which have been announced are far behind competing hubs such as the UK, the government is saying they’ve just started making Australia a more attractive place for FinTech businesses and investors.
The big banks are racing each other to announce partnerships with FinTech to show how innovative they are and established payment technology firms are preparing new payment platform offerings alongside the national initiative to build the NPP (New Payments Platform).
Further, we have touched upon an interesting topic of the uniqueness of Australia’s FinTech ecosystem overall. Mr. Rundle provided a very interesting overview of the combination of three factors defining it.
First, the dominance of only four banks (and two supermarket/grocery store chains) can make it hard for startups to penetrate and get scale domestically while accepted banking and payments processes can quickly get ubiquitous coverage (BPay, contactless payment, etc.).
The second factor is the appetite amongst the general population to try new financial technology. Australia was the fastest nation to take up contactless card payments on a large scale along with heavy usage of smartphones. Moreover, Australia has made the most progress amongst developed nations with regard to reducing the usage of checks. Australia has become known in many multinational businesses as a good market to test out and refine new technology ideas.
And last, Superannuation (Australia’s national retirement fund scheme) has been massively successful and now, Australia’s domestic investment scene is dominated (in terms of $ under management) by superannuation funds. These funds can tend to drive strategies towards reliable long-term returns versus markets where there is more appetite to seek massive growth outperformance; so while there are substantial amounts of funds available for domestic investment, relatively little is directed (yet) towards the high-risk, fast-growth phases of early-mid startups.
Overall, the balance is a promising picture for the future of Australian FinTech but it is important for big players to understand how to work with these dynamics for addressing their market, dealing with competition and funding, Mr. Rundle concluded.
The present is clear with professionals all over the world actively analyzing and sharing knowledge. But what about the future? Investments are not a short-term commitment as VCs are looking to harvest the results several years along the road. Mr. Rundle shared his thoughts on the future of the Australia’s FinTech and the international FinTech industry.
It will be very interesting to watch! One area that Australia seems to be at the front of the FinTech curve are media pundits calling the FinTech bubble. Media coverage of overpriced FinTech firms delaying IPOs, and Square’s IPO being a ‘down round’ seems to be more prominent here than in US or UK.
On the other hand, governments, big banks and associations are putting more human and financial capital into Australian FinTech than ever before. The number of new FinTech startups is exploding and earlier movers are gaining scale. Most banks are publicizing their efforts to partner with startups.
I believe we’ll see FinTech in Australia get considerably stronger over the next few years, some seeing partnerships with banks as great routes to mass distribution while others achieve strong penetration in their chosen focused markets on their own.