A breakdown of the fundraising volumes by product category clearly shows that investors have been mostly focusing on two sectors in Australia, lending and payments.
Lending accounted for 68 per cent of total funds in the country in 2018, in line with the trend for 2014-2018, while payments startups took 17 per cent of funds in 2018, compared with 19 per cent for the same five-year period. By comparison, lending and payments startups accounted for about one-quarter of global fintech fundraisings each over the same period.
This could be related to recent regulatory changes around the Consumer Data Right (CDR) rules and its implications for banks, insurers and asset managers.
The financial services sector was the first to embrace these new rules with open banking, which allows consumers to grant third parties – such as technology providers, fintechs, telecommunications companies, retailers and other businesses – access to their financial data, enabling consumers to compare products and services more easily.
From 1 July 2019, Data61 and the ACCC will launch an open banking pilot program with the big four banks to test the system. A formal launch is expected to be no later than February 2020.
By this date, the major banks will have to provide and share data on customers’ credit and debit card, deposit and transaction accounts, with mandatory reporting on mortgage data due by February 2020 and on all products by July 2020. Smaller banks will have 12 months more than the major banks to implement the data sharing requirements.
With the availability of credit and borrowing data more easily available and shareable, startups like Judo or Study Loans can more easily analyse and score consumers’ loan applications and offer credit to segments not usually served by banks, including Generation Z or small and medium-sized enterprises (SMEs).
The considerable value that will be generated via ecosystem plays in the coming years in Asia Pacific and the rest of the world means it is far from a zero-sum game, suggesting a strong trend that is moving away from an “us versus them” mentality to an “us with them” mindset creating opportunities for startups and traditional financial firms, with a clear impact in fintech fundraising.
In many ways the potential of this approach has been evident in Asia Pacific and fintech innovators in the region have reaped the windfall.
In China, which leads the world in fintech adoption, the clearest example of ecosystems enabled by digital platforms is Tencent’s WeChat, the “super app” boasting over a billion users. In Southeast Asia, ride-hailing apps Grab and Go-Jek are in a head-to-head battle to become the dominant digital ecosystem, with both embarking on several partnerships and a fintech investment spree.
There hasn’t been an obvious ecosystem player in Australia yet but with open banking and the CDR soon making it easier for companies to share and access consumers’ data, one might emerge here as well.
It’s hard to tell whether we’ll be able to keep up with this pace of torrid growth for fintech investment, but one can certainly see that investors have woken up to the fact financial technology can add a lot of benefits to businesses and consumers alike both in developed and developing markets.
Fintech activity is showing no signs of slowing.
Alex Trott is Banking Lead for Accenture in Australia and New Zealand