Capital, collaboration, challenges
That’s not to say it’s all smooth sailing from here. The fintech sector continues to face the same regulatory concerns and competitive pressures noted in prior years. The COVID-19 crisis has also created new headwinds, such as the tightening of access of capital and concerns that consumers may return to the perceived safety of major incumbent institutions for their financial services needs in uncertain times.
Nearly three-quarters (72 per cent) of fintechs surveyed said the COVID-19 pandemic had a negative impact on their ability to raise capital. More than one in three post-revenue/profit fintechs (39 per cent) reported not meeting expectations their capital raising expectations this year. However, they still fared better than the early stage (pre-revenue/launch) respondents, where 54 per cent reported their expectations were not met. These impacts will be most keenly felt among early stage start-ups, who rely on access to seed capital.
Collaboration with incumbents has also emerged as another key area of concern for fintechs. Before the global pandemic hit, there was a genuine feeling that, at last, collaboration around financial services innovation had reached a tipping point. In 2019, 42 per cent of fintechs reported improved relationships with banks and financial institutions. However, this year, only 17 per cent of fintechs feel the same way.
While it’s understandable large financial institutions have pivoted to focus more on their customers and core services as part of their pandemic response, there is a sense among the fintech community this is slowing the momentum of innovation initiatives and they worry about the implications if this trend continues in the longer-term.
However, Australian fintechs are resilient and they are facing these challenges with the positivity we have come to expect. In the fifth year of the Census, EY can see a snapshot of an industry that is now mature enough to navigate through these uncertain times. A comfortable 78 per cent of the industry is now post revenue and 91 per cent of fintechs surveyed had been in operation for two or more years.