Fintech innovation’s perfect storm

In the last 18 months, the addressable market for fintech has grown larger than ever as the pandemic has accelerated the consumer relationship with transacting online and, in turn, the need for companies to embrace digital models.

Click image to zoom Tap image to zoom

Today, every consumer-facing business needs a digital payment capability as waves of lockdowns have taken all generations of consumers online. Greater public and private sector collaboration on solutions to pandemic challenges have also been developed.

“Banks are facing increased competition from huge, experienced omnichannel players and other non-financial entrants with large customer bases.”

With a big pull on the demand side - and pandemic responses keeping banks focused on their core - fintechs have spread their innovation wings. As banks realise the urgency of investing in or partnering with fintechs, the proportion of fintechs indicating they have encountered an issue with banks and other institutions continues to decline.

In the 2021 EY Fintech Census, fintechs reported an improved relationship with incumbents focusing on better partnerships, more access, introductions to the ‘right people’ and banks being more open to new ideas.

The sector is continuing to support the uptake of open banking. Only 7 per cent of fintechs are already Accredited Data Recipients (ADRs) but a further 25 per cent intend to follow suit – and many more plan on connecting via an intermediary. This appetite is supported by the recently announced third amendments to the Customer Data Right (CDR) rules.

The new rules will accelerate increased business participation and empower consumers to get greater value from their data through a broader range of offerings. 

Census respondents reported already seeing the benefits of CDR in providing a fast and frictionless customer onboarding experience. Open banking pioneers interviewed see great potential in using CDR as a digital identity and to support new ways of risk profiling over traditional credit scoring in the future. 

According to Adatree CEO Jill Berry, CDR is about ethical data sharing and consumers having control of their data.

“The right mindset shift by both data recipients and data holders will help the market to see CDR as a long term opportunity for both customer engagement and acquisition,” she says.

In 2021, payments, wallets and supply chain continue to be the most common type of fintech (43 per cent), followed by lending (30 per cent). Payments fintechs have had significant success in raising capital with 18 per cent raising more than $A100 million in their last round of funding.

Of fintechs providing payment capabilities as part of their service offerings, four in five (78 per cent) are using service providers for their payment offerings and 84 per cent report direct connection to the New Payments Platform (NPP) would be beneficial to their organisation.

While 80 per cent report alternate payments - like buy-now pay-later (BNPL) and loyalty capabilities - are more applicable to payment options, only 26 per cent of payment fintechs leverage loyalty capabilities. Loyalty paytech innovation is expected to be a future growth area.

Rapid growth in paytech will support accelerated industry convergence, especially now banks are facing increased competition from huge, experienced omni-channel players and other non-financial entrants with large customer bases, including retailers, telcos and utilities. 

Ubiquitous payments will enable industry convergence. As it grows, paytech has a duty to support financial inclusion, equity and sustainability while helping to rebuild the economy. 

Fintech growth was also assisted by the 2020 Australian Federal Budget which brought welcome developments to the Australian research and development tax incentive (RDTI) program, removing much of the lingering uncertainty around the future of the program and abandoning the previously proposed cuts. Certainty was also strengthened by landmark court cases around how the RDTI legislation should be interpreted and new guidance material.

Continuing to grow

Fintechs and technological innovation will be vital to help rebuild Australia’s economy. To sustain the improving maturity metrics recorded by the Fintech Census, all key pillars (government, regulators, institutions, investors and educators) must continue working collaboratively to foster onshore growth and enable greater international expansion.

In terms of government contribution, 80 per cent of survey respondents say making the RDTI more accessible helps improve sustainability and growth of their business. However, despite improved certainty around the RDTI, more than two-thirds (68 per cent) of fintechs still perceive the Australian Government to be less supportive compared with other jurisdictions.

Notably, New Zealand, which has recently doubled down on its R&D incentives, has jumped to the top of the list of fintech markets for expansion for the first time ever. Increased scrutiny on RDTI claims and high-profile court cases where claims were challenged have left some fintech founders rattled. 

Time to build on strong foundations

Australia’s fintech industry is vital to support economic and jobs growth. Sustaining our world-class financial services ecosystem is an opportunity and challenge Australia must win – and we have a great foundation.

The fintech market is enjoying increased capital availability from a more sophisticated venture and private investor community. The sector’s speed to commercialisation and the number of deals and initial public offerings (IPO) in the past 12 months – including the landmark Afterpay sale to Square – have given investors greater confidence of returns.

Now Australia needs to sustain the sector’s growth trajectory with a concerted effort between government, regulators, incumbents, private business and educators. To retain relevance and rising star status on the global fintech stage and keep our innovation and talent onshore, we must build meaningful and globally competitive growth pathways for Australia’s start-up sector.

Incentives, stimulus and cash grants to sustain and attract investment, better-coordinated collaboration and strong moves to drive industry diversity will all help to build a world-class fintech export market and attract the best international tech companies to Australia.

May Lam is EY Oceania Fintech Leader and Asia-Pacific Payments Leader, EY Financial Services

This article was originally published by EY and Fintech Australia

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

editor's picks

26 Feb 2020

Banking’s next decade: change is the new normal

Andrew Gilder | Asia-Pacific Banking and Capital Markets Leader, EY

Fintechs and bigtechs are continuing to take on market share from incumbent banks. Now isn’t the time for banks to sit still.

27 Oct 2020

Aus fintech maintains momentum amid crisis

Meredith Angwin | Financial Services Partner & Fintech Advisor, EY

While 2020 has been a challenging year on many fronts, fintech founders are generally still feeling optimistic about the future of the local sector.