A new report from KPMG reveals that the total number of Australian fintech start-ups has declined by three per cent in the last 12 months, meaning there are now a total of 830 such ventures in the country.
According to the KPMG Australian Fintech Survey Report 2023, the decline is attributed to the current economic conditions being more challenging than last year which reflected the lingering concerns around the economy and, notably, the RBA’s tightening monetary policy. The tougher capital-raising environment has also created difficulty in accessing lending and credit facilities which, in turn, impacts the ability of fintechs to scale up and expand operations, or survive.
Capital raising was seen as the top challenge for 29 per cent of fintechs, followed by customers, (22 per cent) resourcing, (22 per cent) and revenue contraction (14 per cent).
Despite these challenges, only 16 per cent of fintechs reduced their total headcount in the past year, and 83 per cent of fintechs indicated that they intend to hire new staff in the next 12 months.
The report also highlighted key trends and overall sentiment impacting the sector, with a focus on areas such as revenue and funding, resourcing and customers. These trends include:
- Subdued growth: A period of subdued and moderate growth, or even decline, is expected as continued uncertainty around economic conditions persists.
- Innovation potential: With Australians being amongst the most digitally-savvy consumers globally, there remains an opportunity for growth in new innovative capabilities, such as in payments
- Rationalisation and consolidation: A continued period of rationalisation will likely take place over the near term with consolidation expected in areas of over-participation or where scale benefits are critical to building a profitable enterprise.
- Concentration in major metros: Around 83 per cent of fintech respondents are headquartered in NSW and Victoria, states with favourable environments with regard to availability of talent and close proximity to established global technology and financial services firms.
- Reliance on overseas IT talent: Australian fintech firms are comfortable leveraging overseas talent for the key capabilities of software and engineering.
- Strong hiring intentions: A total of 83 per cent of respondents reported their intention to hire in Australia over the next 12 months, but 29 per cent of these firms have also indicated that they are not satisfied with their ability to successfully recruit talent locally. Software development is the highest priority for recruitment, followed by sales and marketing.
- Larger role for AI: AI is being leveraged to reduce the manual requirements of risk and compliance teams to allow them to focus on emerging risks that require human intervention.
- Anglosphere predominates: Most Australian fintech firms operating overseas conduct business in developed English-speaking countries with lower cultural barriers and similar regulatory frameworks, including New Zealand (13 per cent), UK (12 per cent), US (12 per cent), Singapore (11 per cent) and Canada (seven per cent).
“In a tough operating environment, Australia’s fintech sector has had to grow up,” Daniel Teper, Partner, Mergers & Acquisitions and Head of Fintech at KPMG Australia, commented. “The overall more challenging economic market conditions in 2023, coupled with a material shift in investor sentiment, have led to subdued market activity, hindered also by the high rates environment and inflationary pressures. Investors are more cautious and are prioritising safer investments over higher risk growth investment opportunities.
“These prevailing market conditions have ultimately forced the fintech sector to consolidate, with ventures having to re-evaluate their risk profile and appetite for growth over profitability,” Teper added. “Looking ahead, it is reasonable to assume that a few of the above-mentioned negative catalysts will ease their pressure on the market, and investors will once again turn their attention to growth investments in the sector and allowing fintechs to refocus their attention on innovation and expansive growth.”
