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Australian fintech sector consolidates as startup numbers drop

The past year has been challenging for the Australian fintech sector, according to the KPMG Australian Fintech Survey Report 2023, with both total investment and the number of deals materially dropping compared to the previous year.

This has led to a decline in the total number of Australian fintech startups for the first time, down 3% to 830. 

Over half (53%) of the respondents are finding the current economic conditions more challenging than last year, highlighting the lingering concerns around the economy and notably the RBA’s tightening monetary policy. The tougher capital raising environment also creates difficulty around accessing lending and credit facilities which in turn impacts the ability to scale up and expand operations, or simply survive.

The report features input from 58 fintechs, 7% of the total sector, highlighting the key trends and overall sentiment impacting the sector, with a focus on areas such as revenue and funding, resourcing and customers.

Capital raising was seen as the top challenge for 29% of fintechs, followed by customers (22%) and resourcing (22%) and revenue contraction (14%).

Despite the challenging conditions, only 16% of fintechs said they had reduced total headcount in the past year, and 83% of fintechs indicated that they intend to hire new staff in the coming 12 months. 

The data collected shows several key trends emerging from the sector:

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 opportunity for growth in new innovative capability. Payments innovation is being driven by factors including Australia’s New Payments Platform and behavioural changes induced by the pandemic.

Rationalisation and consolidation: In parallel, 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% of fintech respondents are headquartered in NSW and Victoria, states with favourable environments with regard to availability of talent, being in close proximity with 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. Notably, for critical functions including R&D, Finance and HR however, Australian fintech firms prefer to rely on local talent rather than overseas talent.

Strong hiring intentions: The majority (83%) of respondents reported their intention to hire in Australia over the next 12 months, but 29% 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.

AI playing a larger role: The most successful RegTech vendors are leveraging AI to reduce the manual requirements of risk and compliance teams to allow them to focus on emerging risks that require human intervention.

Anglosphere predominates: For Australian fintech firms operating overseas, most respondents conduct business in developed, English-speaking countries with lower cultural barriers and similar regulatory frameworks, including New Zealand (13%), the UK (12%), the USA (12%), Singapore (11%) and Canada (7%).

Daniel Teper, Partner, Mergers & Acquisitions and Head of Fintech (Australia) KPMG Australia, commented: “In a tough operating environment, Australia’s fintech sector has had to grow up.  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. 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.”

To view the full KPMG Australian Fintech Survey Report 2023 and KPMG Fintech Landscape 2023 go to www.kpmg.com.au.

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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