Australia’s fintech sector is fracturing. Big players grab the funding while small startups scrape by, and small to medium-sized enterprises, or SMEs, could lose out on innovative tools like payment apps or AI bookkeeping.
FinTech Australia’s latest Pre-Budget Submission unpacks this trend, showing how it might limit what reaches SME hands. With the federal budget due in May, here’s what owners need to understand about this two-speed shift and how to navigate it.
Funding challenges for new fintechs
The numbers paint a clear picture. Deal volume in fintech fell 14 percent in the second half of 2024, according to KPMG’s Pulse of FinTech Report, with cash flowing to established firms. Rehan D’Almeida, CEO of FinTech Australia, sums it up: “Larger fintechs are still securing cash, but newer companies are finding it tough to attract investors.” For SMEs, this is personal. Startups like Afterpay or Up Bank, now giants, began small, delivering buy-now-pay-later options or fee-free banking that small businesses relied on. If today’s newcomers can’t launch, the next wave of SME-friendly tech might never arrive.
What’s causing this? Investors are getting cautious, as global uncertainty makes risky bets less appealing, but red tape is a bigger hurdle. The R&D tax incentive, designed to spark innovation, bogs down early-stage founders with complex forms and delays. SMEs account for 67 percent of Australia’s jobs, as per the Australian Bureau of Statistics’ Business Employment Data from 2023, yet they and startups lack the resources to tackle such obstacles. FinTech Australia points to the government’s 2024-25 R&D review as a chance to simplify it, but no solution is set yet. Until then, cash-strapped fintechs falter, and SMEs miss tools to manage cashflow or spot fraud.
The impact on SMEs
The timing stings. AI is surging in fintech, up 20 percent in startups last year, promising solutions like automated invoicing or financial literacy apps. Picture a retailer using AI to chase late payers or a freelancer tracking jobs instantly. These aren’t extras; they’re vital for SMEs with tight budgets. Compliance costs them $1.2 billion yearly, as per ABS’s Business Costs from 2022, so tech that trims red tape is a lifeline. But if early-stage fintechs can’t fund their ideas, those solutions stay unbuilt.
It’s not all bleak. Established fintechs like Xero for accounting or Airwallex for global payments still serve SMEs well. The Consumer Data Right, or CDR, with $88.8 million from the 2023-24 budget, lets businesses use customer data for sharper loans or insights, if funding lasts. Still, the gap is stark. D’Almeida warns: “Smaller, newer companies, that could become our next Afterpay or Up Bank, struggle to get off the ground.” Without them, SMEs might face a fintech future built for big firms, not local shops.
The bottleneck has layers. Beyond R&D, regulatory overlap from ASIC, APRA, ACCC, and AUSTRAC tangles SMEs and fintechs alike. A tradie linking with a payment app shouldn’t need to decode rules, but that’s the deal now. FinTech Australia suggests streamlining this, though no fix is in sight. Meanwhile, green fintech is growing, with 15 percent of firms targeting sustainability, like carbon trackers, according to the 2024 EY FinTech Australia Census. That’s gold for SMEs chasing eco-conscious customers, but funding still leans toward the heavyweights.
For SME owners, this is urgent. Look at the Treasury’s draft payday super law, released last Friday. From July 2026, super syncs with paydays, and a missed $1,000 payment could mean a $600 penalty, 60 percent of the shortfall, plus daily interest. Fintech could help, auto-calculating super, but if startups fade, SMEs are left with clunky fixes. Cashflow’s a top worry for 43 percent of SMEs, as per ABS’s Business Conditions from 2023; this divide could make it worse.
What can SMEs do?
Start with what’s available: Xero or Tyro manage payroll and payments now, so test them. Next, check your tech: where’s a startup’s absence hurting, like loan access? Then, stash some cash; those super fines won’t wait. Push your software providers too; many are rushing updates for 2026’s rules. Finally, track May’s budget. Simpler R&D or steady CDR funds could spark new tools. Super feedback’s due April 11; your say might ease the hit.
There’s a wider view to consider. D’Almeida adds: “With ongoing uncertainty abroad, now is the best time to focus on our strengths and reinforce our fintech ecosystem with the correct policy settings.” He’s right: Australia’s fintech, from tap-and-go to open banking, ranks 6th globally, according to the Global Fintech Index 2023. A policy push could turn that into exports, fueling more local innovation. But that’s a slow burn; SMEs need help today.
This divide is a challenge, not a dead end. SMEs power millions of livelihoods; they deserve tech that matches their drive. Deal volume might rise in 2025 if rates ease, but don’t count on it. Use what’s solid now, brace for tighter rules, and watch the budget. If Canberra bridges this gap, with clearer R&D or funded regulators, SMEs could catch a fintech wave. If not, the next Up Bank might stay a dream, and small businesses will feel the drought most.
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