Investments in Australia's FinTech sector plummet by 50%
Investments in Australian companies in the financial technology (FinTech) sector has plummeted by more than 50% in the first half of this year, from US$223 million in the same period last year to $101 million.
According to data from professional services firm KPMG, the drop in Australia mirrors a global trend. Across the globe, total investments pumped into FinTech firms, including venture capital, private equity investment and merger & acquisition deal value, dropped to $37.9 billion in first half of 2019 across 962 transactions. The drop was driven primarily by the lack of massive deals like 2018’s $14 billion raise by Ant Financial, or the $12.9 billion acquisition of Worldpay by Vantiv.
Despite housing one of the biggest FinTech transactions of the world and the third biggest in Asia, the Airwallex $100 million Series C funding in March 2019, Australia’s FinTech market was subdued. According to Dan Teper, a partner at KPMG and Head of FinTech, the dip in the market is likely more of a pause than a structural development, with major activity imminent for the second half of the year.
“Beside venture capital investment in FinTech startups, there is also the possibility of future listing and merger & acquisition activity, following the success IPOs such as Prospa and Afterpay. Their experience could encourage other FinTech companies to consider IPOs,” he said.
In their report, KPMG’s analysts have identified three main trends that are forecasted to drive FinTech investment activity in Australia. The first is open banking, which is touted to transform the way how banks exchange information, and share information with their customers. On the back of new legislation, the benefits of open banking are set to expand into other sectors such as energy and telecommunications.
“The adoption of open banking globally is emerging as a driver of FinTech investment, along with the opportunities presented by technologies like artificial intelligence and data analytics,” said Ian Pollari, who is the co-leader of KPMG’s global FinTech practice.
Investments in blockchain, a technology that serves as the fundament for the well-known Bitcoin currency, is expected to continue to accelerate. A growing number of financial services organisations are applying blockchain technology to streamline their operations, mainly in the payments and transactions domain.
Laszlo Peter, Head of KPMG’s Blockchain practice in Australia, elaborated: “Blockchain is certainly here to stay. While funding may have slowed this year, it simply shows the growing maturity of the market. It’s a sign that investors are moving away from the ‘fear of missing out’ mentality that had many investors pushing a silly amount of money into investments – and are making more mature investment decisions and focusing on more meaningful initiatives.”
The third factor expected to lift FinTech investments is RegTech, which stands for regulatory technology. RegTech is seeing demand spike amid a growing regulatory burden, with emerging technologies able to perform the jobs currently done by humans more effectively and efficiently.
