Australia the world's third largest RegTech hub, says BCG

28 October 2020 Consultancy.com.au

Australia is home to well over 10% of the world’s regulation technology (RegTech) companies, behind only the US and the UK in global market share. A Boston Consulting Group (BCG) report has laid out the strengths and weaknesses of RegTech in Australia.

BCG’s experts put together the report in partnership with the RegTech Association – a global non-profit looking to drive adoption and innovation in RegTech. Members of the association were surveyed for the report, which also featured in-depth analysis of global RegTech companies, and interviews with their executives.

What results is a comprehensive overview of Australia’s RegTech landscape – complete with workable insights. For one, Australia’s RegTech sector is among the most active in the world, and “punches well above its weight” according to BCG researchers. Of the roughly 600 RegTechs spread across the globe, Australia is home to 80 – 13% of the global market share.

Australia has emerged as a RegTech hub

The figures place Australia behind only the US and the UK, which house 174 and 109 RegTech’s respectively. Together, the three markets tower over the rest of the world, occupying 60% of the global pie. In 4th place, Canada houses ‘just’ 26 companies, while Singapore, Ireland, Switzerland, Israel, Luxembourg and Germany all hover between 10 and 20 companies.

Not only does Australia rank the top echelon, RegTech in the country is also growing at well over twice the global compound annual growth rate (CAGR) – 15% since 2015 compared to the 6% global average. No doubt, the country also exerts a regional stronghold, occupying more than 65% of the Asia Pacific RegTech market.

The fact is that growing regulatory challenges are driving up the risk profile and cost base for companies, highlighting the value of technology to efficiently navigate this complex landscape. In Australia, the financial system recently went through a major battering from a regulatory standpoint – the 2017 Royal Commission – creating an environment where innovation (read: RegTech) is valued.

Australian RegTechs are facing a funding gap

Challenges and solutions

These are the positives. On the flipside, BCG’s close scrutiny of the market also revealed several pressure points for RegTech in Australia, which could weigh it down in years to come. Most notable is a disconnect between businesses and investors: The former might have recognised the potential of RegTech, but Australian investors appear indifferent when compared to their global counterparts.

“Investment in local RegTechs has declined by 50 per cent since 2018, while RegTech investment around the world has hit record levels, driven by a sharp increase in US$100+ million ‘mega rounds’. Today, only 1 per cent of the global investment in RegTech is in Australian companies,” states the report.

For managing director & partner at BCG in Sydney Wendy Mackay, risk appetite has a role to play here. “The local market for RegTech is small, typically risk averse, and often lacks an understanding of RegTech solutions.” This is evidenced in the breakup across funding stages – most RegTech funding comes in the form of seed or angel investments while later stage, higher value investments are few and far between.

Impact of Covid-19 on Australian RegTechs

Mackay notes that this is a handicap for Australian RegTech. “Insufficient funding opportunities risk leaving Australia’s RegTech companies at a disadvantage, constraining product innovation and ability to scale.” This scenario threatens Australia’s dominance in the segment, particularly at a time when RegTech across the world is poised for a boom.

Covid-19’s impact

If global businesses were already weary of an expanding risk profile before the pandemic, events since Covid-19 have only served to intensify these worries. Global lead of BCG’s FinTech practice Pauline Wray explained the myriad ways in which Covid-19 will benefit RegTechs.

“The pandemic has accelerated a shift towards remote working and digital interactions, increasing the risk of fraud and financial crime, and focusing organisations on the importance of robust cybersecurity. At the same time, Federal and State Governments are recognising the potential of RegTech to efficiently and effectively solve regulatory and compliance challenges, and to become a signature export for Australia.”

Steps to boost RegTech funding in Australia

No doubt, the economic fallout from the crisis affected RegTech companies as well. However, the sector is positioned on the demand side as the economic recovery unfolds. All that remains is for investors in Australia to take an interest in the segment. According to the report, the public and private sectors need to tackle the issue together, by: Hiring clients; establishing ‘patient’ funding channels; encouraging RegTech innovation and building the industry profile.

“Collectively, these actions will help Australian RegTechs to scale, creating local jobs, and supporting the export of Australian solutions. At the same time, consumers, companies and regulators will benefit from efficient and effective regulatory compliance and oversight, concluded Wray.


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