EY FinTech Australia Census 2017

Introduction

About the research

The Australian fintech landscape

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EY FinTech Australia Census 2017 Profiling and defining the fintech sector

FinTech Australia EY FinTech Australia Census 2017 | 1

Introduction

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Contents 5

Introduction

7

About the research

8


12

Drivers of success

22

Future focus

27

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TEY FinTech Australia Census 2017 | 2

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Over the last year, the Australian fintech industry has matured Post-revenue fintechs

Key business challenges decreasing

Future outlook

A greater proportion are now post revenue

Suitability of systems and viability of business models are less likely to be internal impediments

More fintechs are looking to expand overseas in the next 12 months

2017 Creating suitable systems and processes

2016

2016

2017

47%

31%

2016

2017

Expand/expand further overseas

2016

2017

38%

54%

71% 57%

Business model viability

37%

25%

Top 6 markets for potential expansion (excl. don’t know) United Kingdom

Singapore

Median revenue growth (post revenue companies)

New Zealand

Nil growth

6% 10%

1% to 100%

40%

United States

Year on year post revenue growth has been substantial Revenue decline

49%

38% 27%

Hong Kong

22%

Canada

22%

20%

101% to 300%

24%

Median fintech post revenue growth 301% to 700% >700%

14% 24%

208%

June 2017 vs. June 2016

TEY FinTech Australia Census 2017 | 3

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Fast facts: The fintech landscape in Australia 2017 Sector profile

Industry gender profile

Base:

Gender (workforce participation)

NSW

54%

VIC

76%

Education: 54% post grad 32% under grad

48%

No. of employees (median): Full time

2.1

57% 25%

32%

40%

Commercial funding

2

Top 2 talent shortages:

Type of fintech (top 2)

30%

23%

Wealth and investment

Lending

End customer profile Retail consumers

45%

Sophisticated investors

22%

Banks and other FSI’s

43%

SME and other start-ups

35%

Corporate

33%

Government

14%

$3.0m

Average capital raised to date

$4.1m

Engineering/software

61%

Sales

41%

Agree that attracting qualified or suitable talent is an internal challenge

Top 2 approaches to talent recruitment Founders/ employees/ personal contacts

39%

Recruitment agencies

17%

Average burn rate (excl. profitable fintechs)

$115k

Paying customers No. paying customers 5% 21%

85%

39%

agree government mandated open data protocols would be effective

have a financial licence

60%

agree accelerators/incubators are important contributors to the success of the fintech industry

Outlook: Next 12 months expectations

Monthly burn rate

75%

63%

54%

Grow revenue

Grow employee rate

Expand/ expand further overseas

Company stage: 21%

24%

71%

29%

Postrevenue

Pre revenue

29%

(post revenue)

Globally competitive None

1 to 10

11 to 50

51 to 500

>500

63% Relationship with incumbents

Both 30%

Average scale of last capital fundraising

46%

Talent

5

Part time

71%

Average no. of start-ups founded:

31%

>3 years

72%

Fintech leader profile (founders/CEOs)

21%

2 to 3 years

only B2B 41%

female

Private funding

Company age:

only B2C 25%

of fintechs have all male founders

28%

1 year or less

Government support and the regulatory environment

83%

24%

male

19%

Other

55%

Capital (multiple response – excl. don’t know)

40% nominate “building partnerships with banks and other financial institutions” as a key external challenge

Median fintech post revenue growth

208% June 2017 vs. June 2016

agree Australian fintech companies will be able to compete internationally

45% agree Australian fintechs will be able to win against international fintechs TEY FinTech Australia Census 2017 | 4

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Introduction

EY FinTech Australia Census 2017 | 5

Introduction Introduction

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FinTech Australia Welcome to the second EY FinTech Australia Census 2017. FinTech Australia has continued its successful collaboration with Ernst & Young Services Pty Ltd (EY) and Ernst & Young Services No.2 Pty Ltd (EY Sweeney) to deliver this important piece of research. This Census remains the most detailed and broad analysis of the Australian fintech ecosystem and at initial release in 2016, was the first census of its type globally. This research initiative forms a critical part of FinTech Australia’s efforts to foster a thriving fintech ecosystem. Australia’s fintech industry is continuing to grow and is increasingly becoming the first choice for businesses and consumers when they are selecting a financial service. The Census gives us hard data and credible insights to back our advocacy work to drive the industry’s ongoing expansion. This year’s Census delivers new insights into key industry issues, including how we increase female participation, encourage international expansion and remove barriers to growth. This report is also arguably the best source document to define the overall shape of Australia’s fintech industry and how we differ to overseas markets. It gives us fine-grain detail about the established and emerging sub-sectors within fintech and helps track the industry’s increasing maturity in terms of company size and revenue. We hope you enjoy reading the Census and learning about the dynamic fintech industry we have here in Australia.

The fintech sector is evolving rapidly in Australia and around the world. EY is committed to working with fintechs, investors, regulators, governments, education institutions and accelerators/hubs to help the industry realise its potential. An important part of our commitment has been to deliver comprehensive, focussed and prescient thought leadership to help define the industry, identify the challenges and cast light on the way forward. For the second year, the EY FinTech Australia Census provides an exciting contribution to this commitment and recognises the strong global connection within EY supporting the Fintech industry. It is essential research conducted with the Australian fintech community by EY Sweeney. It delivers a powerful fact base, combined with broader insight to inform and inspire those involved with the sector. We are proud to be collaborating with FinTech Australia on this significant initiative and pleased to be able to share the findings. Rowan Macdonald, Partner Financial Services, Ernst & Young Services Pty Ltd, Australia Meredith Angwin, Partner Financial Services, Ernst & Young Services Pty Ltd, Australia

Danielle Szetho, FinTech Australia CEO Simon Cant, FinTech Australia Chair Stuart Stoyan, FinTech Australia Deputy Chair and FinTech Census Founder Mark Skelsey, FinTech Australia Director of PR and Communications EY FinTech Australia Census 2017 | 6

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About the research Methodology Background FinTech Australia was founded in March 2016 and is the peak body for fintech organisations in Australia. The board of FinTech Australia focuses on four major streams of activity on behalf of its members – advocacy, support, promotion and connection. As part of this charter and in recognition of the growing and dynamic nature of the fintech industry, FinTech Australia identified the need to profile the organisations currently operating in Australia to provide definition for the sector. In line with EY’s deep experience in fintech, coupled with the knowledge/experience of EY Sweeney, EY was commissioned to conduct a census of fintechs in Australia over the last two years. A broad research program was set in place in collaboration with a FinTech Australia steering committee. The research was conducted between August and September, 2017. This report presents the key findings and it will act as a powerful platform for FinTech Australia when engaging with members, stakeholders, commercial partners, regulators and government departments. A dedicated website providing further access to the data and insight from EY fintech professionals can be accessed here.

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2

Quantitative research: 166 online surveys

Qualitative research: 10 in-depth interviews

►

15 minute online survey

►

45 minutes in length

►

Conducted with people currently working in the fintech industry

►

Conducted with leaders of the fintech community

►

57% of participants are founders of fintech companies, 55% are CEO's and 16% are heads of functional areas

►

A mix of members and non-members of FinTech Australia

►

Contact lists provided by FinTech Australia

3

4

Vox-pops: 16 interviews

►

Short interviews at Melbourne and Sydney hubs

►

Conducted with fintech leaders

►

Interview quotes are on the EY FinTech Australia Census 2017 microsite

Fintech founders

8

Industry leaders (CEOs, Directors)

2

Other EY fintech reports

In particular, three EY reports have been referenced in this Census report and the microsite: ►

The Fintech Adoption Index 2017

►

EY UK Fintech Census 2017

►

UK FinTech: On The Cutting Edge – An Evaluation of the International Fintech sector 2016

The research program was designed and run by EY’s dedicated market research practice, EY Sweeney


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The landscape The Australian Australian fintech landscape

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Fast facts: Sector profile 2017 Business based

Biggest competitors

Number of employees

(excl. none)

(median)

Overseas 2%

NT 0%

QLD

12% WA 9%

SA 4% NSW

54% VIC

36%

29%

27%

7%

Incumbents

Other fintechs in Australia with a similar offering

Overseas fintechs with a similar offering

Other

Type of fintech

19% TAS 1%

30%

Lending 2016 36%

21%

> 3 years

48% 44% 20%

31%

Company stage 2016 43%

2017 29%

Pre-revenue Post-revenue

57%

71%

18%

Payments, wallets and supply chain

1 year or less 2 to 3 years

23%

Data analytics / Big Data

2017

Net 2 yrs or more

79%

2 Part-time

End customers

(multiple response)

Wealth and investment

Age of company (excl. didn’t answer)

5 Full-time

16%

Asset management and trading

11%

Regtech

10%

Business tools

10%

Marketplace-style / peer-to-peer solution

10%

Identity, security and privacy

6%

Blockchain/distributed ledger solution

5%

Insurance/insurtech

5%

Accelerator/venture capital

5%

Crowdfunding/fractionalised investing

5%

Challenger/neo bank

4%

Digital/Crypto currencies and exchanges

4%

Other

(multiple response – excl. don’t know)

Retail consumers

45% Net B2C

Sophisticated investors

55%

22%

SME and/or other startups

35%

Corporate

33% Net B2B

71%

Banks and other FSIs

43%

Government

14%

Other

15%

9% EY EY FinTech FinTechAustralia AustraliaCensus Census 2017 2017 | 9

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The Australian fintech landscape The Australian fintech industry has matured over the past twelve months. It has evolved from being quite a fragmented tech sector fuelled by the belief and passion of the founding firms to one that has much greater definition and structure. It is an industry in Australia that has meaningful scale and an ecosystem that delivers effective support to help breed success. It is still early days, but the transition in a short period of time has been pronounced. It’s estimated that the number of fintechs operating in Australia is now approaching 600, having more than doubled since 2015. This growth in the number of firms is an important metric when assessing the strength of the industry, it can be read alongside a number of other industry characteristics that further underline the contention that this is a more mature tech sector. ►

A greater proportion of fintechs have been in business for more than three years and that points to stability and resilience.

►

The proportion of Australian fintechs that are now in the post revenue stage has also increased indicating that the products/service offerings are in demand and filling gaps in the market.

►

What falls under the ‘fintech’ banner is now much broader (think RegTech, cyber/digital security, Data Analytics etc.) and firms that would see themselves as ‘fintech’ are stretching far and wide into other tech industries (e.g. Agtech, etc.)

Perhaps the most important determinant of this bourgeoning maturity for B2C firms is the level of receptiveness of the Australia public. In EY’s recently released Fintech Adoption Index conducted across twenty markets we saw… ►

The global average for fintech adoption was 33%

►

Australia ranked 5th with a 37% adoption rating. While in the shadows of the quite different markets of China (69%) and India (52%), Australia is on par with other developed economies with similar financial systems (e.g. US and UK).

►

This level of adoption shows that fintech is now at a tipping point where it is poised for mainstream adoption.

The prevailing outlook of many of the fintech industry leaders is optimistic, if not bullish about what the future holds. While the risk is still high and hard graft is the norm, there is recognition that there is greater support and that the barriers to success while still pronounced are less than they were.

In 2016, FinTech Australia had identified some 250 fintech companies in Australia. We now estimate there's close to 600. From Hobart to Townsville, Perth to Gold Coast - great fintech companies are emerging everywhere.” Danielle Szetho, CEO FinTech Australia


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While there is undoubtedly momentum and more success stories will come to the fore, it is still important to recognise that there is no yellow brick road. The archetypal fintech is lean (median of eight staff) and founders are kept awake at night by ever-present factors like future funding, customer uptake, cash burn rates, regulations, licensing, amongst other fundamental business drivers. They are optimistic but there is an undercurrent of anxiety. The fintech industry in Australia operates in a highly competitive local, regional and global environment. Success in the future will be predicated on the level of support that continues to be set in place – support that will enable fintechs to flourish. This summary report both profiles fintechs and provides clear insight into what they need to forge ahead. The industry is at a point where, as one luminary put it, “we have moved past the exuberance phase.” The early hype has levelled out and the industry is now more robust and defined.


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Drivers of success Commercial success is the holy grail for fintech organisations, with all aspiring to have a major impact in the specific segment of the financial services market in which they operate. Alongside profiling the fintech sector in Australia, a key area of focus was identifying the main factors that will underpin success for a fintech and the challenges potentially confronting fintech leaders. The topic was explored from a number of angles, including ranking the main internal and external challenges. What emerged underlines the complexity inherent in launching a successful fintech, with a range of forces potentially conspiring against ambitions being realised. It also throws the spotlight on where those working to support the sector can focus to set in place the right infrastructure and conditions to maximise success. Consistent with last year, five key drivers of success were isolated. Importantly, these also build on the extensive analysis conducted by EY on the international fintech scene1. These drivers of success collectively create an ecosystem that will help the Australian fintech industry flourish. For each driver of success there are a number of variables that can impact on fintechs – either at an industry-wide level, or from an individual firm perspective. We have isolated these factors as the discussion around the drivers unfolds over the coming pages.

1

EY: UK FinTech – On The Cutting Edge – February 2016

The 5 drivers of fintech success

1

Talent

2

Capital

3

Demand

4

Policy

5

Environment


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1 Talent The 2017 Census has again underlined that the ‘people’ side of Australian fintechs remains challenging. In most cases they are lean businesses (a median of 8 employees) operating in a highly dynamic environment and that can place significant pressure on the leadership of the firms. We saw that 23% nominated ‘insufficient time available to devote to the business’ as an internal challenge; this challenge is heightened among smaller fintechs in part because they may have other forms of employment outside of the start-up. The commitment required by founders is immense and the personal risk real, but optimism invariably abounds. The profile of fintech leaders shows… ►

83% of fintechs are founded exclusively by males*.

►

They are highly educated (32% undergraduate; 54% postgraduate).

►

►

►

Those that are founders/CEOs of fintechs have started on average 2.1 fintech businesses.

An area of great reflection for the management of fintech firms is the calibre of their staff and the ability to both attract and retain good people. A number of observations can be made about the battle for talent… ►

Limited pool in Australia… Half of fintech (52%) leaders agree that there is a lack of experienced start-up and fintech talent in Australia. Attracting suitable or qualified talent is one of the top internal challenges that they face.

*Note – this finding is based on a new question added to the Census in 2017

►

Specific profiles more challenging… Of those fintechs that struggle to attract qualified or suitable talent, the majority struggle with finding engineering/software expertise (61%), followed by sales (41%) and web development (33%). This year fintechs are finding it less challenging to attract design/user experience talent (42% down to 24%). However, as the industry has matured, talent pool shortages are marginally more evident for sales professionals (35% up to 41%) and marketing professionals (24% up to 29%). Diversity a challenge… The profile of fintechs operating in Australia shows a marked gender imbalance, with 76% of employees being male. Overall female participation in the fintech workforce has largely remained unchanged from last year (22% last year and 24% this year). FinTech Australia is actively working to address this skew and determine what can realistically be done to address it in the short and longer term. To improve participation of women in the Australian fintech industry, the top three methods suggested by survey respondents are encouragement to follow STEM career paths (14%); adjusting recruiting practices (14%); and change company culture/policies (13%). Referral the lynchpin… While emerging government initiatives such as the STEM pathway and entrepreneur visas are likely to assist in the future, talent is mainly recruited through contacts formed by fintech co-founders, however as fintechs mature reliance on recruitment agencies increases.

23%

83%

Nominate ‘Insufficient time to devote to the business’ as an internal challenge

of fintechs have all male founders

“Founders put a great deal of effort into researching and thinking about what they want in a new hire so they can find the right people. They also have to be flexible with employment arrangements - part-time, internship, etc. to make it less challenging to find the right people. After 4 years and a few mistakes, I now know who I am looking for to join our business, and have confidence they will be successful.” Aris Allegros , Founder Moula

Talent pool shortage (top 3) Engineering/software 1

61%

Sales 2 Web development 3 Base:

41% 33%

Have faced challenges attracting suitable talent (n=76) EY FinTech Australia Census 2017 | 14

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Fintech leader profile 2017 Gender

Founder

83% of

fintechs have all male founders

40 yrs

Current role CEO 1

Average founder age at inception

55%

Yes

57%

Head of 2 a functional area

16%

3 CTO 4 Support role Highest level of education (fintech founders/CEOs)

54%

32%

Post graduate

Undergraduate

Number of start-ups founded/started by fintech founders/CEOs

Other 5

7%

2%

5%

average

10%

4%

High school

Vocational certificate

2.1

40% 36%

Work status

96%

2%

Work full-time

Work part-time

2%

1%

Work on casual basis

Studying part-time

20%

5%

0

1

2

3+ EY EY FinTech FinTechAustralia AustraliaCensus Census 2017 2017 | 15

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2 Capital Capital is the lifeblood of start-up fintechs and a fundamental key to success is the ability to raise funds and then manage burn rate each month. A number of points can be made about both the access to capital and the management of expenditure of the funds. ►

►

►

Shallow but growing pool in Australia... The funding of start-ups is a challenging and complex issue as they need phases of capital stretching over many years. Venture capitalists want early stage uncapped upside and various profiles of yield. Feedback from the in-depth interviews with fintech leaders suggests that the capital situation has been improving with more inflows of venture capital coming from within and outside Australia. Mixed capital raising success… Although successfully funded fintechs outnumber those that fail to raise capital or couldn’t raise what they desired, this doesn’t account for organisations that may not be in existence anymore. Views in this Census were primarily collected from fintechs that remain in existence so there is a skew to fintechs that were successful in their capital raising. Fintechs that have accessed commercial funding are more likely to have raised the amount of capital required. Solid averages… Of those fintechs that indicated they have successfully raised capital to date, on average each has raised $4.1m. This is an increase on what was seen in 2016 ($3.9m raised) and is indicative of a maturing industry. Fintechs in existence for more than three years have on average

raised $5.2m of capital to date in comparison younger fintechs aged one year or less have raised on average $2.1m of capital to date. ►

Private funding dominates… As was seen in 2016, most fintechs in Australia have received some private funding (72%). Six in ten (57%) accessed some commercial funding and on average have raised $4.2m in capital; this is greater than the average amount of $2.2m raised by fintechs that exclusively accessed private funding.

►

Realising profit… One in seven fintechs stated that they are currently profitable. Of those that have not started to realise profit, their current burn rate is on average $115k a month. This is an increase in what was seen last year where the burn rate was $84k month.

►

Managing burn rate… Average burn rates are particularly high among fintechs that have received funding and scaling up their business, with the increased burn rate reflecting the maturing of Australian fintechs. While nearly 30% of fintechs have a monthly burn rate in excess of $100k, the majority of these businesses are skewed towards having raised in excess of $10m in capital to date (i.e. larger, more funded fintechs). For this segment, the remaining runway is typically more than a year, but there is still a sizeable proportion (37%) that only have up to a year before the cash reserves dry up.

“…the lack of cash flow gave us an opportunity to learn how to prioritise business resource and stay creative to make the most use of the limited cash flow; we have been constantly thinking about how to educate and accelerate our partners to set up quickly and acquire customers.” Joel Ramirez, Co-founder & General Manager, Financials for Office 365

14%

39%

of fintechs are currently profitable

Had their expectations of capital raising experience met

72%

57%

Private funding

Commercial funding


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3 Demand At the heart of any start-up or new venture is the ability to identify a gap in the market - a latent need that can be met by delivering a compelling offering. However the gaps aren’t always obvious and the solution needs to be seen as genuine and positively differentiated in the market.

►

The key insights from the Census and some broader global research conducted by EY are…

In terms of demand profile, Australia is ranked fifth out of 20 markets around the globe; with some of the key observations being…

►

►

►

Fintech Adoption continues to grow… EY recently conducted a large scale consumer study across 20 countries exploring the level of fintech adoption. China dominates the global landscape, with adoption still comparatively high in Australia (37%) and it has tripled over the past two years (13% adoption in Australia in 2015). A more diverse profile… The fintech industry in Australia is maturing and broadening. There is now greater collaboration into other sectors (e.g. Agtech) and an improving working relationship with the incumbent/traditional players in the financial services industry. Solution-centric… The majority of fintechs believe that the key reason that consumers or businesses access their products/services revolves around offering ‘more effective solutions’ to their customers. Having a “seamless user experience” is also fundamental, coming in second on the list of areas to focus.

Cost of customer acquisition and retention… While EY’s research shows the rapidly growing usage of fintechs, one of the core external challenges for organisations operating in Australia is the ‘cost of customer acquisition’. This was cited as a challenge by one in two fintechs surveyed.

►

Tech-savvy younger generations are high adopters of fintech, particularly of money transfer and payments services, however older generations also demonstrate high acceptance of such services.

►

Australia is the fourth most developed money transfers and payments market, and the sixth most developed insurance Fintech market.

►

Overall Fintech adoption in Australia is expected to increase in the next 12 months from 37% to 43%.

►

While adoption will continue to increase amongst young adults, usage is expected to increase amongst older generations who are warming to idea of conducting financial transactions digitally.

“There are those who believe that fintechs struggle to translate the innovation and great customer experience that they create into real customer adoption. The EY FinTech Adoption Index suggests that thinking is now outdated. Fintechs are not only becoming significant players in the financial services industry, but are also shaping its future.” Imran Gulamhuseinwala, EY Global FinTech Leader

“Congratulations to the small businesses of Australia. Pin Payments has received enthusiastic support for our payment solutions, even whilst being a relatively new brand to the space. Our customers recognise how we're trying to help their day-to-day, and in return are patient and generous with their feedback. So from our perspective, Australia is a great market to launch a fintech business in.” Chris Dahl, Director, Sales & Growth at Pin Payments


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The EY global fintech adoption index FinTech adoption rates across our 20 markets

Comparison of FinTech adoption in six markets between 2015 and 2017

Australia’s fintech adoption rate is ranked 5th, with a 37% adoption rating

Australia has one of the fastest growing fintech markets

42 37 29

33

32 23

18

13

15

14

17

8

37%

Australia

Canada

Hong Kong 2015 adoption

Singapore

UK

US

2017 adoption

Notes: The figures show adoption rates per market for the six markets for which a comparison is available. All figures are shown in percentages.

Australians are adopting fintech services and solutions quickly and this will continue to gain momentum; we have always been early adoptors of new technology and services that make our lives easier and are built around what we want rather than what a financial services incumbent thinks we want.”

*Belgium and Luxembourg **Hong Kong SAR of China Notes: The figures show FinTech users as a percentage of the digitally active population. All figures are shown in percentages.

Meredith Angwin, Partner Financial Services, Ernst & Young Services Pty Ltd, Australia Source: EY Fintech Adoption Index http://www.ey.com/gl/en/industries/financial-services/ey-fintech-adoption-index TEY FinTech Australia Census 2017 | 18

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4 Policy Policy, regulation and broader government support are fundamental dimensions in creating a healthy and sustainable fintech ecosystem. There is a need for policy momentum to be maintained and for there to be a proactive fintech agenda at all levels of government. We explored a wide range of potential growth initiatives and those considered most effective in the eyes of Australian fintech start-ups are listed below.

Tax tops the list Nine in ten (87%) participants agree that the top effective growth initiative is to ‘make the research and development tax incentive more accessible to start-ups’, followed closely by providing ‘Capital gains tax relief for tech start-ups first incorporated in Australia’ (85% effective). Founders interviewed are quite positive about the level of tax incentive support provided in the past 12 months and would like this to increase.

Access to open bank data With open banking being under independent review in September 2017, the anticipation of positive recommendations for the setup of an open banking regime in Australia is palpable. Customer acquisition… There is strong recognition that without open bank data, fintech start-ups will continue to face much greater customer acquisition costs. Access to consumer data protected within this system would enable them to more easily identify attractive customer segments and the likely demand for particular products. 6

EY: UK FinTech – On The Cutting Edge – February 2016

85% of fintechs said that ‘Government mandated open data protocols’ would be an ‘effective’ initiative to grow and promote the industry up from 76% last year. New payments platform… Most fintechs (82%) believe that providing more transparent access points for fintechs to connect to the New Payments Platform is one of the top effective industry growth initiatives; this reveals that fintechs are unconvinced about the ease of access to this infrastructure.

Licensing / sandboxes As fintech start-ups move forward with their technology solution, ASIC licences are an important part of a go to market strategy. Licence uptake… Six in ten (62%) fintechs surveyed do not currently have one of the three key ASIC licences (financial services licence, credit license or market infrastructure licence). Regulatory sandboxes… Over the last 12 months, ASIC expressed a desire to strike an appropriate balance between encouraging innovation whilst providing an appropriate regulatory framework for the Australian fintech industry. At the end of 2016, ASIC launched the regulatory sandbox framework which provides fintechs with limited freedom to operate within set guidelines while their product solution is in development. The Census data indicates that only 1% of Australian fintechs currently use an ASIC regulatory sandbox, however, a further 9% intend to use this in the next 12 months.

“Open data is a big thing for us. As we are a company that tries to get the banks to price risk better, more real insights into the data we have the better we would be able to help. There is a growing community which requires a lot more conversation around what data is available and suitable, as well as a lot more collaboration to make sure that the solution most beneficial to consumers can be found.” Ranin Mendis, Founder & CEO Loan Dolphin

“One of our biggest challenges today is to effectively engage and collaborate with the Government to springboard Australian innovation. We do believe partnering with the government is necessary but finding the best approach for proof of concepts is still a work in progress.” Joanne Cooper, Founder & MD ID Exchange

Licenses 32%

ASIC financial services license

16% 11%

ASIC Credit License ASIC Market infrastructure license Banking license

6% 1% 2% 1% 2%

Currently have Looking to aquire


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Potential growth initiatives Very effective

Fairly effective

Make the research and development tax incentive more accessible to start-ups

Not very effective

60%

Government mandated open data protocols

Not at all effective

27%

51%

34%

Net Net effective effective 2017 2016

11% 2%

87%

-

11% 4%

85%

76%

Capital gains tax relief for tech start-ups first incorporated in Australia

55%

30%

10% 5%

85%

87%

Reduced taxes, such as payroll taxes, which apply when hiring employees

57%

26%

11% 6%

83%

-

14% 4%

82%

-

16% 3%

81%

-

More transparent access points for fintechs to connect to the New Payments Platform

42%

Removing barriers to the creation of new banking licences

40%

An expanded and more flexible regulatory sandbox environment

Opportunities to pitch for Government tenders and projects Creation of more referral agreements between ASIC and Regulators in other markets

-

19%

7%

75%

-

10%

67%

-

12%

64%

64%

30%

13%

58%

61%

32%

11%

57%

66%

54%

56%

40%

-

23%

39%

27%

23%

31%

21%

16%

78%

34%

25%

A government-supported digital sovereign currency (i.e. a Digital Australian Dollar)

8%

32%

34%

15%

14%

42%

43%

Creation of more Government Launchpads in other overseas markets

Base: Q26a.

40%

36%

A cross-industry solution to share know-yourcustomer and identity validation information Easier access to skilled migration visas to be able to hire new employees Programs and grant assistance to access the existing Government Launchpads in Tel Aviv, Shanghai, Berlin, Singapore and San Francisco

40%

36% 39% 24%

32% 38%

14% 22%

85% Government mandated open data protocols is an effective initiative to grow and promote the industry

“We have a policy directive from the Federal Government that innovation and fintech is important, however there is a large gap to how this is supported by the R&D tax incentive; clearly the current program needs a shakeup to make it effective for start-ups.” Stuart Stoyan, Deputy Chair and FinTech Census Founder FinTech Australia

n=166 (All respondents) How effective do you believe each of the following initiatives might be for growing and promoting the Australian fintech industry?

EY EY FinTech FinTechAustralia AustraliaCensus Census 2017 2017 | 20

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Accelerators and incubators are an important contribution to the success of the fintech industry

5 Environment Most of the fintech start-ups are lean operations, having relatively small numbers of staff, but a big vision. The research has underlined the importance of strong support networks beyond the founder, the board (if there is one) and investors. The ability to effectively leverage peer and industry support is imperative.

In the Census, the use of accelerators/incubators and co-working spaces was explored with Australian fintechs. A number of points can be made about their usage and impact. ►

►

The power of hubs… Accelerators and incubators are considered an important contributor to the success of the fintech industry in Australia by 60% of Census participants. In comparison, last year the importance was higher (69%) indicating that whilst hubs are critical for support, the industry is coming out of the nursery stage. Those in hubs experience the benefits almost daily with planned and unplanned conversations helping them take constructive steps in the right direction. Mixed usage of co-working space… Users of hubs describe the workplaces as a source of ideas, experience, insights, expertise, accommodation and support. However, they haven't cut through to all. Just over half of fintech start-ups surveyed (55%) have ‘never used a shared workspace’. Some of those that embarked on their start-up journey without the support of a hub, lamented not having found one from which to launch their venture.

►

►

►

Lower cap firms more reliant… Typical usage of coworking spaces is more limited among fintechs that have raised in excess of $5m of capital to date or are greater than five years old. These businesses have evolved toward renting their own office space and have surpassed their initial requirements for coworking spaces. High usage amongst the converted… Hubs are accessed on average over two times a week, with three in ten fintechs accessing these between five and seven times a week. Frequency of usage of coworking spaces is higher among fintechs based in NSW which reflects that NSW is the key financial market in Australia, housing the greatest number of fintech hubs/co-working spaces. Government support is growing… In the past 12 months there has been significant activity by State governments to create new and expanded hubs which will accommodate fintech start-ups. This is demonstrated by the Sydney Start-up Hub which when open in late 2017 will accommodate some 2,500 people across a range of incubators and accelerators over 11 floors. In Victoria, the State Government released a tender in June 2017 for a fintech operator to launch a dedicated fintech hub / accelerator in the Docklands digital precinct.

60% agree

25%

Neither/nor

15% disagree

“Moving into a fintech focused hub has been of massive help. We are supported by simply being in such an environment and surrounded by like-minded and intelligent people who are building their own businesses.” Matt Jones, Co-founder Mosaic Money

“The fintech industry in Australia has moved through the initial phase of exuberance and is now settling into a new stage of maturity which will see consolidation of more commercial ideas & focus on consumer & small business problems that need to be solved at scale.” Aris Allegros, Founder & CEO Moula

“If we had done this independently without being part of the ecosystem and community such as Stone and Chalk and H2, we would not have achieved what we have during the last two years. As a result, we were introduced to second-tier banks who joined our platform which we would otherwise not have been able to expand to.” Ranin Mendis, Founder & CEO Loan Dolphin EY FinTech Australia Census 2017 | 21

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Annual revenue growth % Revenue in June 2017 compared to June 2016 Revenue decline

Outlook and optimism

Nil growth

6% 10%

1% to 100%

The challenges confronting any start-up in any industry are recognised as being profound – and it was a sentiment that echoed through our interviews with fintech industry leaders. They spoke of the wide range of potential challenges that can emerge on the journey to having true market impact and that they can’t all be overcome by the passion and focus of the team. However, what has emerged in the study is that there is deep self-belief and a bullish outlook prevailing in the industry. Among post revenue fintechs, year on year revenue growth is substantial. Fintechs indicated median growth of 208% on their revenue in June 2016, driven by a cohort of 24% of fintechs that have experienced growth in excess of 700%. Higher growth rates are also experienced by fintechs under three years in existence, starting from their lower bases. Revenue growth stabilises somewhat once fintechs generate in excess of $100k revenue a month (127% growth rate on June 2016). The assured outlook is further emphasised when we look at perceptions around the relative competitiveness of fintechs in Australia… ►

Internationally competitive… Two thirds (63%) of fintechs agreed that Australian fintechs will be able to compete internationally. Forty-five percent

agreed that Australian fintech organisations will be able to ‘win’ against international peers. ►

Local competition… There are mixed views on the perceived quality of domestically based organisations (34% ‘agreed’ that there is a lack of quality fintechs in Australia; while 38% disagreed).

There is a positive outlook in the industry, founded on a belief that there is a competitive advantage for Australia fintechs. The three key elements of this potential competitive advantage are considered to be… ►

20%

101% to 300%

24%

301% to 700%

14% 24%

>700% Base:

Companies in post-revenue stage excluding ‘prefer not to say’ (n=49)

Median post revenue growth

208%

Regulatory environment… Australia’s sophisticated and trusted regulation of financial services provides a solid foundation for the development of solutions.

►

Advanced financial services industry… Australia’s advanced financial services and wealth management sector delivers both commercial experience and creates opportunities.

►

Access to Asia… Australia is a good starting point to develop their export solutions – particularly in the Asia Pacific region and proximity to capital sources from major Asian centres such as China.

June 2017 vs. June 2016

“The disruption of financial services is most likely to come from digital giants from developing markets such as China or even those technology giants from the US who are extending their platform dominance into financial services. In the face of this, many local fintech start-ups are likely to be acquired by either global players or local incumbents and should be preparing for that possibility by keeping in close contact with potential acquirers.” Simon Cant, Chair FinTech Australia EY FinTech Australia Census 2017 | 23

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Future outlook Expand/expand further overseas

Global reach Each major fintech centre around the world has its own unique dynamics – creating both opportunities and boundaries for those domiciled in each location. These are defined and influenced by a wide range of factors that predominately revolve around the five ecosystem pillars. Some fintechs operate within these parameters, seeing themselves as more domestic or regionally oriented solutions, others have international aspirations (if not current presence). The Australian landscape is acknowledged as unique, as many of the fintechs operating here need to do so within a heavily regulated environment. They also have the challenges relating to talent, capital, demand, policy and environment. These ‘constraints’ are real and need to be recognised, but it was also interesting that several leading industry commentators felt the Australian fintechs could be more globally ambitious. This was not intended as a criticism per se, more a recognition of the calibre of the proposition and the potential to cross borders. It was felt that other international hubs, like the UK, are perhaps more geared to driving globally-scaled disruptive innovation. It’s a point that will no doubt provoke considerable discussion and debate and that is, in itself, important for the industry. Regardless of the perception and the belief that some fintechs could be more globally assertive, there is significant pending focus across borders. More fintechs are intending to “Expand or expand further overseas” in

the next 12 months; this has increased from 38% to 54% of fintechs this year. Among the fintechs that are looking to expand, the top three markets for expansion are the United Kingdom (49%), Singapore (40%) and the United States (38%). From the Australian fintechs who have already ventured beyond our shores, their advice is consistent;

Don’t go it alone, you need to form trusted partnerships in your target markets and work with those who understand the cultural and consumer norms.” Don’t underestimate the licencing challenges in each and every market; be prepared for this to take considerable time, patience and resources.” Among fintechs that are not considering expanding/expanding further overseas reasons include business plan is currently focusing on the local market growth (67%), followed by lack of time to investigate potential overseas markets (22%).

2016

38%

2017

54%

“Start-ups know that expanding beyond Australia’s borders will lead to a significant increase in customers and investors, which is why they believe they need to solve problems for people globally. It takes a creative idea and solution, but it also requires effective strategic execution of the idea, along with a global network and community to help tap into local regulatory knowledge.” Danielle Szetho , CEO FinTech Australia

“Incumbent institutions struggle to imagine the rules are changing and their old business models are not sustainable. To keep up with the shift, they need to quickly find new value chains that are inclusive of the customer. This will be vital to their political and financial future.” Katryna Dow, Founder & CEO Meeco

“I am delighted to see the increase in Australian fintech firms that are setting global goals for their businesses. More than half are now focused on expanding overseas in the next year. Supporting these creative start-ups is a major focus of Austrade, especially through our ‘Landing Pads’ program in five global innovation hubs, which is already propelling many clever Australian businesses to new heights.” Stephanie Fahey, CEO Austrade EY FinTech Australia Census 2017 | 24

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An effective ecosystem In the fintech sector in Australia, optimism abounds, however there is an undercurrent of realism in the community and amongst astute observers that tempers the enthusiasm. There is recognition that while Australian start-ups are progressive and agile, to truly succeed they will require significantly more support. While there are many strengths, Australia doesn't have the financial services scale, capital for investment or tech industry presence of some global peers. In that context, the need to create the most effective ecosystem to foster and support growth is all the more important. As outlined in this report and supported by broader global EY analysis, the most effective ecosystem is one that has five pillars – talent, capital, demand, policy and environment. This research plays a pivotal role in helping to give life to the ecosystem as it not only profiles and defines the fintech start-ups, but provides insight into how they are performing and what is required across each of these dimensions.

“Australia’s 600-odd fintechs now employ over 5,000 people, are growing at over 200% per annum and are raising serious amounts of capital. Combined with the strong support from Federal and State governments and corporate partners, we have now reached a tipping point where there is enough maturity in Australian fintech to enable a robust eco-system. We’re not there yet, but the foundation is built for Australia to take a leading regional role in fintech.” Stuart Stoyan, Deputy Chair and FinTech Census Founder FinTech Australia

The research has shown that there is a buoyant and vibrant fintech industry in Australia that is increasingly mature. It has also affirmed that there is no doubt Australia is regarded as a tier one fintech nation and the potential for success is profound. However, what we have also seen through this study and others conducted by EY is that the gulf between the leading nations (and cities) and those left in their wake will become greater as fintech solutions are embraced in the mainstream. Time is tighter than may be assumed. EY FinTech Australia Census 2017 | 25

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Census participants* Acceleration Venture Catalysts

CoinJar

FlyFree.ly

Map My Plan

Peer Estate

SmartFee

Advice RegTech

Credit Savvy

Frollo

Meeco

Pelikin

SocietyOne Holdings Pty Ltd

Adviser Network

CrowdfundUP

FundingPro

Metamako

Picture Wealth Pty Ltd

Spotcap Australia

Adviser Ratings

CXi Software

Get a Better Rate

MoneyPlace

Financial Mappers

Study Loans

AgriDigital

DigitalX

GiftInvestor

Moneysoft

Plenty

Surefire Systems Pty Ltd

AIRSCAPE

DirectMoney

H2 Ventures

Moneytech

PractiFI

Tappr

Airwallex

Douugh

Imperium markets

Moneytree

PrimaryMarkets

Tempus Adventus

Apex Capital Partners

Ducksoup

INAMO

Moroku

Promis Network Pty Ltd

The Change Compass

Astute Wealth Advice Pty Ltd

e4 Australia

InfraRisk

Mosaic Money Pty Ltd

Prospa

The Currency Shop

Audeamus Risk

Edstart

Instarem Pty Ltd

myadvisor.ai

Proviso

The Invoice Market

BankVault

EFTlab

Investment Control Systems

MyFiziq Limited

Quantifeed

ThinCats

BetaSmartz

Equitise

Investum

Neu.Capital

QuietGrowth

Trade Ledger Pty Ltd

Beyond Merchant Capital

Estate Baron

InvoiceInterchange

New Arenas Capital

QxBranch

Upcoming Floats

Bigstone Capital Pty Limited

Expense Check

InvoiceX

On Deck Capital Australia Pty Ltd

Red Marker

Valiant Finance Pty Ltd

Bit Trade Australia Pty Ltd

Ezidox Pty Ltd

iSignthis Ltd

OneCheck Pty Ltd

Reinventure

Verrency

Bravura Solutions Limited

Fabric

iungo

OnMarket BookBuilds

Round Table Apps

Waddle

The Brick Exchange

Fair Go Finance

Jelix Ventures

Open Orbit

RoyalPay

WealthNation

Carrots Money

Fin15

Joust

Open Sparkz

SavR

CashRemit Pty Ltd

Financial Mappers (Plencore Wealth Ltd)

Kikka Capital

Optimo Financial Pty Ltd

SelfWealth

International Payment and Transaction Monitoring Association (IPTMA)

Likwidity

OurMoneyMarket

ShareEquity

Zip Money

Claim Central Consolidated

Finhaus Labs

Link4 Australia

PayDock

Sidekick Industries

Cloud Insurance

FirstStep Investments Australia

Living Room of Satoshi

Paypont Australia

Six Park

Cloudcase Software Solutions

Flash FX

Mafematica

Payreq

Skippr Cash Flow

CCFS

* Note – Fintech participants listed above specifically provided their permission to be cited in this report EY FinTech Australia Census 2017 | 26

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FinTech Australia

Rowan Macdonald

Marc L’Huillier

Danielle Szetho

Partner Financial Services

Partner

FinTech Australia CEO

Ernst & Young, Australia


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Meredith Angwin

Lewis Jones

FinTech Australia Chair


Director - Melbourne

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Stuart Stoyan

Olivia Willee

Aditi Kane

FinTech Australia Deputy Chair and FinTech Census Founder


Manager

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Simon Cant

Marla Heller Partner Financial Services Ernst & Young, Australia [email protected]

Mark Skelsey FinTech Australia, Director of PR and Communications [email protected] @ausfintech (twitter) http://www.fintechaustralia.org.au

About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organisation, please visit ey.com. © 2017 Ernst & Young, Australia. All Rights Reserved. AU00003155 ED None. This communication provides general information which is current at the time of production. The information contained in this communication does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. EY Sweeney (a trading name of Ernst & Young) disclaim all responsibility and liability (including, without limitation, for any direct or indirect or consequential costs, loss or damage or loss of profits) arising from anything done or omitted to be done by any party in reliance, whether wholly or partially, on any of the information. Any party that relies on the information does so at its own risk. The views expressed in this article are the views of the author, not Ernst & Young. Liability limited by a scheme approved under Professional Standards Legislation.

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EY FinTech Australia Census 2017

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