Source: Frost & Sullivan
The global Fintech sector exhibited robust growth in 2014 when investment activity tripled to US$12.21 billion from US$4.05 billion in 2013.
This activity continued in 2015 with an increase in global funding into Venture Capital (VC) backed Fintech startups. Fintech growth in 2015 was international, and Frost & Sullivan anticipates this international dispersion, as well as the global growth trend to continue with more Fintech companies successfully reaching the exit stage of funding in 2016.
In the Asia-Pacific region, Fintech investments were concentrated in Australia, China and Singapore, and in 2015, skyrocketed to reach US$3.46b - a four-fold increase from 2014 to 2015. Asian Fintechs garnered strong support, with funding growing by 413%, whilst North American funding grew by 59%. While China has been the best performer so far, Australia is poised for exponential growth.
Frost & Sullivan's latest study, Fintech in Australia - Trends, Forecasts and Analysis 2015 - 2020 forecasts that the Australian Fintech Sector will grow at a CAGR of 76.36% and reach A$4.2 billion by 2020; of which A$1 billion will be completely new added value to the Australian economy. In 2015, the total market size of the Australian Fintech Sector was estimated at A$247.2m. Frost & Sullivan anticipates sharp growth in the Fintech market in 2016 and 2017, followed by steady increases through to 2020.
In 2015, investments in the Australian Fintech market totalled A$438 million and was concentrated in innovation hubs in Sydney; in particular, the Tyro Fintech Hub and the Stone and Chalk Fintech Hub. In 2015, more Fintechs had either positive cashflow or a higher turnover than in 2014, contributing to greater investor confidence in APAC Fintech companies. The total value of investments grew at a greater rate than the number of individual mergers and acquisition deals.
Audrey William, Head of Research, ICT Practice, Frost & Sullivan Australia & New Zealand, says Australia's Fintech market has both internal and external growth drivers. "The investment environment for Fintech companies is incentivised with aggressive low taxing and generous investment tax exemptions. The Australian Federal Government has extended a 20% tax offset for early stage investments up to a total investment value of $200,000, and capital gains tax exemptions for direct and indirect investments held for at least three years. It has also created a Fintech Advisory group committed to simplifying and creating new regulations to help Fintechs raise VC funding, develop and provide more financial products and access more financial data than was previously permitted."
A wealthy 18-34 demographic is driving consumer demand for Fintech products. On average, Australian households had $998 per week of disposable income in 2014, which is an increase of $18.6 (1.8%) in real terms since 2004. In 2014, using products offered by the Fintech sector , Australians had, in real terms more money to manage, invest and pay. Whilst Australian customer satisfaction is high, in historical terms, it shows a skew towards customer satisfaction with smaller banks rather than the "Big Four". The Fintech sector is poised to take advantage of the more personalised and innovative financial solutions preferred by customers in the current financial sector.
Saranga Sudarshan, Research Analyst, ICT Practice, Frost & Sullivan Australia & New Zealand says various services will be offered by Fintech companies that are not fulfilled by the "Big Four" Australian banks. These include new payment methods, financial and investment advice to low-income customers and quick access to short-term credit. "Australian Fintech companies will be concentrated in two segments: Personal and Business Finance and Digital Payments. This is congruent with Frost & Sullivan's forecast that revenues will also be concentrated in these two segments," he added.
Sudarshan concluded with forecasts for several segments, "Growing consumer confidence and popularity of new Fintech products will see steady revenue growth in digital payments. In Personal and Business Finance, the share of revenue to mobile oriented personal finance solutions will expand as consumers become more comfortable with peer-to-peer lending, micro-investing and mobile based book-keeping. Financial Infrastructure and Data Analysis will increase in revenues, but become more concentrated as the share of revenues to vendor and enterprise oriented solutions offered by the Financial Infrastructure and Data Analysis segment slowly increases. However, these revenues will decrease as a share of the entire Fintech sector revenues."