Hurdles emerge for Aussie fintechs after period of record investments

A record US$29.6 billion of investments flowed into the Australian fintech ecosystem during the first half of the year, a new report by KPMG has found.

The half’s biggest fintech deal was reported to be Block’s acquisition of Afterpay for US$27.9 billion, which made up the bulk of the finance flowing into Aussie fintechs over the period.

Additionally, three of the five biggest fintech deals in the Asia-Pacific region took place in Australia, including the US$1.06 billion merger between Superhero and Swyftx announced in June.

“More recently, we have seen deal volumes falling and some headwinds develop in the sector, with macro conditions, including inflationary pressures, rising interest rates and increased geopolitical tensions leading to a greater degree of uncertainty around both the global and Australian economic outlook,” KPMG Australia partner and head of fintech Dan Teper noted.

“On the back of this, the balance between revenue growth and profitability continues to shift, with investors requiring a greater degree of visibility, and often shorter time frame, with respects to fintechs delivering a profitable and self-funded business model.”

According to the KPMG Fintech Landscape 2022, Australia currently has a total of 775 active fintechs, an 8 per cent increase on the previous year when there were 718 active fintechs.

While 2022 has been a volatile year for digital currencies, the blockchain and cryptocurrency sub-sector still experienced the strongest growth over the past year. After increasing by 18 per cent, the sub-sector now represents roughly 11 per cent of all active local fintech firms.

KPMG also reported that payments (19 per cent) remains the biggest sub-sector of Australia’s fintech industry, followed by lending (15 per cent).

Mr Teper said that the new focus on profitability in the fintech landscape would likely lead to a period of more managed growth. He suggested that fintechs would be seeking to balance their customer acquisition and top-line growth ambitions with their operating leverage and burn rate.

“In addition, a level of consolidation is expected as existing players in the ecosystem look to create scale and cost efficiencies, with the aim of achieving an enhanced market position and stronger bottom-line performance,” Mr Teper added.

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.