AUSTRALIA’S MOST POPULAR BUSINESS PODCAST

Fear & Greed, Fear and Greed

Australia has been home to some huge fintech success stories – think companies like Afterpay and Airwallex. But more local successes are focusing overseas, pushed out by limited access to capital here, and too many regulatory hurdles.

It’s not all bad news though for the local fintech sector – according to the EY FinTech Australia Census 2023, more fintechs than ever before are now making money. Malia Forner, Oceania FinTech Leader at EY, explains why. 

Find out more: https://fearandgreed.com.au

See omnystudio.com/listener for privacy information.

1
00:00:03,990 –> 00:00:06,330
Sean Aylmer: Welcome to the Fear and Greed Business Interview. I’m Sean

2
00:00:06,570 –> 00:00:10,110
Sean Aylmer: Aylmer. Australia has been home to some huge fintech success

3
00:00:10,110 –> 00:00:15,240
Sean Aylmer: stories, think companies like Afterpay, Airwallex, but more local successes

4
00:00:15,240 –> 00:00:18,779
Sean Aylmer: are focusing overseas, pushed out by limited access to capital

5
00:00:18,780 –> 00:00:22,560
Sean Aylmer: here and too many regulatory hurdles. That’s according to the

6
00:00:22,560 –> 00:00:27,570
Sean Aylmer: EY FinTech Australia Census 2023, which also reveals just how

7
00:00:27,570 –> 00:00:34,259
Sean Aylmer: many fintechs are actually profitable. Malia Forner is the Oceania FinTech Leader at EY. Malia,

8
00:00:34,440 –> 00:00:35,430
Sean Aylmer: welcome to Fear and Greed.

9
00:00:36,000 –> 00:00:37,589
Malia Forner: Hi, Sean. Pleasure to be here.

10
00:00:38,400 –> 00:00:40,650
Sean Aylmer: This is the eighth year of your fintech census. Let’s

11
00:00:40,650 –> 00:00:44,520
Sean Aylmer: start with money. We like that. How profitable are Australian fintechs?

12
00:00:44,940 –> 00:00:49,290
Malia Forner: Oh, well, the eighth FinTech census has certainly shown us that the FinTech

13
00:00:49,290 –> 00:00:53,248
Malia Forner: sector in Australia just is continuing to demonstrate both growing

14
00:00:53,250 –> 00:00:57,300
Malia Forner: maturity, but really importantly, some record- breaking success. So in

15
00:00:57,300 –> 00:01:01,950
Malia Forner: terms of profitability and also income, we’re seeing this year

16
00:01:01,950 –> 00:01:07,500
Malia Forner: that a massive 88% of FinTech census respondents are actually

17
00:01:07,500 –> 00:01:11,639
Malia Forner: reporting that they’re generating income from sales. And that’s the

18
00:01:11,639 –> 00:01:15,330
Malia Forner: highest proportion we’ve ever seen since we started the census

19
00:01:15,330 –> 00:01:18,959
Malia Forner: now eight years ago.
But Sean, what’s even more remarkable

20
00:01:18,990 –> 00:01:24,089
Malia Forner: is that 43% of fintechs in Australia are now in fact

21
00:01:24,090 –> 00:01:25,170
Malia Forner: making a profit.

22
00:01:25,170 –> 00:01:25,290
Sean Aylmer: Oh, wow.

23
00:01:25,590 –> 00:01:29,819
Malia Forner: And that’s compared to 30% last year. So even in

24
00:01:29,819 –> 00:01:33,030
Malia Forner: just that 12 month period, we’ve seen a 13% increase.

25
00:01:33,450 –> 00:01:36,959
Malia Forner: And Sean, why I find that quite remarkable is that’s

26
00:01:37,020 –> 00:01:41,609
Malia Forner: also against a more competitive and challenging consumer environment.

27
00:01:42,420 –> 00:01:45,569
Sean Aylmer: Okay, so why do you think they’re doing so well…

28
00:01:46,049 –> 00:01:47,069
Sean Aylmer: Well, relatively well?

29
00:01:47,520 –> 00:01:53,310
Malia Forner: They’re doing relatively well because we’re seeing sector maturity. When

30
00:01:53,310 –> 00:01:56,849
Malia Forner: we started the census eight years ago, sure, we were still having

31
00:01:56,849 –> 00:02:00,509
Malia Forner: to define for people outside of the financial services sector

32
00:02:00,509 –> 00:02:04,830
Malia Forner: what fintech actually meant and what the verticals of fintech

33
00:02:04,830 –> 00:02:08,550
Malia Forner: meant. And now we’ve got so many different verticals of

34
00:02:08,580 –> 00:02:12,780
Malia Forner: fintech, both in Australia but also globally. And so what

35
00:02:12,780 –> 00:02:16,768
Malia Forner: we’ve seen is that sector maturity, which has been backed

36
00:02:16,770 –> 00:02:22,379
Malia Forner: by government investment over that period, is showing that they

37
00:02:22,379 –> 00:02:26,340
Malia Forner: can, and they are, not only competing with banks and

38
00:02:26,340 –> 00:02:31,110
Malia Forner: financial institutions for customers, but they’re also solving needs for

39
00:02:31,110 –> 00:02:36,240
Malia Forner: customers and therefore turning an income, making sales, and also

40
00:02:36,240 –> 00:02:38,339
Malia Forner: really importantly, making profit.

41
00:02:39,419 –> 00:02:41,940
Sean Aylmer: Okay, so not everyone is going to know exactly what

42
00:02:41,940 –> 00:02:43,770
Sean Aylmer: an Aussie fintech looks like. And in fact, when I

43
00:02:43,770 –> 00:02:46,139
Sean Aylmer: think about it, I think of payments businesses, and I

44
00:02:46,139 –> 00:02:51,330
Sean Aylmer: mentioned Afterpay and I mentioned Airwallex, but it’s much broader than

45
00:02:51,330 –> 00:02:51,929
Sean Aylmer: that, isn’t it?

46
00:02:52,740 –> 00:02:56,219
Malia Forner: It is much broader than that. There’s many different verticals

47
00:02:56,219 –> 00:03:00,299
Malia Forner: of fintechs in Australia now. Payments is still the number

48
00:03:00,300 –> 00:03:05,790
Malia Forner: one sector of fintechs in Australia. That’s followed by data

49
00:03:05,790 –> 00:03:11,040
Malia Forner: and analytics, payments, verticals, and also business tools or wealth

50
00:03:11,099 –> 00:03:15,630
Malia Forner: verticals. What we’ve also seen is emerging sector, both in

51
00:03:15,630 –> 00:03:21,060
Malia Forner: Australia and globally, is this concept of embedded finance. Now,

52
00:03:21,060 –> 00:03:24,388
Malia Forner: I’m quite excited about the concept of embedded finance because

53
00:03:24,810 –> 00:03:28,650
Malia Forner: it’s a trend that we see merging both financial services,

54
00:03:28,650 –> 00:03:32,639
Malia Forner: but non- financial services sectors. So think about that with

55
00:03:32,639 –> 00:03:36,269
Malia Forner: your everyday purchases that you’re making from your phone, your

56
00:03:36,270 –> 00:03:40,710
Malia Forner: Apple Watch, any other digital commercial infrastructure that you can

57
00:03:40,710 –> 00:03:44,760
Malia Forner: now purchase for any services, be it insurance, be it

58
00:03:44,760 –> 00:03:49,590
Malia Forner: an actual physical product, it’s embedded finance that’s driving that.

59
00:03:50,190 –> 00:03:52,230
Sean Aylmer: Stay with me, Malia. We’ll be back in a minute.

60
00:03:58,470 –> 00:04:04,410
Sean Aylmer: I’m speaking to Malia Forner, Oceania FinTech Leader at EY. One

61
00:04:04,410 –> 00:04:07,080
Sean Aylmer: thing I did notice in the survey is that there

62
00:04:07,080 –> 00:04:10,020
Sean Aylmer: are very few young companies, so we are maturing. I

63
00:04:10,020 –> 00:04:11,850
Sean Aylmer: get that. I think 3% or something or other, or

64
00:04:11,850 –> 00:04:15,390
Sean Aylmer: one year or younger, a lot more last year. I’m

65
00:04:15,390 –> 00:04:16,830
Sean Aylmer: not sure whether that’s a good or a bad thing

66
00:04:16,830 –> 00:04:21,118
Sean Aylmer: though, because I think wouldn’t we like a stream of startups?

67
00:04:21,599 –> 00:04:23,789
Malia Forner: Oh, we would always like a stream of startups. Not

68
00:04:23,790 –> 00:04:26,460
Malia Forner: only do we like it, I think the economy needs

69
00:04:26,460 –> 00:04:29,609
Malia Forner: it for the future productivity and innovation of the sector.

70
00:04:29,609 –> 00:04:32,940
Malia Forner: So it’s a really interesting data point. The census has

71
00:04:32,940 –> 00:04:35,970
Malia Forner: shown us this year that you’re right, Sean, it’s shown

72
00:04:35,970 –> 00:04:39,029
Malia Forner: us there’s just 3% of fintechs that are now one

73
00:04:39,029 –> 00:04:42,629
Malia Forner: year or younger, and that’s compared to 10% just in

74
00:04:42,630 –> 00:04:46,859
Malia Forner: 2022. Now, Sean, one of my hypotheses on this is

75
00:04:46,859 –> 00:04:51,690
Malia Forner: that it could suggest that the startups are facing significantly

76
00:04:51,690 –> 00:04:55,349
Malia Forner: higher barriers to entry than they were 12 months ago

77
00:04:55,440 –> 00:04:58,919
Malia Forner: into Australia, when we did see a greater influx of

78
00:04:58,920 –> 00:05:03,150
Malia Forner: new entrants that came out of the COVID lockdowns, with everything

79
00:05:03,420 –> 00:05:08,279
Malia Forner: being digital becoming in vogue.
Or alternatively, an alternative hypothesis

80
00:05:08,279 –> 00:05:12,480
Malia Forner: is that we’re seeing an equilibrium here because we are

81
00:05:12,870 –> 00:05:18,360
Malia Forner: off on a backdrop of there being around 900 fintechs

82
00:05:18,389 –> 00:05:22,769
Malia Forner: in Australia alone, which is a relatively sizable number given

83
00:05:22,770 –> 00:05:25,650
Malia Forner: the size of our economy. And so we could be

84
00:05:25,650 –> 00:05:30,089
Malia Forner: coming into this period of equilibrium or normalization as well.

85
00:05:30,660 –> 00:05:33,600
Malia Forner: But certainly what we’re seeing is there are barriers. So

86
00:05:34,020 –> 00:05:37,678
Malia Forner: it is harder to make it as a startup and

87
00:05:37,678 –> 00:05:42,810
Malia Forner: to grow your company because of reduced local limited capital,

88
00:05:43,710 –> 00:05:49,110
Malia Forner: complex regulatory hurdles. And thirdly, overseas direct investment strategies from

89
00:05:49,860 –> 00:05:53,758
Malia Forner: overseas governments and financial hubs are certainly tempting our local

90
00:05:53,759 –> 00:05:57,420
Malia Forner: success stories to, as you said in the opener, focus

91
00:05:57,450 –> 00:05:58,379
Malia Forner: efforts offshore.

92
00:05:59,190 –> 00:06:02,250
Sean Aylmer: Okay, so let’s break those down. Access to finance, it’s

93
00:06:02,250 –> 00:06:07,080
Sean Aylmer: harder now. Is that because investors are more circumspect? Is

94
00:06:07,080 –> 00:06:08,969
Sean Aylmer: it an interest rate issue? What do you think?

95
00:06:09,990 –> 00:06:12,868
Malia Forner: It could certainly be a couple of those reasons for

96
00:06:12,870 –> 00:06:19,260
Malia Forner: sure, but it’s also, there’s an increased uncertain macroenvironment that we’re operating within,

97
00:06:19,800 –> 00:06:24,000
Malia Forner: and capital raising is becoming more difficult across the sector,

98
00:06:24,000 –> 00:06:28,049
Malia Forner: across all of the verticals. And in fact, the overall proportion of

99
00:06:28,050 –> 00:06:32,639
Malia Forner: fintechs said that they had not met their capital raising

100
00:06:32,639 –> 00:06:37,169
Malia Forner: expectations in the past 12 months surged to 41% this

101
00:06:37,169 –> 00:06:41,490
Malia Forner: year, and that was up from 29% just in 2022.

102
00:06:42,000 –> 00:06:45,960
Malia Forner: And interestingly, the fintechs this year in Australia are actually

103
00:06:45,960 –> 00:06:49,799
Malia Forner: ranking raising that equity capital as their tops concern for

104
00:06:49,799 –> 00:06:54,300
Malia Forner: the year ahead, with 61% citing it is their biggest challenge.

105
00:06:54,540 –> 00:06:57,210
Malia Forner: And that’s even well ahead of the uncertain economic climate,

106
00:06:57,330 –> 00:06:58,380
Malia Forner: which ranked it second.

107
00:06:59,250 –> 00:07:02,039
Sean Aylmer: Okay. What about regulatory hurdles? That was another one you

108
00:07:02,040 –> 00:07:08,279
Sean Aylmer: mentioned. Is the Australian legislative environment… It must be very

109
00:07:08,279 –> 00:07:10,529
Sean Aylmer: difficult to keep up with the fintech sector, to be honest.

110
00:07:10,529 –> 00:07:13,470
Sean Aylmer: Years ago I used to work at Supervision Department, Reserve

111
00:07:13,470 –> 00:07:15,270
Sean Aylmer: Bank, which is now known as (inaudible) , and trying

112
00:07:15,270 –> 00:07:16,860
Sean Aylmer: to keep up with what the banks were doing was

113
00:07:16,860 –> 00:07:20,250
Sean Aylmer: really hard. Fintech’s the next level, do we have a

114
00:07:20,250 –> 00:07:23,190
Sean Aylmer: regulatory environment that suits fintech?

115
00:07:23,940 –> 00:07:26,790
Malia Forner: The regulatory environment’s come a really long way just in

116
00:07:26,790 –> 00:07:30,510
Malia Forner: the last five years, but it’s hard to keep up

117
00:07:30,510 –> 00:07:34,650
Malia Forner: with it from a government and regulatory perspective because the

118
00:07:34,650 –> 00:07:39,059
Malia Forner: rules change both when you’re operating with financial services, but

119
00:07:39,059 –> 00:07:44,010
Malia Forner: you’re operating with financial means and user data of people

120
00:07:44,280 –> 00:07:48,060
Malia Forner: means it is complex and it changes quickly. But what

121
00:07:48,119 –> 00:07:52,710
Malia Forner: is really important is that what we’ve seen is fintech

122
00:07:52,710 –> 00:07:56,609
Malia Forner: is critical in supporting the growth of our entire Australian

123
00:07:56,610 –> 00:08:00,840
Malia Forner: digital economy. And so we need to keep focused on

124
00:08:01,110 –> 00:08:05,609
Malia Forner: the fact that we need to continue globally competitive incentive

125
00:08:05,609 –> 00:08:12,060
Malia Forner: models, but also streamlining regulation and importantly, continuing some trade

126
00:08:12,060 –> 00:08:15,570
Malia Forner: and investment programs that clearly the government has been really

127
00:08:15,570 –> 00:08:21,270
Malia Forner: successful in helping fintechs and startups alike be a multiplier

128
00:08:21,270 –> 00:08:23,910
Malia Forner: here in Australia, and the census points the way to that.

129
00:08:24,360 –> 00:08:26,820
Sean Aylmer: Okay. So having said all that, we still do have

130
00:08:26,820 –> 00:08:29,610
Sean Aylmer: a bunch of fintechs looking overseas. Also, we have offshore

131
00:08:29,610 –> 00:08:32,790
Sean Aylmer: fintechs looking at the Australian market as well. But let’s

132
00:08:32,790 –> 00:08:35,578
Sean Aylmer: think about us looking off… Is there more of that,

133
00:08:35,759 –> 00:08:38,850
Sean Aylmer: more Australian fintechs looking to make their money elsewhere?

134
00:08:39,509 –> 00:08:42,208
Malia Forner: Well, they are in fact making their money elsewhere. What’s

135
00:08:42,208 –> 00:08:45,120
Malia Forner: really interesting with the data this year is we’re seeing

136
00:08:45,120 –> 00:08:50,790
Malia Forner: that Australian fintechs are producing 50% of the income that

137
00:08:50,849 –> 00:08:54,210
Malia Forner: we spoke about right at the beginning offshore. Now, I

138
00:08:54,210 –> 00:08:57,839
Malia Forner: think that’s an incredible statistic because it means that they’re

139
00:08:58,500 –> 00:09:03,150
Malia Forner: clearly focusing their efforts for customers, for investors, for users

140
00:09:03,570 –> 00:09:06,809
Malia Forner: offshore. And it must be working because 50% of the

141
00:09:06,809 –> 00:09:09,870
Malia Forner: revenue for the fintechs from a statistical point of view

142
00:09:10,349 –> 00:09:13,109
Malia Forner: are being sought overseas.

143
00:09:13,679 –> 00:09:15,540
Sean Aylmer: That’s the wonderful thing about being a fintech, isn’t it?

144
00:09:15,540 –> 00:09:17,580
Sean Aylmer: You don’t have to have bricks and mortar in some

145
00:09:17,580 –> 00:09:18,420
Sean Aylmer: ways, I suppose.

146
00:09:18,690 –> 00:09:21,809
Malia Forner: Exactly. No geographic barriers.

147
00:09:22,200 –> 00:09:24,210
Sean Aylmer: Okay, so where to next? What’s the next five years

148
00:09:24,210 –> 00:09:26,910
Sean Aylmer: hold for the sector? Any more after pays out there,

149
00:09:26,910 –> 00:09:27,389
Sean Aylmer: do you reckon?

150
00:09:28,020 –> 00:09:30,539
Malia Forner: Well, I certainly hope so, and I certainly think so.

151
00:09:31,200 –> 00:09:32,999
Malia Forner: I certainly don’t have a crystal ball, not one that

152
00:09:33,000 –> 00:09:37,500
Malia Forner: works, Sean, but I certainly think that the Australian fintech sector

153
00:09:37,530 –> 00:09:41,760
Malia Forner: has an incredibly strong record of innovation and growth. But

154
00:09:41,820 –> 00:09:45,179
Malia Forner: to continue that positive trajectory, it’s quite clear that some

155
00:09:45,179 –> 00:09:48,540
Malia Forner: immediate changes are needed to continue to make Australia an

156
00:09:48,630 –> 00:09:52,949
Malia Forner: incredibly attractive environment to both start and grow a business.

157
00:09:53,580 –> 00:09:56,130
Sean Aylmer: Go on, go on. What do we need?

158
00:09:56,640 –> 00:09:59,429
Malia Forner: Well, I think what we need there, Sean, is we need to

159
00:09:59,429 –> 00:10:02,819
Malia Forner: keep using incentives. We need to keep using grants to

160
00:10:02,820 –> 00:10:06,270
Malia Forner: expand and attract both that domestic and foreign investments that

161
00:10:06,270 –> 00:10:08,910
Malia Forner: you spoke about, because it’s not just about our domestic

162
00:10:08,910 –> 00:10:12,510
Malia Forner: companies going global. We want them to start thinking global

163
00:10:12,510 –> 00:10:17,580
Malia Forner: and go global, but it’s also about attracting these incredible

164
00:10:17,610 –> 00:10:21,929
Malia Forner: offshore organizations to want to set up headquarters in Australia

165
00:10:21,929 –> 00:10:26,789
Malia Forner: as well. And often that is through globally competitive incentives,

166
00:10:26,790 –> 00:10:30,779
Malia Forner: and really importantly, reducing the barriers to entry to do

167
00:10:30,779 –> 00:10:33,330
Malia Forner: so. And that’s going to be in part for this

168
00:10:33,330 –> 00:10:38,070
Malia Forner: sector to maintain some secure and stable regulations so that

169
00:10:38,070 –> 00:10:40,950
Malia Forner: we can really build on our strong foundations as the

170
00:10:40,950 –> 00:10:42,900
Malia Forner: regional financial hub for Asia Pacific.

171
00:10:43,440 –> 00:10:45,300
Sean Aylmer: Malia, thank you for talking to Fear and Greed.

172
00:10:45,719 –> 00:10:47,459
Malia Forner: Pleasure to be here. Thank you for having me, Sean.

173
00:10:47,969 –> 00:10:51,088
Sean Aylmer: That was Malia Forner, EY Oceania. There you go. I

174
00:10:51,090 –> 00:10:55,230
Sean Aylmer: said it wrong. That was Malia Forner. EY Oceania FinTech Leader.

175
00:10:55,290 –> 00:10:57,330
Sean Aylmer: This is the Fear and Greed Business Interview. Join us

176
00:10:57,330 –> 00:10:59,669
Sean Aylmer: every morning for the full episode of Fear and Greed,

177
00:11:00,000 –> 00:11:03,809
Sean Aylmer: Australia’s best business podcast. I’m Sean Aylmer. Enjoy your day.