A flight to Australia in the company of KPMG Sydney

We never forget our international vocation and today we go very far geographically but very close in terms of interests and objectives with an interview dedicated to fintech opportunities in Australia with Matteo Musso, Associate Director, KPMG Sydney.

Let’s start by exploring the fintech landscape of this country

The number of fintech companies in Australia has increased from around 100 in 2015 to more than
700 in 2020. In this context, there are some sectors in particular that stand out, in which fintechs in
Australia have succeeded in positioning themselves as world leaders, due to their capacity to
innovate and offer value-added technological solutions to their clients. Within those sectors that
stand out, there is the payments sector, particularly Buy Now Pay Later (BNPL), the small business
lending sector, digital banks (also known as neo-banks), as well as the blockchain and cryptocurrency
sectors. With respect to investment, in 2020 Australia attracted 2 billion dollars of investment in the
fintech sector. This means investment in the fintech sector increased by more than 250% compared
to the previous year. In Italy in the same period, there was 150 million euros of investment. These
factors indicate that the Australian fintech sector boasts not only a large variety of players with
cutting edge technological solutions, but is also a sector with strong growth and the capacity to
attract global investment.

What opportunities does Australia offer in the payments industry?

The payments sector is the sector that boasts the greatest number of companies in the Australian
fintech sector. The strong growth we have seen in this sector is primarily due to the fact that in
Australia, most payments are electronic and Australians are used to using advanced payment
options that are also offered by the major banks. This has resulted in the creation of fertile territory
for the proliferation of payment companies within the local ecosystem. There are some data we can
analyse to further understand this phenomenon. For example, it’s possible to observe in Australia
that cash is used in only 27% of cases, and this percentage drops further to only 5% of cases if we
look at the part of the population that ranges from 19-39 years of age. In Italy, cash is used in more
than 80% of cases. For these reasons, we are convinced that Australia has the potential to become a
world leader in the payments sector. Some examples of Australian companies in this sector are Tyro
Payments, Zip and Afterpay. Recently we have also seen the acquisition of an Australian player by
the US global payments giant Square, which acquired the Australian company Afterpay for more
than 39 million dollars, which is not only the largest acquisition in Australian corporate history, but is
also one of the largest deals in the fintech sector.

What opportunities are there in the SME lending sector?

In Australia the small and medium enterprises (SME) sector is represented by more than two million
businesses employing around 5 million Australians. With respect to the sector regarding loans for
small businesses, we can see that one in four businesses are refused credit by the major Australian
banks. This is due to the fact that small businesses are often considered as less profitable and high
risk. This has created a ‘funding gap’ of around 90 billion dollars, which represents the amount of
credit that small businesses are unable to access via the main Australian lenders. This creates fertile territory for fintechs focused on the sector of small business (SME) lending, in that this funding gap is
considered to be a significant opportunity for investment and innovation in a market that at the
moment isn’t covered by the principal players in the sector in Australia. For this reason, in recent
years we have seen a proliferation of fintechs in the small business (SME) lending sector, offering a
value proposition with a strong technological component, with the objective of allowing small
businesses to have rapid access to credit. Some examples of SME lending players in Australia include
Moula, Judo Bank and Prospa. In our view, this is one of the sectors in which we will see significant
growth and innovation.

In collaboration with the Australian Trade and Investment Commission (Austrade) – for more information about opportunities to grow and expand in Australia, please visit: https://www.globalaustralia.gov.au/industries/financial-services-and-fintech

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To Australia, with special incentives and connections

Italy and Australia share many strong ties, both on a cultural and commercial level. There is a large Italian community in Australia – around one million residents have Italian heritage. There are Italian language newspapers and an Italian language radio station. The quality of products that are “Made in Italy” is well known and highly respected in Australia.

A large number of Italian companies are also present in Australia, including well-known names such as Ferrero, Leonardo, Eni, Enel and Barilla, just to name a few. Intesa Sanpaolo has been present in Australia since 2012.
Australia is keen to support other Italian and international companies seeking to expand to new markets. The new Global Talent Program offers highly skilled innovators and professionals working in “future-focused” fields such as fintech, a ‘fast-track’ pathway to achieve permanent residency in Australia. This program provides a high level of flexibility and all the benefits that are available to permanent residents. A dedicated contact person is also available to assist candidates throughout the process.

The R&D Tax Incentive is another important program for high tech businesses. Companies that have a business registration in Australia and an annual aggregated turnover of less than A$20 million, have the possibility to access a 43.5% refundable tax offset for eligible R&D expenses. According to EY, 64% of Australian-registered fintechs have successfully applied for the R&D Tax Incentive or are in the process of doing so.

The thriving fintech sector is creating further opportunities for businesses that are registered in Australia. A recent report published by EY found that fintech companies in Australia are continuing to increase their profitability, with median post-revenue growth of 80% in the past 12 months. The study confirmed there is a high degree of optimism among fintechs, as the industry continues to grow and broaden. In March, Australia achieved its first fintech ‘unicorn’, when Airwallex secured a valuation of US$1 billion. EY confirmed Australian consumers are increasingly embracing fintech solutions and there is a stronger collaboration between fintechs and incumbents.

A further indication of the success of the fintech sector in Australia was highlighted in the 6th annual Fintech100 report. Compiled by H2 Ventures and KPMG, the report lists the top fintech companies in the world based on capital raising activity, innovation, size and country; it also lists the top emerging fintechs. Overall, Australia has the 5th highest number of companies on the list, after the US, UK, China and India.

With a strong economy now in its 28th consecutive year of growth, a large and flourishing finance and tech sector, and a positive regulatory environment that is supporting the continued expansion of the fintech industry, Australia has all the fundamentals to offer strong prospects for companies seeking to expand into international growth markets.

For more information about expanding to Australia, please contact Sheralyn Derrick at the Australian Trade and Investment Commission office in Milan at sheralyn.derrick@austrade.gov.au

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Australia, an open-minded country allowing fintechs to grow

Australia has a thriving fintech ecosystem that is evolving rapidly, driven by the growing appetite for digital services. This is also creating an array of opportunities for international fintechs seeking to expand into new markets.

Given the diversity of the Australian fintech market, there are opportunities across a wide variety of subsectors, including payments, wealth management, data analytics, lending, insurtech, regtech, property tech, P2P, blockchain/distributed ledger, neo-banks and others.

Hiroki Takeuchi, the CEO of UK fintech GoCardless, which also has an office in Australia, advises his company is growing around two to three times faster in Australia and New Zealand than it did in the UK when it first launched.

Further growth opportunities will continue with the introduction of Australia’s Consumer Data Right (CDR) and Open Banking framework, which also includes a commitment to educating consumers and businesses about the advantages this offers.

The Australian Open Banking framework is based on the same structure as PSD2, providing an easy transition for European fintechs seeking to expand to Australia.

The difference in Australia’s approach to open banking however “is that it is the first part of an economy-wide Australian Consumer Data Right,” explains Scott Farrell, senior partner at King & Wood Mallesons and co-chair of the Australian Government’s FinTech Advisory Group. Scott advises that the starting point for Australia’s framework was based on understanding how data can increase productivity and innovation both for the nation and for Australian consumers and businesses.

“This right for customers to control, to make choices, to have convenience and confidence in sharing data, will start with Open Banking and is designed to create a level playing field, where customers can transfer their data when it benefits them. We have already started extending this framework to the energy sector and following that, to the telecommunications sector and in other parts of the Australian economy, including other parts of the financial services system, such as superannuation (pension funds) and insurance. If you are a business in Europe already dealing with the regulatory requirements of PSD2 and GDPR, there is a commonality of the platform, as the technology standards are based on those used in Europe and the United Kingdom”.

“The differences come from the expansion of the landscape that you can apply your technology and business model to, because if you bring your model to Australia, you can bring it not only for banking customers, you can bring it for telecommunications customers, retail customers and energy customers – in fact, you’re able to leverage your open banking business model into the entire customer base of all Australians.

An important part of the roll-out of Open Banking is that Australians will be informed about the opportunities the system offers them, “as this is a fundamental part of delivering the outcome,” confirms Scott. Australian banks will provide the majority of Australians with access to their data by February next year, with the remainder being completed within the following 12 months.

Fintechs in Australia have also welcomed the establishment of a Senate Committee, which will examine the scope and opportunity fintech offers to consumers and businesses, and ways to continue to foster a positive environment for financial and regulatory technology in Australia.

For more information about expanding to Australia, please contact Sheralyn Derrick at the Australian Trade and Investment Commission office in Milan at sheralyn.derrick@austrade.gov.au

We have already talked about Australia and the opportunities that the country offers to fintech in this article

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Why are fintechs expanding to Australia?

Did you know…

  • Australia is in its 28th consecutive year of economic growth (a record for uninterrupted growth among developed economies);
  • Finance and insurance services are Australia’s largest sector by gross value added (GVA) and is one of its highest growth sectors; and
  • Australia has the world’s fourth-largest pension market, valued at US$1.9 trillion.

As a wealthy country with a similar culture to Europe but located in the heart of the Asian region, Australia is an ideal destination for companies seeking to expand internationally.

Australia has a thriving fintech ecosystem that is evolving rapidly and becoming increasingly diverse, driven by the growing appetite for digital services.

Australia is taking a “customer-first” approach to regulating open banking with its Consumer Data Right (CDR) law, of which Open Banking is the first part. The CDR allows consumers to control their own data, including who can use it. It supports a single data-sharing framework that will allow consumers to own their own data not just in the finance sector, but in the future also in other sectors, such as energy and telecommunications. This creates opportunities for tech companies offering new products and services.

Australia’s Prime Minister, Scott Morrison, championed fintech in his previous role as Treasurer and adopted many pro-fintech policies. He has introduced the Consumer Data Right in order to drive competition and innovation across the economy.

A number of international fintech companies are now looking to Australia to support their international growth. European fintechs such as Revolut, Ebury, Ratesetter and TransferWise are just a few of those who have chosen to establish a presence in Australia.

Revolut chose Australia for its first expansion outside the UK and Europe, while Ebury opened its second Australian office just 12 months after its first, following a period of strong growth.

Given the strong economic ties with Asia, some international fintechs also choose Australia as their Asia Pacific headquarters. Ebury chose Australia as a global operational hub to support its expansion into Asia.

Irish fintech Fineos is also present in Australia and recently listed on the Australian Stock Exchange. According to Macquarie, lead manager for the listing, Fineos makes 53 per cent of its revenue in the Asia Pacific region, more than it makes in Europe (12 per cent) or North America (35 per cent).

The European connections don’t end there. Australia’s biggest bank, the Commonwealth Bank, recently invested US$100 million into Swedish fintech Klarna.

Insurtech Gateway, the London-based insurtech incubator, has chosen Australia for its first international program. Their Australian headquarters will be based in Sydney at Stone and Chalk, one of the biggest fintech hubs in Asia.

Regtech is another fast-growing sector for which there is increasing demand. The Australian Securities and Investments Commission (ASIC), a regulatory body, is proactively promoting regtech adoption among Australian financial services organisations. ASIC recently launched a series of events in which regtech startups and scale-ups demonstrated their solutions to representatives from finance, technology, government and media.

Australia has all the right fundamentals with a strong financial system, a vibrant digital landscape and geographically well-positioned to the growing economic powerhouse of Asia. It is fast emerging as a world intersection for fintech innovation.

Connect to our free, interactive live streaming event on Tuesday 24 September and join an Australian fintech expert who will be presenting from London, to learn more about Australia’s Consumer Data Right & Open Banking Framework and the opportunities this creates for fintechs.

For more information about the event or expanding to Australia, please contact Sheralyn Derrick at the Australian Trade and Investment Commission office in Milan at sheralyn.derrick@austrade.gov.au