Investment in Australian companies in the financial technology (FinTech) sector fell by more than 50% in the first half of this year, from $223 million in the same period last year to $101 million.
This is according to data from the professional services company KPMGAustralia’s decline reflects a global trend. Globally, total investment pumped into FinTech firms, including venture capital, private equity and M&A, fell to $37.9 billion in 962 deals in the first half of 2019. The decline was mainly due to a lack of massive deals, such as Ant Financial’s $14 billion raise in 2018 or Vantiv’s $12.9 billion acquisition of Worldpay.
Despite having one of the largest fintech transactions in the world and the third largest in Asia in March 2019, the $100 million Airwallex Series C, the Australian FinTech market has been muted. According to Dan Teper, partner at KPMG and head of FinTech, the dip in the market is likely to be a pause rather than a structural development, with major activity imminent in the second half of the year.
“In addition to venture capital investments in FinTech startups, there is also the possibility of future listings and M&A following successful IPOs such as Prospa and Afterpay. Their experience could encourage other FinTech companies to consider an IPO,” he said.
In their report, KPMG analysts have identified three key trends that they predict will drive FinTech investment activity in Australia. The first is open banking, which is designed to change the way banks exchange information and share information with their customers. Under the new legislation, the benefits of open banking will extend to other sectors such as energy and telecommunications.
“The adoption of open banking around the world is proving to be a driver of investment in FinTech, along with the opportunities offered by technologies such as artificial intelligence and data analytics,” said Ian Pollari, co-head of KPMG’s global FinTech practice.
Investments in blockchain, the technology that serves as the foundation for the well-known currency Bitcoin, are expected to continue to accelerate. A growing number of financial services organizations are using blockchain technology to streamline their operations, particularly in payments and transactions.
Laszlo Peter, head of blockchain at KPMG in Australia, said: “Blockchain is definitely here to stay. While funding may have slowed this year, it simply shows the growing maturity of the market. It’s a sign that investors are moving away from the ‘fear of missing out’ mentality that has caused many investors to push stupid amounts of money into investments – and are making more mature investment decisions and focusing on more meaningful initiatives.”
A third factor expected to boost FinTech investment is RegTech, which stands for Regulatory Technology. RegTech is seeing a surge in demand amid increasing regulatory burdens with new technologies able to perform jobs currently performed by humans more effectively and efficiently.