“Profitability can come later on”: Aussie fintech growing into a huge opportunity, despite ongoing talent pool challenges

Australian fintechs are on average a little older, a little more mature, and generating a lot more revenue than they were this time last year, but there are still challenges in the sector according to the EY FinTech Australia Census 2018, released this week.

Following a survey of 151 fintechs across Australia, and a series of in-depth interviews, the report shows a maturing fintech market in Australia, with 43% of fintechs over three years old, compared to 31% in 2017 and 20% in 2016.

While it’s clearly a good thing these companies are surviving — even thriving — this could also be indicative of a lack of early-stage fintechs following in their footsteps.

This would be in line with an ongoing theme coming out of a recent spate of startup research. The Startup Muster report released last week revealed a significant drop in the number of startups launched over the past 12 months, from 1,291 recorded in the 2017 report to 712 this year.

KPMG Enterprise’s Venture Pulse Q3 2018 report, released earlier this month, found while investment into startups increased is increasing, the average deal size is too.

Speaking to StartupSmart at the time, Right Click Capital partner Benjamin Chong suggested this could mean the lion’s share of funding is going to growth-stage companies, rather than to early-stage startups in the form of seed and Series A funding.

However, while the stats in the fintech census are potentially part of that broader trend, according to MoneyPlace founder and chief executive Stuart Stoyan, who is also a former chair of FinTech Australia, says they also just represent “not so much a cooling, but coming off of a crazy growth rate, to an exceptional growth rate”.

Growth has slowed, but the sector is still growing at a remarkable rate, Stoyan says.

“It’s definitely a maturing but also an acceleration in maturity too … there are more that are profitable and more that are seeing really good growth rate,” he adds.

Indeed, between June 2017 and June 2018, post-revenue fintechs have seen an average of 125% revenue growth.

Only 4% of fintechs are seeing a drop in revenue, and while 33% are seeing revenue growth between 1% and 100%, 27% have seen growth of more than 300% year-on-year.

“That’s huge,” Stoyan says.

“Three in 10 fintechs are running at absolutely crazy growth.”

It shows a “healthy, robust fintech sector”, he adds.

While 68% of total respondents are post-revenue, only 19% were profitable.

This is up from 14% in both the 2016 and 2017 surveys, and while it’s not a huge number, Stoyan says it’s nothing to worry about.

“Profitability can come later on. The revenue metrics are more important than profitability,” he says.

“The opportunity is so massive that profitable growth isn’t necessary. You just have to grow into the opportunity,” he adds.

And that optimism is reflected among post-revenue fintechs, with 83% expecting to grow over the next 12 months, and 54% planning to expand, or further expand, overseas.

Talent pool

A theme emerging from the survey relates to a limited talent pool, with 50% of leaders of saying Australia lacks experienced startup and fintech talent.

Attracting talent was a top internal challenge for fintechs, cited as a concern by 45% of all companies, and by 57% of companies trying to scale.

Of those that said they struggle to find top talent, 77% specifically said they have difficulty finding engineering and software expertise.

Part of the issue here is that, although there are “a massive number of technology graduates coming out of our universities”, Australian companies are competing with global markets, and “you do see Aussies leaving to go overseas”.

At the same time, global tech companies are coming to Australia and hiring locally, while banks are recruiting for tech talent as well.

“It all plays into the challenges around visas, and the need to actually have government support to make it easier for people to be able to attract workers from overseas,” Stoyan says.

The scrapping of the 457 visa caused concern for startups, with founders expressing concern the changes would stifle innovation and growth in the tech scene.

Although a new Global Talent Scheme trial visa was announced back in March, the process has effectively been halted, with no visas issued under the scheme as of early this month.

“Half of Australian fintechs are saying we’re struggling to attract and retain appropriate development talent. That definitely highlights there being a major issue around [the visas],” Stoyan says.

The report suggested there’s an increasing demand for fintech services, driven by digital infrastructure and consumer demand for alternative financial options.

But from the fintechs, it also revealed desires for more accessible R&D tax incentives, government initiatives to support growth and a more flexible sandbox environment.

According to Stoyan, the government is both supporting fintechs and needs to do more.

“Our politicians absolutely recognise and believe in the full potential of fintech to not just create a thriving fintech sector but actually to be able to improve customer outcomes in financial services,” he says.

However, at the same time, comprehensive credit reporting has been slow to come into effect, and the government has been “very aggressive on open banking”.

“But that just puts a rocket up the industry to say this is happening,” Stoyan says.

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