Victoria seeks to ride the Fintech wave

Fintech is booming around the world and Victoria is proving to be extremely fertile ground for innovation.

Fintech is the revolution which is sweeping the financial world. A new generation of innovative companies is offering new ways for consumers to engage with the financial world. Whether it’s making overseas transactions safely and affordably, raising funds or playing the stock market, this entrepreneurial sector is changing the game – and many of the most exciting companies are to be found right here in Australia.

A recent Frost & Sullivan report predicts the Australian fintech sector to grow at a staggering compound annual growth rate (CAGR) of 76.36 per cent, reaching A$4.2 billion by 2020. Demand is being pushed by a wealthy demographic between the 13 to 34-year-old age bracket that is cash-rich and looking for new services the banks currently do not, or cannot, offer.

Several global fintech players have expressed a keen interest in Australia’s fintech landscape, seeing the market as ripe for expansion. Acorns, the US company which allows its customers to invest spare change, says it targeted Australia as the next stage for expansion, thanks to its deep mobile penetration and tech-savvy population.

The startup boom

However, it’s the domestic Australian fintech startup scene which is causing a stir. Currently, FinTech Australia estimates there are 250 of these companies in Australia, with Victoria and New South Wales proving particularly attractive. This number is growing and fintech businesses are extremely bullish about the future.

The EY FinTech Australia Census 2016 report revealed that 82 per cent expect to see their revenue grow over the next 12 months, with 72 per cent taking on more employees and 38 per cent planning to expand overseas.

Victoria is working hard to become a major fintech hub. Last year, LaunchVic injected A$300 million into FinTech Australia as it geared up for the inaugural FinTech Summit. It’s all part of a wider strategy, which the government hopes will make Victoria a major player in the boom. The aim is to become a location of choice for startups across the Asia Pacific region and help young companies turn good ideas into thriving enterprises.

The government has also run meetups in which a selection of the most viable startups from across the state got the chance to meet a collection of heavyweight US investors. They have good reason to be enthusiastic. The Frost & Sullivan report on the state of the fintech sector suggests A$1 billion of the A$4.2 billion market will be a new value for the economy.

It’s a market of rapid growth and innovation with enormous potential for expansion. It’s offered up faster, more affordable ways to transfer money overseas, delivered a range of financial management services for individuals and businesses and seen the growth of new sectors such as crowdfunding. These opportunities have not only offered new ways for investors and savers to make money, but also open up new sources of capital for small and businesses, which might previously have been ill served by the banks.

Filling gaps

Indeed, for many people, a sense of disruption and innovation is key to the sector, one which addresses gaps left by conventional methods of finance and challenges the existing order. Certainly, many of the exciting companies exhibiting at the FinTech Australia Summit 2016 exist because they are filling hole—something conventional financial institutions have not covered, as Aris Allegos of small business finance provider Moula Money acknowledges.

“The opportunity has arisen because the big four are predominantly balance sheet and secured lenders,” Aris Allegos says. “By virtue of being a secured lender, it’s a very different investment decision to the assessment we make. That’s not to say the banks aren’t servicing the small business segment, but there is a large part of the small business sector which is left untouched by virtue of the fact that small businesses don’t all have security or cash to put on deposit.”

Victorian company Timelio is another example that is plugging a gap the major banks often overlook. Their niche is invoice financing, which enables small businesses to get paid on time rather than waiting 30 to 90 days.

“This is a niche product that is not understood… and thereby, those customers are not serviced,” Charlotte Petris, Founder and CEO of Timelio, says. “Two of the Big Four banks pulled out of this market after 2008, so there is a large gap there.”

Other startups offer exciting new ways for people to get involved with finance. FirstStep works to change the way we invest by allowing you to invest with your loose change. Any purchase you make is rounded up to the next dollar and the spare cash pumped into an investment fund. For example, if you buy a coffee for $3.80 it would invest the space 20 cents into the fund. Over time this would build up without thinking about it. Their aim is to allow small change to turn you into a millionaire.

The old and the new

However, this is not just about doing things the banks can’t. Almost half of respondents to FinTech Australia’s survey said that collaborating with existing players was a key part of their forward strategy. Westpac, one of Australia’s oldest institutions, organised an event in 2016, in which a group of young entrepreneurs pitched their ideas at a “Shark Tank” styled event. National Australia Bank (NAB) has recently launched a A$50 million innovation fund which is turning its attention to fintech startups.

This is, then, a market which is open for new players and attractive to larger existing funds. It’s one in startups can potentially trigger rapid growth in and become big names in their own right. Victoria, with its tech-savvy population, fertile entrepreneurial scene and support from the government, represents an ideal location for this transformative market of the future.