Australian fintech sector shows success but start-ups face steep entry barriers

The latest EY FinTech Australia Census has presented a mixed picture for the country's fintech sector. The report indicates a markedly mature sector with record-breaking success, suggesting a healthy ecosystem ensconced in innovation and self-sustainability. Still, a spate of challenges threaten to hamper the growth trajectory, with emerging fintech start-ups facing monumental barriers to entry.

According to the census, a whopping 88% of fintech respondents reported that they are post-revenue, while 43% are turning a profit, up from 30% last year. It reveals a significant maturation within Australia's fintech landscape, underlined by entrepreneurial prowess and innovation-oriented execution.

However, the census also points towards a worrying decline in younger companies in the fintech ecosystem. Only 3% of the companies are one year or younger, down from 10% in 2022. This shrinking percentile suggests that start-ups are facing significantly higher barriers to entry than they were 12 months ago. It paints a dual picture of the fintech landscape where mature companies fare substantially better than early-stage start-ups.

Capital raising too, has emerged as an area of concern, with 41% of fintechs reporting a failure to meet their capital raising expectations in the past 12 months, a significant increase from the 29% reported in 2022. Fintechs attributed this predicament to increasing capital constraints coupled with an uncertain macroeconomic environment, resulting in a heavy reliance on founder funding to meet company goals, with 57% resorting to their personal savings.

Malia Forner, EY Oceania FinTech Leader, said, "The Australian fintech sector has a strong track record of innovation, transformation and growth but to continue this positive trajectory, it's clear some immediate changes are required to make Australia a more attractive environment to start and grow a business."

The census report also reflected upon demographic diversity within the fintech sector. Female representation in leadership positions increased marginally to 31% in 2023, up from 28% in 2022, while female founders recorded similar growth, increasing to 29% in 2023 from 28% the previous year. However, the overall percentage of females in the sector saw a slight dip, decreasing to 32% in 2023 from 34% in 2022.

According to Rehan D'Almeida, General Manager, FinTech Australia, "We've hit a critical inflection point where we are either going to see the ecosystem spring up or spiral down. The challenging investor landscape and lack of new entrants seen from this Census highlight an urgent need for renewed government focus and support from visionary investors. It is crucial we keep our best and brightest fintechs focused on Australia to empower our nation's continued economic vitality."

The fintech sector's potential lies within its significant contributions to financial institutions, small businesses, the broader digital economy, and Australian consumers. It is the engine that drives innovation and disrupts traditional business models. As such, keeping the sector in the positive growth trajectory is of paramount importance, not just for the financial world, but for every facet of a digitising economy that increasingly relies on technology and innovation.