FinTech Australia asks for policy rethink amid start-up funding woes

FinTech Australia is urging the Federal Government to reassess its policy stance as start-ups face growing obstacles in their capital raising efforts. Central to FinTech Australia's approach is the renewed support for Austrade to strengthen the international reputation of Australia's local sector. The apex body has also proffered several recommendations for nurturing and accelerating growth in the country's fintech ecosystem, in the wake of a widespread downturn in capital raising.

Speaking on the situation, Rehan D'Almeida, CEO of FinTech Australia, commented, "While we understand the core focus of this budget is cost of living measures, our recommendations are aimed at supporting Australia's next round of prosperity and job creation. Fintech has a key role to play in not only improving the financial literacy and prosperity of Australians but also in our transition to a green economy. Maintaining the industry's momentum is crucial in ensuring we see the most benefit from it as an agent of job creation and change."

The set of measures proposed by FinTech Australia to overcome these challenges include: targeted initiatives to resolve capital raising hurdles for fintechs, especially those targeting early-stage companies; expansion of the National Reconstruction Fund (NRF) initiatives to encompass fintech businesses more comprehensively; sustaining fintech trade and investment support funding; specific incentives to promote the Consumer Data Right; a revival and overhaul of the Enhanced Regulatory Sandbox (ERS); and increased funding and strengthening of ASIC to manage the expected wave of licensing applications.

D'Almeida went on to express the sector's commitment to ongoing partnership with the Federal Government, "While we will continue to work with the Federal Government on various regulatory issues such as the CDR and ERS, our priority is on issues affecting the entire sector. Namely capital raising and trade opportunities."

The State of Australian Startup Funding Report revealed a significant 53% year-on-year drop in startup funding. For the fintech industry specifically, the decline has been drastic, with startup funding receding to $331 million in 2023, a stark contrast to $2 billion in 2022 and $3 billion observed in 2021. Such funding shortages have resulted in a reduced crop of young, innovative businesses making their way into the market. Consequently, swift action is needed to boost both, the quantity and diversity of the funding available to the start-ups and scale-ups.

Given these circumstances, FinTech Australia is urging the government to revisit existing policy settings for early-stage fintechs and start-ups. This entails re-evaluating and extending the Early Stage Venture Capital Limited Partnership (ESVCLP) and Early Stage Innovation Company (ESIC) schemes, reviewing rules concerning crowdfunding, and guarding against moves which would adversely impact investment and undermine investor confidence, such as ASIC's proposed hike to the sophisticated and wholesale investor test thresholds.

Austrade's FinTech Trade and Investment Program (FTIP), set to conclude this year, is being flagged for renewal by FinTech Australia, on the grounds of the significant trade outcomes and job creation it has enabled. As per the latest FinTech Census, over one-fifth of all Australian fintechs generate half of their revenue overseas.

Reflecting on their previous collaboration, D'Almeida said, "To date, we've held an incredibly productive relationship with the Federal Government, and both it and its agencies have made significant headway on navigating regulation affecting fintechs. We look forward to continued work alongside them and hope to see support for fintech through the Budget process."