FinTech Australia urges reform of R&D tax incentives

FinTech Australia has issued a call for an urgent recalibration of Research and Development tax incentives and the Early Stage Venture Capital Limited Partnership (ESVCLP) Program to address investment trends that could hinder the progress of newer fintech companies in Australia.

According to KPMG's Pulse of FinTech Report, the number of deals declined 14% in the second half of 2024. The report highlighted a concentration of funding towards more established businesses.

This appeal is part of FinTech Australia's Pre-Budget Submission to the government, outlining the focus areas for enhancing the Australian fintech ecosystem.

Rehan D'Almeida, Chief Executive Officer of FinTech Australia, warned, "Australia is at risk of creating a two-speed fintech ecosystem. One where larger players continue to grow, but smaller newer companies, that could become our next Afterpay or Up Bank, struggle to get off the ground."

"We're seeing this play out across the available funding data. While it's taking longer, more established fintechs are still securing funding. Meanwhile, early-stage fintechs -- many of whom are flying under the radar -- are struggling to find investment. This is where government intervention can have the greatest impact."

D'Almeida expressed concern about the sector's move towards artificial intelligence, given the challenges faced by early-stage fintech firms trying to seize new opportunities to enhance financial literacy and competition in Australia.

"We continue to hear reports from founders that Australia's R&D tax incentive system is too complex and too time consuming for early stage founders," he stated. "The Government's Strategic Examination of Research and Development, announced as part of the 2024-25 Budget is an opportunity to change this for the better."

FinTech Australia also made several other recommendations. These include ongoing funding for the Consumer Data Right (CDR) rollout beyond the AUD $88.8 million allocated in the previous Federal Budget and working towards a unified digital economy by streamlining overlapping compliance frameworks.

The organisation urged a renewed focus on fintech as a key international export and called for restoring the partnership with Austrade. It also asked for an urgent review of the Enhanced Regulatory Sandbox to ensure its effectiveness.

There is a call for allocating funds to support "green fintech" initiatives to promote sustainability practices within Corporate Australia and align with the government's sustainability goals.

Additionally, adequate funding for agencies such as ASIC, APRA, the ACCC, and AUSTRAC is deemed necessary to manage their expanding roles due to the growth within the fintech sector.

D'Almeida added, "With ongoing uncertainty abroad, now is the best time to focus on our strengths and reinforce our fintech ecosystem with the correct policy settings. Australia is a leading country for fintech. Many of the financial technologies we use daily in Australia are not available in other developed countries. With a refreshed focus on the sector it could become a vital export for our country."