1 00:00:03,990 --> 00:00:06,330 Sean Aylmer: Welcome to the Fear and Greed Business Interview. I'm Sean 2 00:00:06,570 --> 00:00:10,110 Sean Aylmer: Aylmer. Australia has been home to some huge fintech success 3 00:00:10,110 --> 00:00:15,240 Sean Aylmer: stories, think companies like Afterpay, Airwallex, but more local successes 4 00:00:15,240 --> 00:00:18,779 Sean Aylmer: are focusing overseas, pushed out by limited access to capital 5 00:00:18,780 --> 00:00:22,560 Sean Aylmer: here and too many regulatory hurdles. That's according to the 6 00:00:22,560 --> 00:00:27,570 Sean Aylmer: EY FinTech Australia Census 2023, which also reveals just how 7 00:00:27,570 --> 00:00:34,259 Sean Aylmer: many fintechs are actually profitable. Malia Forner is the Oceania FinTech Leader at EY. Malia, 8 00:00:34,440 --> 00:00:35,430 Sean Aylmer: welcome to Fear and Greed. 9 00:00:36,000 --> 00:00:37,589 Malia Forner: Hi, Sean. Pleasure to be here. 10 00:00:38,400 --> 00:00:40,650 Sean Aylmer: This is the eighth year of your fintech census. Let's 11 00:00:40,650 --> 00:00:44,520 Sean Aylmer: start with money. We like that. How profitable are Australian fintechs? 12 00:00:44,940 --> 00:00:49,290 Malia Forner: Oh, well, the eighth FinTech census has certainly shown us that the FinTech 13 00:00:49,290 --> 00:00:53,248 Malia Forner: sector in Australia just is continuing to demonstrate both growing 14 00:00:53,250 --> 00:00:57,300 Malia Forner: maturity, but really importantly, some record- breaking success. So in 15 00:00:57,300 --> 00:01:01,950 Malia Forner: terms of profitability and also income, we're seeing this year 16 00:01:01,950 --> 00:01:07,500 Malia Forner: that a massive 88% of FinTech census respondents are actually 17 00:01:07,500 --> 00:01:11,639 Malia Forner: reporting that they're generating income from sales. And that's the 18 00:01:11,639 --> 00:01:15,330 Malia Forner: highest proportion we've ever seen since we started the census 19 00:01:15,330 --> 00:01:18,959 Malia Forner: now eight years ago. But Sean, what's even more remarkable 20 00:01:18,990 --> 00:01:24,089 Malia Forner: is that 43% of fintechs in Australia are now in fact 21 00:01:24,090 --> 00:01:25,170 Malia Forner: making a profit. 22 00:01:25,170 --> 00:01:25,290 Sean Aylmer: Oh, wow. 23 00:01:25,590 --> 00:01:29,819 Malia Forner: And that's compared to 30% last year. So even in 24 00:01:29,819 --> 00:01:33,030 Malia Forner: just that 12 month period, we've seen a 13% increase. 25 00:01:33,450 --> 00:01:36,959 Malia Forner: And Sean, why I find that quite remarkable is that's 26 00:01:37,020 --> 00:01:41,609 Malia Forner: also against a more competitive and challenging consumer environment. 27 00:01:42,420 --> 00:01:45,569 Sean Aylmer: Okay, so why do you think they're doing so well... 28 00:01:46,049 --> 00:01:47,069 Sean Aylmer: Well, relatively well? 29 00:01:47,520 --> 00:01:53,310 Malia Forner: They're doing relatively well because we're seeing sector maturity. When 30 00:01:53,310 --> 00:01:56,849 Malia Forner: we started the census eight years ago, sure, we were still having 31 00:01:56,849 --> 00:02:00,509 Malia Forner: to define for people outside of the financial services sector 32 00:02:00,509 --> 00:02:04,830 Malia Forner: what fintech actually meant and what the verticals of fintech 33 00:02:04,830 --> 00:02:08,550 Malia Forner: meant. And now we've got so many different verticals of 34 00:02:08,580 --> 00:02:12,780 Malia Forner: fintech, both in Australia but also globally. And so what 35 00:02:12,780 --> 00:02:16,768 Malia Forner: we've seen is that sector maturity, which has been backed 36 00:02:16,770 --> 00:02:22,379 Malia Forner: by government investment over that period, is showing that they 37 00:02:22,379 --> 00:02:26,340 Malia Forner: can, and they are, not only competing with banks and 38 00:02:26,340 --> 00:02:31,110 Malia Forner: financial institutions for customers, but they're also solving needs for 39 00:02:31,110 --> 00:02:36,240 Malia Forner: customers and therefore turning an income, making sales, and also 40 00:02:36,240 --> 00:02:38,339 Malia Forner: really importantly, making profit. 41 00:02:39,419 --> 00:02:41,940 Sean Aylmer: Okay, so not everyone is going to know exactly what 42 00:02:41,940 --> 00:02:43,770 Sean Aylmer: an Aussie fintech looks like. And in fact, when I 43 00:02:43,770 --> 00:02:46,139 Sean Aylmer: think about it, I think of payments businesses, and I 44 00:02:46,139 --> 00:02:51,330 Sean Aylmer: mentioned Afterpay and I mentioned Airwallex, but it's much broader than 45 00:02:51,330 --> 00:02:51,929 Sean Aylmer: that, isn't it? 46 00:02:52,740 --> 00:02:56,219 Malia Forner: It is much broader than that. There's many different verticals 47 00:02:56,219 --> 00:03:00,299 Malia Forner: of fintechs in Australia now. Payments is still the number 48 00:03:00,300 --> 00:03:05,790 Malia Forner: one sector of fintechs in Australia. That's followed by data 49 00:03:05,790 --> 00:03:11,040 Malia Forner: and analytics, payments, verticals, and also business tools or wealth 50 00:03:11,099 --> 00:03:15,630 Malia Forner: verticals. What we've also seen is emerging sector, both in 51 00:03:15,630 --> 00:03:21,060 Malia Forner: Australia and globally, is this concept of embedded finance. Now, 52 00:03:21,060 --> 00:03:24,388 Malia Forner: I'm quite excited about the concept of embedded finance because 53 00:03:24,810 --> 00:03:28,650 Malia Forner: it's a trend that we see merging both financial services, 54 00:03:28,650 --> 00:03:32,639 Malia Forner: but non- financial services sectors. So think about that with 55 00:03:32,639 --> 00:03:36,269 Malia Forner: your everyday purchases that you're making from your phone, your 56 00:03:36,270 --> 00:03:40,710 Malia Forner: Apple Watch, any other digital commercial infrastructure that you can 57 00:03:40,710 --> 00:03:44,760 Malia Forner: now purchase for any services, be it insurance, be it 58 00:03:44,760 --> 00:03:49,590 Malia Forner: an actual physical product, it's embedded finance that's driving that. 59 00:03:50,190 --> 00:03:52,230 Sean Aylmer: Stay with me, Malia. We'll be back in a minute. 60 00:03:58,470 --> 00:04:04,410 Sean Aylmer: I'm speaking to Malia Forner, Oceania FinTech Leader at EY. One 61 00:04:04,410 --> 00:04:07,080 Sean Aylmer: thing I did notice in the survey is that there 62 00:04:07,080 --> 00:04:10,020 Sean Aylmer: are very few young companies, so we are maturing. I 63 00:04:10,020 --> 00:04:11,850 Sean Aylmer: get that. I think 3% or something or other, or 64 00:04:11,850 --> 00:04:15,390 Sean Aylmer: one year or younger, a lot more last year. I'm 65 00:04:15,390 --> 00:04:16,830 Sean Aylmer: not sure whether that's a good or a bad thing 66 00:04:16,830 --> 00:04:21,118 Sean Aylmer: though, because I think wouldn't we like a stream of startups? 67 00:04:21,599 --> 00:04:23,789 Malia Forner: Oh, we would always like a stream of startups. Not 68 00:04:23,790 --> 00:04:26,460 Malia Forner: only do we like it, I think the economy needs 69 00:04:26,460 --> 00:04:29,609 Malia Forner: it for the future productivity and innovation of the sector. 70 00:04:29,609 --> 00:04:32,940 Malia Forner: So it's a really interesting data point. The census has 71 00:04:32,940 --> 00:04:35,970 Malia Forner: shown us this year that you're right, Sean, it's shown 72 00:04:35,970 --> 00:04:39,029 Malia Forner: us there's just 3% of fintechs that are now one 73 00:04:39,029 --> 00:04:42,629 Malia Forner: year or younger, and that's compared to 10% just in 74 00:04:42,630 --> 00:04:46,859 Malia Forner: 2022. Now, Sean, one of my hypotheses on this is 75 00:04:46,859 --> 00:04:51,690 Malia Forner: that it could suggest that the startups are facing significantly 76 00:04:51,690 --> 00:04:55,349 Malia Forner: higher barriers to entry than they were 12 months ago 77 00:04:55,440 --> 00:04:58,919 Malia Forner: into Australia, when we did see a greater influx of 78 00:04:58,920 --> 00:05:03,150 Malia Forner: new entrants that came out of the COVID lockdowns, with everything 79 00:05:03,420 --> 00:05:08,279 Malia Forner: being digital becoming in vogue. Or alternatively, an alternative hypothesis 80 00:05:08,279 --> 00:05:12,480 Malia Forner: is that we're seeing an equilibrium here because we are 81 00:05:12,870 --> 00:05:18,360 Malia Forner: off on a backdrop of there being around 900 fintechs 82 00:05:18,389 --> 00:05:22,769 Malia Forner: in Australia alone, which is a relatively sizable number given 83 00:05:22,770 --> 00:05:25,650 Malia Forner: the size of our economy. And so we could be 84 00:05:25,650 --> 00:05:30,089 Malia Forner: coming into this period of equilibrium or normalization as well. 85 00:05:30,660 --> 00:05:33,600 Malia Forner: But certainly what we're seeing is there are barriers. So 86 00:05:34,020 --> 00:05:37,678 Malia Forner: it is harder to make it as a startup and 87 00:05:37,678 --> 00:05:42,810 Malia Forner: to grow your company because of reduced local limited capital, 88 00:05:43,710 --> 00:05:49,110 Malia Forner: complex regulatory hurdles. And thirdly, overseas direct investment strategies from 89 00:05:49,860 --> 00:05:53,758 Malia Forner: overseas governments and financial hubs are certainly tempting our local 90 00:05:53,759 --> 00:05:57,420 Malia Forner: success stories to, as you said in the opener, focus 91 00:05:57,450 --> 00:05:58,379 Malia Forner: efforts offshore. 92 00:05:59,190 --> 00:06:02,250 Sean Aylmer: Okay, so let's break those down. Access to finance, it's 93 00:06:02,250 --> 00:06:07,080 Sean Aylmer: harder now. Is that because investors are more circumspect? Is 94 00:06:07,080 --> 00:06:08,969 Sean Aylmer: it an interest rate issue? What do you think? 95 00:06:09,990 --> 00:06:12,868 Malia Forner: It could certainly be a couple of those reasons for 96 00:06:12,870 --> 00:06:19,260 Malia Forner: sure, but it's also, there's an increased uncertain macroenvironment that we're operating within, 97 00:06:19,800 --> 00:06:24,000 Malia Forner: and capital raising is becoming more difficult across the sector, 98 00:06:24,000 --> 00:06:28,049 Malia Forner: across all of the verticals. And in fact, the overall proportion of 99 00:06:28,050 --> 00:06:32,639 Malia Forner: fintechs said that they had not met their capital raising 100 00:06:32,639 --> 00:06:37,169 Malia Forner: expectations in the past 12 months surged to 41% this 101 00:06:37,169 --> 00:06:41,490 Malia Forner: year, and that was up from 29% just in 2022. 102 00:06:42,000 --> 00:06:45,960 Malia Forner: And interestingly, the fintechs this year in Australia are actually 103 00:06:45,960 --> 00:06:49,799 Malia Forner: ranking raising that equity capital as their tops concern for 104 00:06:49,799 --> 00:06:54,300 Malia Forner: the year ahead, with 61% citing it is their biggest challenge. 105 00:06:54,540 --> 00:06:57,210 Malia Forner: And that's even well ahead of the uncertain economic climate, 106 00:06:57,330 --> 00:06:58,380 Malia Forner: which ranked it second. 107 00:06:59,250 --> 00:07:02,039 Sean Aylmer: Okay. What about regulatory hurdles? That was another one you 108 00:07:02,040 --> 00:07:08,279 Sean Aylmer: mentioned. Is the Australian legislative environment... It must be very 109 00:07:08,279 --> 00:07:10,529 Sean Aylmer: difficult to keep up with the fintech sector, to be honest. 110 00:07:10,529 --> 00:07:13,470 Sean Aylmer: Years ago I used to work at Supervision Department, Reserve 111 00:07:13,470 --> 00:07:15,270 Sean Aylmer: Bank, which is now known as (inaudible) , and trying 112 00:07:15,270 --> 00:07:16,860 Sean Aylmer: to keep up with what the banks were doing was 113 00:07:16,860 --> 00:07:20,250 Sean Aylmer: really hard. Fintech's the next level, do we have a 114 00:07:20,250 --> 00:07:23,190 Sean Aylmer: regulatory environment that suits fintech? 115 00:07:23,940 --> 00:07:26,790 Malia Forner: The regulatory environment's come a really long way just in 116 00:07:26,790 --> 00:07:30,510 Malia Forner: the last five years, but it's hard to keep up 117 00:07:30,510 --> 00:07:34,650 Malia Forner: with it from a government and regulatory perspective because the 118 00:07:34,650 --> 00:07:39,059 Malia Forner: rules change both when you're operating with financial services, but 119 00:07:39,059 --> 00:07:44,010 Malia Forner: you're operating with financial means and user data of people 120 00:07:44,280 --> 00:07:48,060 Malia Forner: means it is complex and it changes quickly. But what 121 00:07:48,119 --> 00:07:52,710 Malia Forner: is really important is that what we've seen is fintech 122 00:07:52,710 --> 00:07:56,609 Malia Forner: is critical in supporting the growth of our entire Australian 123 00:07:56,610 --> 00:08:00,840 Malia Forner: digital economy. And so we need to keep focused on 124 00:08:01,110 --> 00:08:05,609 Malia Forner: the fact that we need to continue globally competitive incentive 125 00:08:05,609 --> 00:08:12,060 Malia Forner: models, but also streamlining regulation and importantly, continuing some trade 126 00:08:12,060 --> 00:08:15,570 Malia Forner: and investment programs that clearly the government has been really 127 00:08:15,570 --> 00:08:21,270 Malia Forner: successful in helping fintechs and startups alike be a multiplier 128 00:08:21,270 --> 00:08:23,910 Malia Forner: here in Australia, and the census points the way to that. 129 00:08:24,360 --> 00:08:26,820 Sean Aylmer: Okay. So having said all that, we still do have 130 00:08:26,820 --> 00:08:29,610 Sean Aylmer: a bunch of fintechs looking overseas. Also, we have offshore 131 00:08:29,610 --> 00:08:32,790 Sean Aylmer: fintechs looking at the Australian market as well. But let's 132 00:08:32,790 --> 00:08:35,578 Sean Aylmer: think about us looking off... Is there more of that, 133 00:08:35,759 --> 00:08:38,850 Sean Aylmer: more Australian fintechs looking to make their money elsewhere? 134 00:08:39,509 --> 00:08:42,208 Malia Forner: Well, they are in fact making their money elsewhere. What's 135 00:08:42,208 --> 00:08:45,120 Malia Forner: really interesting with the data this year is we're seeing 136 00:08:45,120 --> 00:08:50,790 Malia Forner: that Australian fintechs are producing 50% of the income that 137 00:08:50,849 --> 00:08:54,210 Malia Forner: we spoke about right at the beginning offshore. Now, I 138 00:08:54,210 --> 00:08:57,839 Malia Forner: think that's an incredible statistic because it means that they're 139 00:08:58,500 --> 00:09:03,150 Malia Forner: clearly focusing their efforts for customers, for investors, for users 140 00:09:03,570 --> 00:09:06,809 Malia Forner: offshore. And it must be working because 50% of the 141 00:09:06,809 --> 00:09:09,870 Malia Forner: revenue for the fintechs from a statistical point of view 142 00:09:10,349 --> 00:09:13,109 Malia Forner: are being sought overseas. 143 00:09:13,679 --> 00:09:15,540 Sean Aylmer: That's the wonderful thing about being a fintech, isn't it? 144 00:09:15,540 --> 00:09:17,580 Sean Aylmer: You don't have to have bricks and mortar in some 145 00:09:17,580 --> 00:09:18,420 Sean Aylmer: ways, I suppose. 146 00:09:18,690 --> 00:09:21,809 Malia Forner: Exactly. No geographic barriers. 147 00:09:22,200 --> 00:09:24,210 Sean Aylmer: Okay, so where to next? What's the next five years 148 00:09:24,210 --> 00:09:26,910 Sean Aylmer: hold for the sector? Any more after pays out there, 149 00:09:26,910 --> 00:09:27,389 Sean Aylmer: do you reckon? 150 00:09:28,020 --> 00:09:30,539 Malia Forner: Well, I certainly hope so, and I certainly think so. 151 00:09:31,200 --> 00:09:32,999 Malia Forner: I certainly don't have a crystal ball, not one that 152 00:09:33,000 --> 00:09:37,500 Malia Forner: works, Sean, but I certainly think that the Australian fintech sector 153 00:09:37,530 --> 00:09:41,760 Malia Forner: has an incredibly strong record of innovation and growth. But 154 00:09:41,820 --> 00:09:45,179 Malia Forner: to continue that positive trajectory, it's quite clear that some 155 00:09:45,179 --> 00:09:48,540 Malia Forner: immediate changes are needed to continue to make Australia an 156 00:09:48,630 --> 00:09:52,949 Malia Forner: incredibly attractive environment to both start and grow a business. 157 00:09:53,580 --> 00:09:56,130 Sean Aylmer: Go on, go on. What do we need? 158 00:09:56,640 --> 00:09:59,429 Malia Forner: Well, I think what we need there, Sean, is we need to 159 00:09:59,429 --> 00:10:02,819 Malia Forner: keep using incentives. We need to keep using grants to 160 00:10:02,820 --> 00:10:06,270 Malia Forner: expand and attract both that domestic and foreign investments that 161 00:10:06,270 --> 00:10:08,910 Malia Forner: you spoke about, because it's not just about our domestic 162 00:10:08,910 --> 00:10:12,510 Malia Forner: companies going global. We want them to start thinking global 163 00:10:12,510 --> 00:10:17,580 Malia Forner: and go global, but it's also about attracting these incredible 164 00:10:17,610 --> 00:10:21,929 Malia Forner: offshore organizations to want to set up headquarters in Australia 165 00:10:21,929 --> 00:10:26,789 Malia Forner: as well. And often that is through globally competitive incentives, 166 00:10:26,790 --> 00:10:30,779 Malia Forner: and really importantly, reducing the barriers to entry to do 167 00:10:30,779 --> 00:10:33,330 Malia Forner: so. And that's going to be in part for this 168 00:10:33,330 --> 00:10:38,070 Malia Forner: sector to maintain some secure and stable regulations so that 169 00:10:38,070 --> 00:10:40,950 Malia Forner: we can really build on our strong foundations as the 170 00:10:40,950 --> 00:10:42,900 Malia Forner: regional financial hub for Asia Pacific. 171 00:10:43,440 --> 00:10:45,300 Sean Aylmer: Malia, thank you for talking to Fear and Greed. 172 00:10:45,719 --> 00:10:47,459 Malia Forner: Pleasure to be here. Thank you for having me, Sean. 173 00:10:47,969 --> 00:10:51,088 Sean Aylmer: That was Malia Forner, EY Oceania. There you go. I 174 00:10:51,090 --> 00:10:55,230 Sean Aylmer: said it wrong. That was Malia Forner. EY Oceania FinTech Leader. 175 00:10:55,290 --> 00:10:57,330 Sean Aylmer: This is the Fear and Greed Business Interview. Join us 176 00:10:57,330 --> 00:10:59,669 Sean Aylmer: every morning for the full episode of Fear and Greed, 177 00:11:00,000 --> 00:11:03,809 Sean Aylmer: Australia's best business podcast. I'm Sean Aylmer. Enjoy your day.