2020: a turning point for fintech
2020 is set to be a pivotal year for fintech and the wider financial services industry. With long-anticipated policy measures such as Open Banking being rolled out and a number of new digital banks launching and looking to make an impact, the sector is set for immense change.
Given the structural challenges facing the industry, consolidation is inevitably going to increase, with bigger and bolder M&A deals becoming the norm in more mature fintech sub-sectors, like payments and lending. Investment in Australia’s fintech sector already smashed previous records in 2019, up to US$1.913 bil in 2019 from US$753.18 mil in 2018, inevitably driven by the US$1.2 bil acquisition of Property Exchange Australia by an industry consortium (of Link Group, Morgan Stanley Infrastructure and Commonwealth Bank), and the US$280 mil investment in neobank Judo.
As we move into 2020, that momentum should continue as Australian fintechs look to scale locally and increasingly abroad, and we expect to see more ‘scaled’ fintech look to public markets (following ASX listings of Prospa, Tyro and MoneyMe last year) to leverage equity capital markets as a source of growth capital as incumbent players look to accelerate their digital transformation agendas.
In 2020, the lines are going to continue to blur between financial services and non-financial services. This is best evidenced by looking to Asian markets like Hong Kong and Singapore, where a number of companies from outside of financial services are working to get into parts of the financial services value chain, either directly or through partnerships (the latter of which is already being seen locally, especially in the Australian lending and digital banking space). The big tech giants such as Alphabet (Google), Alibaba and Tencent will also increase their focus on the fintech space.
Integration will be a top priority and the unbundling of financial services that has occurred over the past few years will likely start to reverse as fintechs, traditional financial institutions, and big techs look to create scale and provide a more varied value-add and seamless experience to their customers.
For consumers, switching or connecting up all their financial services to a single interface, via a tech platform they’re familiar with, could be a very attractive proposition. For other customers, who wish to shop around for best of breed propositions, their life will be made easier through the introduction of Open Banking, something we see also benefiting intermediaries, brokers and distributors in the sector.
With competition increasingly coming from overseas and a comparatively small local market, maturing Australian fintechs and challenger banks will continue to expand the breadth of their service offerings beyond their initial niche focus areas and make strategic moves across international borders. In response, we can expect to see bolder responses from incumbent financial institutions in terms of partnerships, as well as strategic investments and M&A.
Cybersecurity-focused fintechs will become more attractive as traditional financial institutions shift from building to buying cyber solutions, particularly in areas like fraud detection and response, operational resilience, information security, and identity management.
Finally, as the Senate Select Committee on FinTech and RegTech hands down a report in October, the local sector will hope to see a series of positive recommendations that can spur and support the next evolution of our financial services industry.