Fintech is a hot focus for investment including the largest buyout deal in Australian corporate history
The emergence of Australia’s fintech sector as globally significant was underlined by the recently announced acquisition of Afterpay by Square in a deal that, if approved by regulators and proceeds as expected, will rank as one of the largest fintech deals ever recorded globally, and indeed the biggest buyout deal in Australian corporate history.
Overall, Australian fintech saw a strong start to the year, with US$890 (AUD1,234) million in fintech investment in H1’21, including National Australia Bank’s US$170 (AUD236) million acquisition of digital bank 86 400 and US$100 (AUD138) million and US$75 (AUD104) million venture capital raises by Airwallex and Brighte respectively.
In addition to Open Banking, digital banking, payments and B2B services, Australia saw rising interest in the digital mortgage space with Athena Home Loans raising US$90 (AUD124) million.
Globally, investment reached US$98 (AUD136) billion across 2,456 deals in H1’21, with the outlook for the full year expected to far outpace last year’s annual total of US$121.5 (AUD168) billion across 3,520 deals.
One of the hot focus areas for investment in the first half of the year has been in the blockchain and cryptocurrency space, which saw an explosion of investment activity on the back of increased consumer and corporate demand for associated products and services.
Investment in blockchain and cryptocurrency related businesses heated up dramatically in H1’21, with investment more than twice the level seen in 2020 and soaring past the previous annual record high set in 2018. In H1’21, we also saw a maturing in the blockchain and cryptocurrency sector in terms of investors, resulting in significant amounts of institutional money being invested in the space.
Investors now understand more about crypto assets including the operational side of the business and administration aspects such as custody and storage. In addition, interest in non-fungible tokens is beginning to gain more traction, with interest in a whole range of new types of assets, ranging from professional real estate to more fragile assets which can be tokenised or fractionalised.
Australia is starting to reap the benefits of early investment in establishing a fintech eco-system. Interest in banking-as-a-service solutions continued to grow, with the first half of the year seeing Westpac moving forward with its development of a BaaS model in partnership with UK-based fintech 10x, announcing a partnership with regtech FrankieOne to facilitate seamless onboarding.
Other major big banks have also focused on investing in ecosystem and vertical players in order to simplify and enhance the experience of consumers, SMEs and merchants. For example, Commonwealth Bank invested AUD20 million in Amber Energy as part of a partnership to provide access to wholesale energy process to its customers, as well as investing in More Telecom and Tangerine to offer telecommunications and internet services to CBA mortgage customers.
Looking forward to H2’21, global fintech investment is expected to remain robust in most regions of the world. While the payments space is expected to remain a dominant driver of fintech investment, revenue-based financing solutions, banking-as-a-service models and B2B services are expected to attract increasing levels of investment. Given the rise in digital transactions, and the subsequent increase in cyberattacks and ransomware, cybersecurity solutions will likely also be high on the radar of investors.
Locally in Australia, we are already seeing that H2’21 will likely match, if not exceed, the expectation for global activity, with already announced corporate deals including the Square’s proposed acquisition of Afterpay, Latitude acquiring Symple Loans and Bendigo and Adelaide Bank acquiring Ferocia to consolidate their ownership in digital banking app, Up, as well as a raft of venture style investment continuing to buoy the market.
Fintech is an incredibly hot area of investment right now—and that’s not expected to change anytime soon given the increasing number of fintech hubs attracting investments and growing deal sizes and valuations. As we head into H2’21, we anticipate more consolidation will occur, particularly in mature fintech areas as fintechs look to become the dominant market player either regionally or globally.
*Conversion rate: 1USD = 1.38 AUD on 19 August 2021