More than 100 Australian fintech companies made their debuts in 2020. What are the key facts to know about fintech investing in Australia?
Australia is one of the most dynamic areas for fintech, with over 800 fintech companies currently scattered around the nation's states and territories.
Fintech, or financial technology, is set to be the future of the financial services industry, and in Australia the market had an estimated worth of AU$4 billion in 2020, up from AU$250 million five years earlier. As a global fintech leader, many of the country's top players have expanded beyond its borders or plan to do so.
What else should investors know about the burgeoning Australian fintech space? Read on for a look at what this tech arena looks like right now and what could be next.
Fintech investing in Australia: Understanding the market
2020 was a bumper year for fintech in Australia, with more than 100 Australian fintech companies making their debuts, according to KPMG's latest Fintech Landscape report.
It's clear that fintech is booming as Australians look for new ways to combine finance and technology. As Finder reported this past October, around 3.7 million Australians now use digital wallets — that's close to 20 percent of the nation. What's more, 30 percent have connected their debit or credit cards to their smartphones or watches.
The COVID-19 pandemic has played a role in Australia's fintech growth over the last year or so. As fear of coronavirus transmission took hold, the country saw a huge drop in the use of cash, with Australians using fintech solutions to pay for their items and services.
The rise of open banking has also been a boon for the industry. Under open banking, which formally commenced in mid-2020, customers can securely share banking data with other accredited banks and fintech companies, allowing for greater financial agency.
Fintech investing in Australia: Top stocks by market cap
Australia's fintech market is on the move, and for investors looking to jump into the space it may make sense to start with the biggest players before going on the hunt for smaller-cap stocks with future potential.
Here's a brief look at the biggest ASX-listed fintech stocks by market cap. Data was current as of May 3, 2021.
1. Afterpay (ASX:APT)
Market cap: AU$32.99 billion
A behemoth in the ASX tech space, Afterpay dominates the buy now, pay later (BNPL) industry, allowing users to buy diverse items using payment plans, but still receive their purchases right away.
After a mammoth year in ecommerce after the initial coronavirus shutdowns and extended lockdowns, the BNPL phenomenon is unlikely to fade anytime soon, and Afterpay continues to lead the pack.
2. Xero (ASX:XRO)
Market cap: AU$20.7 billion
This cloud-based accounting software platform services small- and medium-sized businesses. Xero bills itself as the most sophisticated software provider for accountants, and operates under a cloud-first environment.
Investors hope Xero will emerge stronger and more profitable from the COVID-19 crisis, experiencing growth as small businesses bounce back.
3. Iress (ASX:IRE)
Market cap: AU$1.92 billion
Iress is a tech company that specialises in software for the financial services industry, with more than 500,000 users globally. With over 9,000 business clients, it has offices in diverse locations worldwide.
4. Pushpay Holdings (ASX:PPH)
Market cap: AU$1.83 billion
Pushpay Holdings has created a donor and church management system. It provides donor tools, finance tools and a custom community app for the faith sector in the US, Canada, Australia and New Zealand. It also caters to non-profit organisations and education providers.
5. Bravura Solutions (ASX:BVS)
Market cap: AU$680.24 million
Software company Bravura Solutions develops tech solutions for leading financial institutions. After being admitted to the S&P ASX 200 Index (INDEXASX:XJO) in 2018, it has been acquiring similar companies, including Fino Comp and Midwinter. The business offers recurring revenue, a strong balance sheet and scalability.
Fintech investing in Australia: Market outlook
Aside from those major players, it's worth looking at a few Australian fintech stocks that had notable share price gains in 2020. For example, Money3 (ASX:MNY) saw a 23.31 percent gain; meanwhile, next-gen neobank Douugh (ASX:DOU) rose more than 100 percent from the time it launched in October until the end of last year.
So what's next for this exciting industry? In a recent report, EY states that Australia's fintech market is "among the world's most important fintech ecosystems," and notes that despite COVID-19 challenges, the industry has been able to sustain its revenue base with more paying customers and global expansion plans.
Challenges moving forward include regulatory concerns and competitive pressure, with EY noting that policy enhancements, fewer barriers to open banking and continued engagement with regulators will be key if the sector is to continue advancing in the land down under.
If market participants can rise to meet those obstacles, those interested in the Australian fintech market can rest assured of finding future opportunities.
Don't forget to follow @INN_Australia for real-time updates!
Securities Disclosure: I, Ronelle Richards, hold no direct investment interest in any company mentioned in this article.