FinTech set to weather coronavirus pandemic despite slowdown

- By Collaborative Media & Publishing
The booming FinTech sector may be slowed by the coronavirus pandemic but its transformative impact on the economy means it won't be stopped, according to the industry.

Australian FinTech investment reached a record US$1.913 billion in 2019, propelled by large deals involving Property Exchange (PEXA) and neobank Judo, according to KPMG. However, the global coronavirus pandemic, which exploded in March 2020, locked down the economy, plunging it into recession.

A two-speed sector

FinTech Australia chair Alan Tsen says the downturn has split the FinTech sector into two speeds. Some pre-existing growth trends have accelerated while other sectors have found it more difficult to adapt.

"SMB (Small and Medium-sized Businesses) lenders are definitely feeling the pinch," he says. "This is a real test. Historically, one of the critiques in that sector has been what happens when there's a downturn and provisions for losses grow beyond what was modelled?"

Lending has also slowed with online small business lender Prospa posting just $8.7 million in new loans across April and May compared to $122.8 million in the March quarter.

However, the buy-now-pay-later (BNPL) sector has prospered as consumers in lockdown turned to online shopping while also spurning cash amid concerns it can harbour viruses.

Shares in BNPL players such as Afterpay, Zip, Sezzle and Splitit have all surged since the share market hit a low point in March. Afterpay recently said people had flocked to its UK service, Clearpay, during the pandemic. App and site visits in May rose 40-50% compared to January and February.

Meanwhile, BPAY's real-time payment service Osko has continued to grow strongly while the organisation said it has had a 30% increase in online interest to become a BPAY biller.

An uncertain investment landscape

ASX Executive General Manager, Issuer Services and Investment Products, Max Cunningham, recently said tech companies have navigated the crisis well, even as other listed companies in sectors such as travel and hospitality have had to raise emergency capital.

"If they've had to do some equity raisings during that period, they've usually been expansionary," Cunningham said during a webinar. "Very, very few by number have actually been tapping the market for COVID-related capital reasons."

The ASX and Standard & Poor's launched Australia's first technology index in February just before the coronavirus pandemic hit. There are now more than 200 tech companies listed on the ASX with the sector's two largest listings last year both FinTech players: payments company Tyro and insurance software provider Fineos.

While the venture capital (VC) sector has plenty of dry powder for investment, Tsen said early stage FinTech companies are still finding it difficult to raise new capital amid an uncertain economic environment.

"VCs will talk about the fact they're open for business – the reality is they are but predominantly for their portfolio companies," says Tsen. "A lot of the deals that have been done, they were done before this and are just being announced now."

Venture capital investors raised $632 million for investment in Australia last year – the second highest annual total in the past decade according to the Preqin & Australian Investment Council Yearbook 2020.

New growth still ahead

FinTech Australia has lobbied the government to continue fostering the FinTech sector's growth as COVID-19 wreaks havoc on the broader economy. Tsen says FinTech will play a key role in generating new economic growth by transforming many of our fundamental everyday actions.

"Financial services are so core to how we interact with the world on a day-to-day basis. It's changing and it's not going backwards. The directional arrow of change is one that's definitely pointing towards more FinTech, not less."

Embedded FinTech is a relatively new concept where financial services become the engine driving a variety of different products and services. For example, online storefront Shopify now generates a substantial proportion of its revenues by processing purchases made on its platform, rather than just charging fees to use the platform itself.

The new Open Banking regime, which was long delayed, is another area that will give consumers control of their data, making it easier to switch to better products and services. Tsen says it will take time to gain traction.

"When the iPhone came out, all the apps didn't appear on day one. It took time and it will be the same thing with open banking. It just needs to start and then people can access data to start to work on these innovative projects."

The rise of challenger banks represents another long-term growth area.

"We're in the first day of a long Ashes Test with our challenger banks," he says. "It's still early, but over the next five years we'll see our number five bank in Australia be a challenger bank and over the next decade number four."

The major banks are also investing heavily in FinTech, both internally and by taking stakes in start-ups, as customers have surged to online banking and digital services.
This article represents the views and opinions of the author and do not necessarily reflect the opinions of BPAY. Published by BPAY Pty Ltd.  BPAY payment products are offered by over 150 Financial Institutions. Contact your Financial Institution to see if it offers BPAY payment products and to get the terms and conditions. This is general advice – before using BPAY payment products please review the terms and conditions and consider whether BPAY payment products are appropriate for your personal circumstances.

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