Almost US$900 million has been injected into Australian fintech businesses in the first half of 2021, with analysts predicting the influx of new capital will extend until the end of the year.

Research by global consulting firm KPMG found US $890 million was invested in Australia’s local fintech sector in the first six months of the year, up from US $557.2 million for the prior corresponding period.

National Australia Bank’s acquisition of digital ‘neo-bank’ 86 400 (named for the number of seconds in a day) contributed US$170 billion to this figure.

Venture capital raises for international payments provider Airwallex and green energy buy-now-pay-later provider Brighte contributed a further US$100 million and US$75 million respectively.

Commenting on this wave of new capital, KPMG Australia’s global co-leader of fintech and national banking leader Ian Pollari noted its come amid a global tide of investor support.

In the first half of 2021, Mr Pollari noted, global fintech investment – including mergers and acquisitions, private equity, and venture capital – totalled US$98 billion.

That’s a significant amount when compared against the cumulative US$121.5 billion recorded for 2020 as a whole.

“Against the backdrop of a surge in global fintech investment, there’s been a lot of activity in the fintech sector in Australia so far this year. Corporates continued to be very active, focusing on addressing capability gaps, enhancing digital offerings and most importantly, improving their customer experience ,” he said. 

“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.”

Mr Pollari expects this momentum to continue through the remainder of the year.

Government support lags, but improving

Although Australia is a growing force on the global fintech stage, it is lagging behind its British and American peers owing to a lack of support from the federal government, according to Cathryn Lyall.

Ms Lyall – a 30 year industry veteran whose career includes stints with Chicago Mercantile Exchange, Deutsche Bank and Nasdaq among others – told Australian Financial Review reforms introduced in the UK following the GFC have benefitted start-ups in ways Australian companies are not yet being supported.

“The impact to the economy and to people’s lives was significant, and as a result, the government had to stop and look at where the UK could really make an impact on GDP growth. Innovation was one of three main pillars, with fintech being a major part of that,” she said.

Among the more notable changes made in the UK was the opening up of the Bank of England’s real-time gross settlement system, which holds accounts for banks, and allowing new operators to enter the market as early as 2011.

This change alone increased the number of businesses able to use the system from 11 to almost 300 in under a year.

The UK also offers tax incentives to seed-stage investors, letting them invest up to £1 million a year and receive a 50% tax credit in return – with no capital gains tax – so long as investors hold those companies for at least three years.

While government support for fintech in Australia has so far lagged, it is improving. In April, a senate committee made 23 recommendations for ways the government can help the burgeoning local industry to grow.

These included additional software-specific tax incentives, a review of Australia’s global talent visa program, and even changes to insider trading restrictions to encourage new ASX listings.

Sources:

• KPMG: Australian fintech investment hits US$890m in first half of 2021
• Financial Review: Brighte raises $100m to retail solar power
• Financial Review: ‘It’s paltry’: Why Australia is years behind in fintech
• Financial Review: Boost skills and software tax breaks to lift fintech: report