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EY: Talent, salaries and capital continue to drive Australian fintechs

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The annual Australian fintech census by consultancy EY reveals that the sector continues to grow strongly despite the headwinds of the past 12 months, but founders face the same challenges and concerns when it comes to talent, salary costs and access to capital as other startups

The 7th EY FinTech Australia Census report, a collaboration between Ernst & Young, Australia (EY) and FinTech Australia, found that the industry has matured significantly over the past 12 months, with the majority (78%) of fintechs now 70% by 2021, but raising capital and competing with big tech companies for talent is now at the forefront of founders.

Talent remains scarce, with two-thirds (66%) of fintechs saying rising employee salaries pose a challenge. And nearly a third (29%) of fintechs said they had not met their expectations for raising capital in 2022.

Nevertheless, fintechs performed well over the past 12 months, with the number of paying customers increasing year over year among post-revenue fintechs, with 45% reporting more than 500 customers, up from 41% in 2021. And the percentage of post-profit fintechs remained stable at high levels. levels of 30%.

EY Oceania Fintech leader May Lam said fintechs play a critical role in unlocking innovation-led value from local and global economies, helping to untangle traditional value chains and create new business models.

“To meet future market challenges, fintechs can further improve the industry’s resilience by focusing on increased collaboration and partnerships both within and outside the industry, investing back into the ecosystem, strengthening their ESG capabilities and talent pool by considering diverse and alternative recruitment strategies,” she said.

FinTech Australia GM Rehan D’Almeida said this year’s census shows that the local sector and market remains highly attractive and competitive.

“From the perspective of a foreign investor and the global fintech landscape, Australia’s innovative and sophisticated financial and consumer markets and evolving regulations make it a great place to develop innovative fintech companies with the potential for global scale,” he said. .

“But as access to capital and talent is tightened, collaboration across the fintech ecosystem and targeted government support will be needed to keep the sector on its growth path.”

But it’s clear that the founders of fintech are slow to deal with the program when it comes to issues like ESG (Environmental, Social and Governance) and diversity, despite becoming more and more prominent among investors.

Only 30% of fintechs currently measure sustainability or carbon footprint, while less than a fifth (19%) have a sustainability goal.

The representation of women remains stable but low at all levels: 34% in industry (35% in 2021), 28% in leadership (26% in 2021), 28% of founders (24% in 2021) and 25% of the members of the advisory board (23% in 2021).

D’Almeida said he was “encouraged” that there has been a partial increase in the representation of women in leadership and board positions.

“This Census shows that we still have work to do to promote even more diversity within the sector. In addition to our efforts here, we will also focus on ESG policies in fintech in the coming year, creating resources for our members,” he said.

“Not only is there a moral obligation for fintechs to actively and positively contribute to social and environmental issues, but if they don’t act, fintechs could miss out on other capital and consumer behavior trends associated with this movement.”

Malia Forner, a startup and entrepreneurship leader in Oceania, said government and regulatory support remains paramount to the continued growth and development of the fintech sector.

“Census respondents believe the new federal government should focus on increasing support for founders and start-ups through incentives, supporting greater capital flow for investment and increased support for tax incentives and subsidies for Australian-based R&D and commercialization; ” she said.

“Incentives also offer governments the opportunity to align growth with other policy goals such as sustainability, digital transformation or social equity. So it is both gratifying and crucial to see a growing commitment to drive investment, innovation, entrepreneurship and R&D, and the economic opportunities and jobs it generates.”

Forner said the stage is set for more opportunities for innovation in alternative financing and incentives beyond VC and traditional financing options.

“This will create markets and consumers for new and established financial services companies with alternative and non-dilutive financial services solutions,” she said.

“There is still capital for investments, but that is being used differently.”

The main themes and findings of the census are:

Warning signs when raising capital

Over the past 12 months, a stable level of successfully raised fintech capital was seen, with 45% of respondents raising more than $10 million (44% in 2021).

But the proportion of fintechs exceeding their capital requirements has fallen, from 21% in 2021 to 17% this year.

Fintechs in payments, wallets and supply chains were the most successful, with 21% of this segment raising more than $100 million, compared to the industry average of 13%.

Outside of founder funding (54%), most of the raising of capital came from venture capitalists (33%), angel investors (32%), and strategic corporate investors (29%).

However, interest in and use of alternative funding sources is also increasing, with one in five (20%) fintechs citing government subsidies, including the tax incentive for R&D, as a source of funding this year.

Talent a top priority

Fintechs said the top three challenges or barriers to attracting and retaining talent are rising employee salaries (66%), access to skilled domestic workers (58%) and competition from big tech (52%).

In line with 2021, the most scarce areas of talent remain in industry engineering/software (66%), data engineer/data scientist (40%), product management (29%) and sales (29%).

Fintechs largely encourage remote or hybrid work models. While the vast majority (87%) of fintechs have a physical office location, only 8% support pure office work.

ESG & Diversity Needs Improvement

Only 30% of fintechs currently measure their corporate sustainability or carbon footprint, only 19% have a sustainability target and only 27% have implemented some sustainable business practices.

The representation of women remains stable but low at all levels: 34% in industry (35% in 2021), 28% in leadership (26% in 2021), 28% of founders (24% in 2021) and 25% of the members of the advisory board (23% in 2021).

The participation of culturally and linguistically diverse (CALD) in the fintech population is increasing, but remains low at 28% (up from 25% in 2021).

Fiscal incentive for R&D still crucial

79% of fintechs say the tax incentive for R&D improves the sustainability or growth of their business and 72% say it encourages onshore activities.

As with the 2021 census, half (51%) of fintechs surveyed have either successfully applied for the R&D tax incentive or are in the process of applying, with 43% being successful applicants in the past two years on the when the census was closed.

Still, 64% of fintechs are either not confident, or only slightly confident, that they understand the incentive eligibility criteria, indicating a need for greater clarity and engagement.

Meanwhile, the Export Market Development Grant (EMDG) still has very limited reach within the industry. Only 8% of respondents say they have received the grant in the past and 8% plan to apply for it in FY23.

Confidence falls over global plans

The percentage of respondents who believe Australian fintechs are internationally competitive fell from 80% to 69%, bringing industry confidence close to 2019 levels.

Confidence that Australian fintechs can beat international fintechs also fell from 57% to 57% from 67% in 2021.

Despite this perception, the percentage of Australian fintechs generating revenue from abroad remains stable (at 40%) with 43% of them earning almost half of their revenue from foreign sales.

For the fintechs planning overseas expansion over the next three years, the US, UK and New Zealand remain the top three most attractive markets. With Singapore in fourth position, Canada has now consolidated its position in the list as the fifth most popular expansion destination, with fintechs starting to see more opportunities there.

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