How Australia became a key player in the Asia-Pacific fintech revolution

Second only to Singapore in Asia-Pacific, according to research firm Findexable, Australia’s fintech business is thriving due to an abundance of talent, a stable regulatory environment, and its strong ties to the Asia region

When ‘buy now-pay later’ fintech Afterpay sold for A$39 billion (approximately US$29 billion) in August to the US-based Square Inc, the world sat up and took notice.

Australia had just nurtured a game-changer in global lending. Suddenly – it seemed – Australian fintech was an industry worth investing in. Global rankings validate this thesis. In 2021, research and analytics firm, Findexable, raised Australia two notches to sixth spot in its list of global fintech countries. This places Australia just behind financial powerhouse Switzerland in the global rankings, and second only to Singapore in the Asia-Pacific region.

But what’s powering this burst of fintech flair? Who’s investing in Australian fintech, and how do companies like Afterpay go global with such speed?

Overseas investors take a shine to fintech 

According to Edmund Tang, senior economist at the Australian Trade and Investment Commission (Austrade), Australia’s fast-growing fintech sector was driven by international capital.

“Global investment is powering fintech exports and global expansion – just as it does in our resources sector,” he said.

But what attracts the investors? Tang cited four competitive advantages for fintech in Australia.

“Australia has a stable regulatory environment and a large, globally connected and sophisticated financial system,” he said. ‘We have pragmatic financial regulators who want to combine market innovation with stability.”

He added, “Second, we have strong ties to Asia that are commercial, geographic and cultural. They make us attractive to fintech developers from the US and Europe who see us as a springboard into Asia.” Tang believed that the third reason for success is that Australian fintech reflected the country’s pioneering spirit. He said, “Australian fintech is young, dynamic and resourceful and has a go-get attitude to global markets.”

“Fourth, we have fantastic fintech talent,’ he added. “This talent is largely home-grown. Our universities and technical colleges tune themselves to industry demand.”

Companies that span the entire fintech spectrum

The results are impressive. For one, Australian fintech is truly diverse. Alongside pure fintech, Australia has nurtured a range of regtech and insurtech scaleups with unique IP. What these companies share – big and small – is the confidence to go global as fast as possible.

For instance, Afterpay isn’t the only billion-dollar Australian unicorn to make a global splash. Sydney-based digital credit company, Zip Co Limited has a market cap of over A$5 billion (approximately $3.6 billion) and seven million customers worldwide, including Canada, Mexico, the UK, and the United States. Sydney-based Cover Genius is adding to Australia’s growing herd of fintech unicorns. Founded in 2014, it helps companies embed insurance into their online offerings. Bloomberg reckons Cover Genius is now worth A$1 billion (approximately US$729 million), and the Financial Times has declared it ‘the world’s fastest growing insurtech’.

Canberra-based Castlepoint Systems created a world-first, document-search tool that could be used in almost all file audits. Just three years old, it developed a ‘low and fast’ rollout strategy and promptly went global. Castlepoint Systems CEO Rachel Greaves said, “As far as we knew, we had a ‘world first’ on our hands. We had to capitalise and couldn’t wait for imitators and challengers.” Today, this small, 20+ company has a A$10 million (approximately US$7.3 million) global pipeline. Castlepoint’s rollout strategy has seen it work with professional services companies including Deloitte. Deft partnerships have helped it piggyback into global client networks.

Confidence brings venture capital
Confidence is a big success factor. Australian fintechs know how to talk to global business. This helps them take a smart idea into major overseas markets before imitators appear over the horizon. Greaves said, “What we wanted was a beachhead client in each new market. Once we’d proved ourselves, referrals would sell our technology”’

Melbourne-based handii is another good example. The insurtech firm devised a new type of marketplace to manage small property insurance claims. While the startup was still just a two-woman band, it was already building a business in the US West Coast. Speaking of her experience, Christie Downs, co-founder and CEO of handii said, “We had a genuinely unique selling proposition and wanted to take it global. Trying to be what they (VC firms in the US) are after isn’t the key. Just be true to your values in foreign markets. We found being our authentic selves made the difference: everyone loves an Aussie.”

That confidence has paid off. In mid-2021, handii secured A$3 million (approximately US$2.1 million) in venture capital from a mix of Silicon Valley and Australian investors.

Austrade lends a hand in key hubs

Austrade is Australia’s global trade-promotion agency and it lends support to these businesses via residency programs.

These programs help emerging fintechs gain a foothold in major centres like the US, UK and Singapore. Pitch training from experienced investors helps entrepreneurs learn how to conduct a successful fund raise. Besides, Austrade’s global network of trade commissioners cultivate contacts in major financial cities, including London, Singapore, San Francisco and Tel Aviv. When ambitious Australian founders show up, there’s someone on hand to hardwire them into industry networks. Marty Gray, senior manager for public policy at Afterpay said, “There is a proactive relationship in Australia between the industry and regulators, and this helped us get our financial product established. It gave us a first-mover advantage.”

The benefit of early introductions cannot be overstated. They can shave off months of hard slog as new fintechs look for a commercial break with either partners or investors. And speed matters in an industry where first mover advantage is vital. Speaking specifically of how Austrade played a role in the Castlepoint Systems’ expansion, Greaves said, “It has helped us raise our profile around the world. Today, Austrade is providing the information and contacts we need to keep growing beyond our beachheads in overseas markets.”

What makes Australian fintechs different?
Another factor that powers the Australian fintech sector is agility. This is in the DNA of Australia since the country is still a major commodity exporter. To stay profitable, businesses have to react fast to changes in markets and prices. Agility is thus built into the country’s commercial psyche.

Then – inevitably – there’s the Australian lifestyle. Iconic seaboard cities have an attraction that few other places can match. Young and footloose developers flock to Sydney and Melbourne because – why not?

Local fintech firms snap them up and sponsor them via special talent visa programmes.

Australia is now a big tech exporter
There is also the bigger tech picture to consider. Strange to say for a commodity economy, but tech as a single sector is now a major Australian export. It’s part of Australia’s shift towards a services economy that is now changing the pattern of trade.

New research by Accenture and the Tech Council of Australia suggests Australia’s tech sector generated A$167 billion (approximately US$121.9 billion) for the economy in 2020-2021. This makes technology the third largest contributor for the year behind mining and finance.

And this industry is a dynamic exporter. According to the Export Council of Australia, technology is already Australia’s fourth-largest export sector, worth A$8 billion (approximately US$5.8 billion) in 2018. This could more than double to A$19 billion (approximately US$13.8 billion) by 2030.

Recent data from the EY Fintech Australia Census 2021 also shows the increasingly global outlook of the sector. Approximately one in five Australian fintechs now earn the majority of their revenues from overseas and they are attracting increasing attention from global investors.

There has been a doubling in employment per business on average over the past 12 months, according to data from EY. What this means is that Australian fintechs didn’t just appear out of a cloud. It’s part of a big, Australian export success story that has been years in the making. Fintechs are a component of a bigger industry that nurtures advanced skills and magnetises young, global talent.

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To find out more about Australia’s best and brightest fintechs and what they can do for your business, please visit the Austrade site