Australia's Fintech sector is poised for exponential growth driven by consumer demand from young cashed up people for services driven by digital and disruptive technologies, according to an expert study.
The Fintech in Australia – Trends, Forecasts and Analysis 2015 – 2020 report, by Frost & Sullivan, forecast that the Australian Fintech sector will grow at a compound annual growth rate of 76.36 per cent and reach A$4.2 billion by 2020.
At least of A$1 billion of this will be new added value to the Australian economy. The size of the Australian Fintech sector was estimated at A$247.2 million in 2015.
In 2015, investments in the Australian Fintech market totalled A$438 million and was concentrated in innovation hubs in Sydney.
Fintech is a disrupting force and a decentralising movement in the financial services sector.
Fintechs apply information technologies and modern internet protocols for data exchange, and deliver financial services using data storage, data analysis algorithms, or personal telecommunication devices. Digital ecosystems are fundamental to the success of both Fintech and traditional banks.
A wealthy 18 to 34 demographic is driving consumer demand for Fintech products. On average, Australian households had A$998 per week of disposable income in 2014, which is an increase of A$18.6 or 1.8 per cent in real terms since 2004.
Frost & Sullivan anticipated sharp growth in the Fintech market in 2016 and 2017, followed by steady increases through to 2020.
The Australian Fintech sector features three market segments; Digital Payments, Personal and Business finance, and Financial Infrastructure and Data Analysis. Each segment relies on its own set of digital technologies.
Digital payments offer services through smartphones, POS devices, or web-based tools allowing consumers to make payments, exchange currencies and trade funds on a digital platform. They are low cost, instant, and global.
New EFTPOS and online charging solutions will allow more credit card payments to merchants at a reduced cost of receiving payments.
Frost & Sullivan predict that from 2016, digital payments will have steady revenue growth with the segment forecasted to be worth A$1.8 billion by 2020. Mobile payments are also expected to take off in 12 to 18 months.
Near Field Communication (NFC) enables consumers to pay via mobile phones with any payment company.
The integration of NFC payments into Apple Pay and Google Pay will challenge existing payments players in the digital payments sector, who will pay fees to have their credit and charge cards carried on these platforms. Mobile payment apps include PayPal, PayPal Here, Square Register and Woolworths Money.
Smartphones will allow completely digital banks to operate internationally without physical branches.
Cryptocurrencies (CRCs) such as Bitcoin or XRP offer anonymity, accessibility and an unregulated low cost model payment method. The growth of cryptocurrencies has been underlined with a high degree of volatility and low merchant acceptance and consumer confidence. With high volatility comes increasing levels of cybercrime, and mainstream adoption is unlikely over the forecast period.
Personal and business finance
Personal and business finance services offer easy to use mobile applications and web portals. They give consumers quick access to investment and credit opportunities, through peer-to-peer models of investment and borrowing or via algorithm based financial planning and investing.
Digital ecosystems are complex and connected to so many diverse products but are essential in improving customer experience and retention and are the key to Fintech and traditional bank success. Artificial intelligence (AI) systems manage digital ecosystems, providing a uniform consumer experience amongst diverse types of financial services. Self-learning AI systems are a tool to analyse customer behavior. AI system development will be aimed at analysing customer behaviour for signs of fraud or other financial crimes, but also new investment opportunities and saving methods so financial institutions can sell products more suited to customers at a lower cost based on the customers' behaviour and financial activity.
Customised algorithms within algorithm based banking (algo-banking) and robo-advice are interactive advice systems that allow rapid transformation of unstructured raw data into structured data. It analyses global markets and a customer's financial details to customise financial advice to individuals and businesses and can recommend money saving methods at the point of sale and in the long-term more efficiently than any human broker. Customised analysis algorithms are easily deployable to any institution's financial data. Replacing financial advice teams with robo-advice teams will be a favourable option for established financial institutions looking to reduce labour costs, while lowering investment and financial planning costs to customers.
The growth of algo-banking will be buoyed by the size and stability of Australia's superannuation funds. Frost & Sullivan anticipates this sector will expand its revenue share to reach A$1.4 billion by 2020.
Financial infrastructure and data analysis
Data analysis and infrastructure services are designed to make traditional financial institutions more efficient by implementing newer digital technologies like blockchain and biometric analysis to improve security and connectivity for financial services.
Frost & Sullivan forecasts this sector will increase in revenues, but become more concentrated, to A$843.4 million in 2020.
Investment activity in the global Fintech sector has tripled to US$12.21 billion in 2014 from US$4.05 billion in 2013, according to a report by Frost & Sullivan.
Growth continued in 2015 with an increase in global funding into Venture Capital (VC) backed Fintech startups.
Global Fintech growth is
predicted to continue with more Fintech companies successfully reaching the exit
stage of funding in 2016.
In the Asia Pacific region, Fintech investments were concentrated in Australia, China and Singapore, and in 2015, skyrocketed to reach US$3.46 billion - a four-fold increase from 2014 to 2015.
Asian Fintechs garnered strong support, with funding growing by 413 per cent, while North American funding grew by 59 per cent.