EY: Talent, salaries & capital remain concerns for Australian fintechs

The annual Australian fintech census by consulting firm EY reveals the sector continues to grow strongly, despite the headwinds of the last 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, collaboration between Ernst & Young, Australia (EY), and FinTech Australia, found that the sector has significantly matured in the past 12 months with the majority (78%) of fintechs now post-revenue, up from 70% in 2021, but raising capital and competing with big tech companies for talent are now front of mind for founders.

Talent remains scarce, with two-thirds (66%) of fintechs indicating rising employee salaries were a challenge. And nearly a third (29%) of fintechs said they had failed to meet their capital raising expectations in 2022.

Nonetheless, fintechs performed well over the past 12 months with the number of paying customers increasing year-on-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 steady at elevated levels of 30%.

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

“To weather the market challenges ahead, fintechs can further improve the sector’s resilience by focusing on greater collaboration and partnerships both within and beyond the sector, investing back into the ecosystem, strengthening their ESG capabilities, and opening up the talent pool by considering diverse and alternative hiring strategies,” she said.

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

“From an overseas investor and global fintech landscape perspective, Australia’s innovative and sophisticated financial and consumer markets and evolving regulatory environment make it a great place to develop innovative fintech businesses with the potential for global scale,” he said.

“But, with access to capital and talent tightening, collaboration across the entire fintech ecosystem and targeted government support will be needed to keep the sector on its growth trajectory.”

But it’s clear that fintech founders are slow to get with the program when it comes to issues such as ESG (Environmental, Social, and Governance) and diversity, despite them being increasingly front of mind for investors.

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

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

D’Almeida said he was “heartened” that there were partial increases in representation of women in leadership and board roles.

“This Census shows that we still have work ahead of us in promoting even greater diversity within the sector. In addition to our efforts here, we will also be focusing on ESG policy in fintech for the year ahead, creating resources for our members,” he said.

“Not only is there a moral imperative for fintechs to actively and positively contribute to societal and environmental issues, but failing to act could see fintechs miss out on other capital and consumer behaviour trends tied to this movement.”

EY Oceania startup and entrepreneurship leader Malia Forner said government and regulatory support remains paramount for the continued growth and development of the fintech sector.

“Census respondents believe the new Federal Government should focus on greater founder and start-up support via incentives, supporting greater capital flow for investment, and greater support for tax incentives and grants for Australian based R&D and commercialisation;” she said.

“Incentives also provide governments with the opportunity to align growth with other policy goals such as sustainability, digital transformation or social equality. So, it’s both pleasing and critical to see growing commitment to incentivise investment, innovation, entrepreneurship, and R&D, and the economic opportunities and jobs it generates.”

Forner said the stage is set for greater opportunities for innovation in alternative funding and incentives beyond VC and traditional finance options.

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

“There is still capital for investment, but it is being deployed differently.”

The key census themes and findings are:

Warning signs on capital raising 

The last 12 months saw a steady level of successful fintech capital raised, with 45% of respondents raising more than $10 million (44% in 2021).

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

Payments, wallets and supply chain fintechs were most successful, with 21% of this segment raising more than $100 million, compared to the 13% sector average.

Outside of founder funding (54%), capital raising was largely 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 grants, including the R&D tax incentive, as a source of funding this year.

Talent a top priority

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

Consistent with 2021, the scarcest areas of talent across the industry remain engineering/software (66%), data engineer/data scientist (40%), product management (29%) and sales (29%).

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

ESG & diversity need improvement

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

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

Culturally and linguistically diverse (CALD) participation in the fintech workforce is increasing, but remains low at 28% (versus 25% in 2021).

R&D tax incentive still crucial

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

Similar to 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 at the time of census close.

Yet, 64% of fintechs are either not confident, or only somewhat confident that they understand the incentive’s eligibility criteria, indicating the need for more clarity and engagement.

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

 Confidence drops on global plans

The percentage of respondents who believe Australian fintechs are internationally competitive fell to 69% from 80%, putting the sector’s confidence almost back to 2019 levels.

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

Despite this perception though, the percentage of Australian fintechs generating revenue from overseas remains steady (at 40%) and, of those, 43% earn almost half of their revenue from overseas sales.

For the fintechs planning overseas expansion in 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 to be the fifth most popular expansion destination, with fintechs beginning to see greater opportunity there.