The total number of Australian fintech startups dropped for the first time on record, down by three per cent to 830 companies, with the fintech sector reporting continued challenges with a tougher capital acquisition environment and aggressive revaluations, according to KPMG’s latest annual fintech sector survey.
The survey, covering 2023, showed more than half (53 per cent) of respondents are finding the current economic conditions more challenging than last year, with KPMG noting lingering concerns around the economy and the Reserve Bank’s tightening of monetary policy.
Current economic conditions have led to a tougher capital raising environment for fintechs, creating difficulties for these startups to access lending and credit facilities, the report found.
“This progressive shift in market conditions, together with downward pressure on valuations, has resulted in a material fall in investor sentiment across the fintech sector”.
This, the report said, is evidenced by a deal count down 19 per cent (to 43 deals) compared to the second half of 2022, while the deal value of transactions dropped 49 per cent, to $349 million between the first and second half of 2023.
By comparison, the average total deal value over the four years from 2019 has been around $3.5 billion each year.
Capital raising was seen as the top challenge for 29 per cent of fintechs, followed by customers (22 per cent), resourcing (22 per cent), and revenue contraction (14 per cent).
Around 14 per cent of local fintechs have also experienced a contraction in revenue.
Despite today’s more challenging economic conditions, most respondents appeared positive about the future. Collectively, around one in three respondents (29 per cent) have expressed negative business and economic sentiment over the next 12 months, versus around 50 per cent who are either neutral or positive, with around one in five noting they were “very positive” about their future prospects.
“In a tough operating environment, Australia’s fintech sector has had to grow up. The overall more challenging economic market conditions in 2023, coupled with a material shift in investor sentiment, have led to subdued market activity, hindered also by the high rates environment and inflationary pressures, said Daniel Teper, partner, mergers & acquisitions and head of fintech (Australia) at KPMG Australia, in a statement.
“Investors are more cautious and are prioritising safer investments over higher risk growth investment opportunities,” he said.
“These prevailing market conditions have ultimately forced the fintech sector to consolidate, with ventures having to re-evaluate their risk profile and appetite for growth over profitability.
“Looking ahead, it is reasonable to assume that a few of the above-mentioned negative catalysts will ease their pressure on the market, and investors will once again turn their attention to growth investments in the sector and allowing fintechs to refocus their attention on innovation and expansive growth.”
For its survey, KPMG received feedback from more than 7.5 per cent of firms in the Australian fintech sector.