Fintech deals and investment dip in 2023: KPMG

The Australian fintech sector has experienced a decline in the number of deals and investments in 2023 according to a new KPMG survey.

The survey highlighted that the total number of fintech startups in Australia has dropped 3 percent in 2023 to 830 companies.

From the same report, 53 percent said they are finding the current economic conditions more challenging than last year, highlighting the lingering concerns around the economy and notably the RBA’s tightening monetary policy.

The tougher capital raising environment also creates difficulty around accessing lending and credit facilities which in turn impacts the ability to scale up and expand operations, or simply survive.

As inflation continues to impact the Australian economy, capital raising was seen as the top challenge for 29 percent of fintechs, followed by customers, resourcing and revenue contraction.

Despite the challenging conditions, only 16 percent of fintechs said they had reduced total headcount in the past year, and 83 percent of fintechs indicated that they intend to hire new staff in the coming 12 months.

Daniel Teper, partner, mergers and acquisitions and head of fintech Australia at KPMG Australia said 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,” he said.

“Investors are more cautious and are prioritising safer investments over higher risk growth investment opportunities.”

Teper 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,” he explained.

The report highlighted a number of trends emerging from the sector including subdued growth, innovation potential and rationalisation and consolidation.

According to KPMG, a period of subdued and moderate growth, or even decline, is expected as continued uncertainty around economic conditions persists.

With Australians being amongst the most digitally savvy consumers globally, there remains an opportunity for growth in new innovative capabilities.

The report noted that payments innovation is being driven by factors including Australia’s new payments platform and behavioural changes induced by the pandemic.

And in parallel, a continued period of rationalisation will likely take place over the near-term with consolidation expected in areas of over participation or where scale benefits are critical to building a profitable enterprise.