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Australian Fintech Highlights for H2'19

Investment in Australia’s fintech sector smashed previous records in 2019, jumping up 252 percent to US$1.913 billion, spurred by the acquisition of Property Exchange (PEXA) and the US$280 investment in neobank Judo – with Australia bucking the global investment trend, which saw 2019 fall just shy of 2018’s record with US$135.7 billion invested across 2,693 deals.

Notable venture capital deals in Australia included neobank Athena’s US$43.4 million Series C round, Grow Super’s US$11.8 million Series B funding round and Cover Genuis’s US$10 million Series C round.

2019 was a break-out year for Australia’s fintech ecosystem, with large-scale M&A activity driving the result alongside significant VC investment in emerging players. There is a depth of innovation across multiple areas of fintechs, including banking and lending, proptech, insurtech and superannuation – and this is increasingly being recognised by investors and corporates.

Dan Teper
KPMG Head of Fintech – Australia

2019 Key Global Highlights

  • Global fintech investment fell short of 2018’s record year, with US$137.5 billion invested in 2019 compared to US$141 billion in 2018. 
  • Global fintech M&A rose from US$91 billion in 2019 to a record-high of US$97.3 billion in 2019, despite a strong drop in the number of M&A deals from 622 to 426.
  • Global corporate VC investment participation rose during every quarter of 2019, leading to US$16.7 billion in total annual VC invested with Corporate Venture Capital (CVC) involvement; CVC-related deal volume was also robust, with 553 deals over 2019, including 166 in Q3’19 – the second-highest quarter ever in terms of CVC fintech deals volume after Q2’18.
  • Cross-border M&A held strong at US$54.2 billion in deal value – despite ongoing global trade tension.
  • The number of fintech deals by global tech giants – including Alibaba Group, Alphabet, Apple, Baidu, IBM, Microsoft and Tencent – increased for the fifth straight year, with US$3.5 billion invested across 46 deals in 2019.
  • Cybersecurity related fintech investment more than doubled year-over-year, from US$316.9 million to US$646.2 million. 
  • Proptech investment rose to a record high of US$2.6 billion in 2019 from US$1.9 billion in 2018.
Total investment activity (VC, PE and M&A) in fintech

2020 is going to be an exciting and pivotal year for fintech, particularly as we start to see the impact of the digital banking licensees in Australia, Hong Kong (SAR), and Singapore launching and endeavouring to scale, as well as other markets following suit. In addition, a number of companies from outside of financial services are working to get into parts of the financial services value chain – either directly or through partnerships – and they’re going to blur the lines of financial services even more. As a result, we expect to see bolder responses from incumbent financial institutions in terms of partnerships, as well as strategic investments and M&A.

Ian Pollari
Global Co-Leader of Fintech
KPMG Australia

Key Predictions for 2020

1. Bigger, bolder deals
Deal sizes will continue to grow as investors focus on late-stage fintechs. Frothy, speculative deals will be increasingly replaced by high-conviction deals focused on companies with proven business models and paths to profitability or access to capabilities in adjacent areas of interest.

2. Product expansion
Maturing fintechs and challenger banks will continue to expand the breadth of their service offerings beyond their initial niche focus areas into adjacencies, e.g. energy, telco, etc.

3. Deals occurring in diverse locations
Fintech deals will increasingly be seen in jurisdictions outside of traditional fintech markets, such as in Southeast Asia, Latin America and Africa.

4. Rise of Big Tech
The Big Tech giants like Alibaba, Alphabet, Apple and Tencent will increase their focus on the fintech space, working to increase their reach into developing markets – whether directly or by forging fintech investments or through strategic alliances – to increase the value and seamless integration of their ecosystems to their customers.

5. Digital banking licenses
Following the lead of Hong Kong (SAR) and Australia and Singapore, more countries in the Asia Pacific region will develop digital banking regimes and use digital banking licenses to stimulate competition and deliver services to under-served/un-served segments of the population.

6. The hunted start hunting
Mature fintechs will increasingly make their own investments in other emerging fintechs as they seek to augment their capabilities, get access to talent more quickly (acqui-hire) and grow in new markets.

7. Partnerships
The use of partnerships will continue to accelerate between big tech players and fintechs, traditional corporates and fintechs, and fintechs with each other. Partnerships will be highly customer-focused and geared toward creating more value and getting to dominate scale more quickly.

8. Open banking to open finance
The focus on open data opportunities will move beyond banking and into other aspects of the financial services industry, as well as solving common pain points in other sectors, e.g. energy, telco, etc.

9. Re-bundling of financial services
The unbundling of financial products will begin to reverse course as consumers increasingly seek a solution to increasingly complex and fragmented digital lives, preferring a trusted platform to orchestrate their financial affairs.

10. Cybersecurity and digital identity management
Cybersecurity-focused fintechs will become more attractive as traditional financial institutions shift from building to buying cyber.

Over the past year, the lines have really started to blur between financial services and non-financial services – with fintech companies helping to bridge the gap. In many ways, the main theme for 2019’s Australian fintech market was diversity – with fintech investment expanding across product, sector and geographic borders. Australia punches above its weight when it comes to financial services innovation, and the increasing reach and interconnectivity of our local fintechs is attracting increasing VC attention. It’s a trend that will only continue into 2020.

Amanda Price
Head of KPMG High Growth Ventures
KPMG Australia