FinTech Australia calls for renewed government support ahead of federal budget

As the federal budget looms, FinTech Australia is intensifying its call for government action to address the challenging capital-raising environment for startups and renew support for Austrade’s efforts in promoting the local fintech sector internationally.

In a pre-budget submission, FinTech Australia outlined a series of measures aimed at nurturing growth within Australia’s fintech ecosystem.

Among the key recommendations put forth by FinTech Australia are targeted initiatives to address capital raising challenges for fintechs, expansion of the National Reconstruction Fund (NRF) initiatives to encompass fintech businesses more explicitly, and funding continuation for fintech trade and investment support.

Additionally, the organisation calls for more resources for the Australian Securities and Investments Commission (ASIC), targeted incentives to promote the rollout of the Consumer Data Right, and a review and revitalisation of the Enhanced Regulatory Sandbox (ERS).

Rehan D’Almeida, CEO of FinTech Australia, emphasised the importance of these measures in ensuring the industry’s momentum amid economic uncertainties.

“Fintech has a key role to play in not only improving the financial literacy and prosperity of Australians but also in our transition to a green economy,” D’Almeida said.

“Maintaining the industry’s momentum is crucial in ensuring we see the most benefit from it as an agent of job creation and change.”

Funding winter hard on the fintech sector

Much like the rest of the industry, Australia’s fintech sector has been grappling with a downturn in capital funding.

The 2023 State of Australian Startup Funding Report revealed a stark 53% year-on-year decline in startup funding, which also significantly impacted the fintech landscape.

According to FinTech Australia’s pre-budget submission, fintech startup funding plummeted to $331 million in 2023 from $2 billion in 2022 and $3 billion in 2021.

It also stated that 41% of fintechs failed to meet their capital raising requirements in 2023, with just 17% exceeding their capital raising requirements.

“As a result, we are also seeing far fewer young businesses and new innovative ideas coming through the pipeline and urgent action is required to increase the amount and diversity of funding available to startups and scaleups,” D’Almeida said.

“Now is the time for the government to review the current policy settings it has in place for early-stage fintechs and startups. This includes recalibrating and expanding the Early Stage Venture Capital Limited Partnership (ESVCLP) and Early Stage Innovation Company (ESIC) schemes, reviewing regulation on crowdfunding — an industry that has significantly grown and evolved since it was introduced in 2017.”

In addition to advocating for capital raising support, FinTech Australia is also calling for the renewal of Austrade’s FinTech Trade and Investment Program (FTIP), which is slated to conclude this year.

According to the organisation, this has proven instrumental in driving trade outcomes and job creation within the sector.

“We’re calling on a renewal of the program, on the grounds that it has attracted millions in trade outcomes and created hundreds of jobs,” D’Almeida said.

“According to the latest FinTech Census, over one-fifth of all Australian fintechs generate half of their revenue overseas.”

More cash for ASIC

The pre-budget submission also stresses the importance of adequate resourcing for ASIC to handle the impending influx of licensing applications.

With new licensing frameworks being rolled out for various sectors, including payment service providers, digital asset platforms, and Buy Now, Pay Later (BNPL) providers, FinTech Australia highlights the need for increased funding to ensure ASIC can efficiently process these applications.

FinTech Australia argues that with hundreds of new applications expected to flood in, each potentially involving complex and novel businesses, the burden on ASIC’s current resources is likely to be overwhelming.

The organisation points out that ASIC aims to process 70% of AFSL applications and variations within 150 days and 90% within 240 days, yet it anticipates as little as 12 months to deal with the surge in applications.

According to FinTech Australia, this timeline may be insufficient due to factors such as the time required for applicants to prepare applications and ASIC’s capacity to process applications within 12 months.

It says that without increased funding and resources — delays, uncertainties, and disruptions to businesses seeking licensing are likely, to hinder innovation and impede the development of new ventures within the Australian fintech ecosystem.