Now might be exactly the right time in Australia to start a fintech, but what exactly the best investors are looking for can be a mystery for new founders.
According to KPMG’s Australian Fintech Landscape report investment in the Australian fintech sector has risen from $US53 million in 2012 to over $U675 million in 2016 with more than 650 companies in the market today.
Yet, despite this growth startups still struggle to raise capital.
As part of Australia’s largest fintech conference Intersekt, run by FinTech Australia, EY is connecting the most high profile investors to fintechs within the ecosystem.
We asked some the investors attending Intersekt including Reinventure, Blackbird, SquarePeg, and Rampersand for their views on the sector and what VCs are looking for in fintech right now.
Past investments and the big picture
Reinventure founders Simon Cant and Danny Gilligan were the first to focus purely on fintech concentrating on disruptive startups in data, security, identity and transactions evident in their portfolio which includes Data Republic and Hyper Anna.
Likewise SquarePeg cofounder Tony Holt is looking for more fintechs like it’s portfolio companies AirWallex which has rapidly scaled.
Rampersand Managing Partner Paul Naphtali has his eyes on global growth and what’s happening in our wallets.
In a general sense Naphtali says fintech founders need the big vision, huge commitment and planning acumen all startups need to be successful.
“They also require a level of regulatory nous many non-fintechs have little to no need for. Whether it’s domestic policy only for a company such as Spaceship (in which we’ve invested) or entering and transacting across foreign markets such as Assembly Payments (another portfolio company), there are constantly evolving challenges.”
The Open Banking opportunity
One of the key legislative reforms for fintech is Open Banking, which is set to open up competition in financial services. Reinventure is now looking for platforms taking advantage of the shift towards open banking, leveraging access to data in new and interesting ways.
“Open Data is the single biggest lever for microeconomic and social reform in the next two decades, and with the unprecedented access to data that open banking reform will enable, this area is ripe for startups to capitalise on,” said Managing Partner Danny Gilligan.
Blockchain and Web 3.0
Companies building the next web remain an important focus for Reinventure.
“We’re actually glad to see some of the heat come out of the crypto markets,” Cant says.
“There are important new layers of infrastructure being built out in this new ‘financial web’ but the ICO bubble has obscured some of the most significant developments. As the heat comes out we are watching even more closely for the right investable public blockchain opportunities.”
Rampersand also has an eye on this space.
“We’re really interested in the globalisation of fintech generally, and specifically around payments. We’re also carefully tracking the evolution and use of blockchain in financial services, and cryptocurrencies continue to be fascinating,” Naphtali says.
Ambition to take on incumbents
Meanwhile, SquarePeg cofounder Tony Holt has his eye on the next wave of financial services products that will simply do things better than the incumbents.
“Across Fintech, be that insurance, asset management, lending or deposit taking, incumbents are increasingly seeing their profit pools shift towards startups.
“We love meeting founders with the ambition to take on such problems. Our recent investments in Australian fintech – Athena, Agridigital, Airwallex – are superb examples of the vastness of the Australian sector and the real potential for many companies to succeed at scale domestically.
“They also demonstrate how often fintech crosses into other similarly huge markets such as agriculture. While fintech does require an additional layer of scrutiny around regulation, there are many superb founding teams capable of managing this complexity.”
All about AI
Reinventure’s Investment Manager Rohen Sood said AI and machine learning is another important focus.
“Applications of artificial intelligence and machine learning technology to financial services can drive significant cost efficiencies, increase revenue generation opportunities and most importantly improve outcomes for both customers and in relation to compliance. Portfolio companies like HyperAnna and Indebted are addressing these issues.
“When assessing AI, we look for ventures that are building a real data network effect, often by embedding their solution into key workflows of banks and enterprises in order to train their algorithms from unique data sets.”
Rise of regtech
Like a lot of fintech, compliance is not particularly sexy, but it’s an important emerging application of AI – particularly in the wake of the banking royal commission.
“Many of the biggest gaps highlighted by the royal commission could be solved through AI and regtech including income and expense verification and client best interest duty. And in an era of real time payments where smaller high volume transactions could increasingly become vulnerable to fraud and money laundering, regtech offers the only truly scalable solution, hence it is an important area of focus for us,” said Managing Partner Simon Cant.
Rebecca Schot-Guppy is the head of Community and Partnerships at Fintech Australia. The Intersekt conference is in Melbourne from October 29 to October 31. While there are limited seats remaining, founders and investors can register separately to take part in EY’s Deal Day.
Featured Image | City of Melbourne/ That Startup Show / Photographer Wren Steiner