FinTech funding in Australia had a record first half of 2020 driven by large challenger bank deals

Neobanks in the country completed five of the top ten deals during the first six months of the year

  • The top ten Australian FinTech deals in the first half of the year collectively raised $944m, making up 94.1% of the overall investment in the country during the period.
  • Neobanks dominate the list of top transactions as investors are backing challengers trying to disrupt the monopolistic position and take market share away from the four major banks in Australia. The largest deal of the period was raised by Judo Bank, an SME challenger bank, which secured $500m from the Australian government to help provide loans to small businesses in the country.
  • The largest deal outside of the WealthTech sector was raised by Verteva, a startup building a transformative digital alternative for customers in the home lending space. The company raised $21.3m in a funding round from Bolton Equities and will use the new capital for new market entry, product development, and business expansion.

Australian FinTech funding set pace for a record year in H1 2020

  • The FinTech industry in Australia recorded strong growth in total capital invested between 2016 and 2019 as investors increasingly backed innovative startups in the country aiming to disrupt legacy processes in sectors such as banking, lending, real estate and digital payments. Total funding grew at a CAGR of 75.1% from $215.3m to over $1.1bn at the end of last year.
  • However, deal activity has been declining since it reached a high of 108 transactions in 2017. The trend of increased funding but declining number of deals suggests the Australian FinTech sector is consolidating and investors are backing established companies in the space. This is further supported by the fact that the strong growth in funding has been driven by deals over $50m, which raised nearly 60% of the total investment in the country in 2019.
  • Investment in the country had a strong first six months of the year with over $1bn capital invested, which is already 86.8% of the total funding recorded for the whole of 2019. That being said, nearly two-thirds of that funding came from two deals completed by Judo Bank, which also raised $149.5m in a Series C round in addition to the support it received from the Australian government mentioned earlier.

Australian FinTech deal activity hit a five-quarter low in Q2 2020 as Coronavirus lockdown leaves its mark

  • FinTech deal activity in Australia in Q2 2020 recorded its third consecutive quarter of decline. The number of transactions recorded in the first half of this year was 25% lower compared to the same period in 2019 and the country is on track to record its worst deal activity since 2016 given the lockdown and economic uncertainty caused by the coronavirus pandemic.
  • On the other hand, funding in Q2 2020 hit a five-quarter high driven by the previously mentioned deals completed by Judo Bank. Interestingly, the high levels of funding recorded in Q3 2019 were also boosted by Judo Bank which raised $275.9m Series B round in July last year.
  • Funding in the first quarter of 2020 was 53.6% higher that the levels recorded in Q1 last year. The largest deal of the period was raised by Xinja Bank, a digital bank startup, which raised $95.5m in a Series D from Emirates’ World Investments. Xinja says it will use the new funding to further improve its technology capability and grow its customer base.

Deals over $10m made up half of all FinTech transactions in Australia during H1 2020

  • As the Australian FinTech industry matured, the share for deals valued at $10m and over increased from 9.8% in 2016 to 28.4% in 2019. That share nearly doubled in the first six months of this year to 50% with 12 deals of this size being recorded.
  • The share of deals under $5m has been shrinking continuously to reach 37.5% in H1 2020 as the Australian market matures and goes through a consolidation phase. The trend was accelerated this year as investors shied away from riskier early stage deals due to the economic uncertainty and the coronavirus pandemic.
  • To tackle that, the Australian Senate Select Committee on Financial Technology and Regulatory Technology extended its request for input about the industry to include the impact of the Covid-19 pandemic on the FinTech sector has been.
  • Some of the initiatives recommended include R&D tax incentives, bridging finance, grant and loan schemes as well as Consumer Data Right, Comprehensive Credit Reporting and other regulatory regimes. Additionally, FinTech Australia, the association representing the sector in the country, also recommended “direct government investment into FinTechs” as vital to survival in the current market conditions.

The data for this research was taken from the FinTech Global database. More in-depth data and analytics on investments and companies across all FinTech sectors and regions around the world are available to subscribers of FinTech Global.

Copyright © 2020 FinTech Global

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