“Wealthtech” growth is now sitting in the red after a volatile 12 months, according to KPMGs Australian Fintech Survey.
While 7 per cent of fintechs in 2022 described themselves as wealthtech firms, this year, only 3 per cent identified themselves as such.
But the wealthtech sector was not the only one affected – this year signified the first time that there would be a decline in the total number of Australian start-ups – down 3 per cent to 830.
Echoing this, both the total investment in Aussie fintechs and the number of deals made in 2023 materially dropped compared to the previous year.
This was evidenced by a reported decrease in deal count by 19 per cent (43 deals) compared to the second half of calendar year 2022, while the deal value of the transactions that took place in H123 was down approximately 49 per cent ($349 million) on the previous half of the year.
These trends were cemented within the advice sector, with Advice Intelligence, one of the four firms actively involved in the formation of a new digital advice association, announcing it had entered voluntary administration in May.
In explaining the decision, Advice Intelligence chief executive Jacqui Henderson said that despite continuing to “strive forward with innovation”, the fintech had “not secured the support required”.
However, in July, GBST announced the acquisition of Advice Intelligence, with the global fintech reasoning that the partnership would support the industry’s “evolution” towards efficient and cost-effective digital advice.
Speaking on the report findings, Daniel Teper, head of fintech KPMG Australia, commented: “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.
“In a tough operating environment, Australia’s fintech sector has had to grow up,” Mr Teper added.
“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. Investors are more cautious and are prioritising safer investments over higher risk growth investment opportunities.”
Emerging trends
According to KPMG, capital raising was seen as the top challenge for 29 per cent of fintechs, followed by customers (22 per cent), and resourcing (22 per cent).
The report further noted that a tougher capital raising environment also created difficulty around accessing lending and credit facilities which in turn impacts the ability to scale up and expand operations, or simply stay afloat.
For those who had made progress in their funding journey over the past 12 months, the most common source of financing were seed investments, at 26 per cent.
“Seed investment, traditionally the first funding an organisation receives, suggests many respondents are still in the early stages of their development,” the big four consultant said.
Despite the challenging conditions, the labour market performed strongly, with only 16 per cent of respondents claiming to have reduced total headcount in the past year.
As such, a large majority of respondents had either seen their headcounts increase (59 per cent) or remain the same (26 per cent) over the last 12 months.
However, in recent months, the trend has decisively shifted, with cost management becoming a more prominent area of focus in the current environment while the economic outlook softened as the year progressed.
Speaking on this emerging trend, KPMG partner Amanda Price said: “The venture capital funding crunch of 2023 has impacted Australian fintechs, who have had to find the right balance between hiring for growth and cutting costs to preserve their runway.
“Despite the challenging market, the demand for fintech talent remains robust, especially for technical skills, and is expected to increase over the next 12 months,” Ms Price added.
