For the second year in a row, the Australian fintech landscape has seen a decline in the number of independent active fintech firms headquartered in Australia, with “a 7% fall between the 2023 and 2024” according to the KPMG Fintech Landscape.
As foreshadowed in KPOM’s previous updates, this comes as a result of the following:
- M&A activity that has continued to take place within the sector;
- Consolidation and mergers in the sector as fintech start-ups and scale ups continue to search for scale and self-funded sustainability in a tighter funding market;
- A number of fintechs running out of capital resulting in a forced sale or closure; and
- A continued slow down in the number of new fintechs being launched, part of which is due to the more challenging local macro-economic and funding conditions.
Over the course of 2024, M&A and investment activity in the fintech space, and indeed “more broadly in the FS sector, has been subdued, with deal flow and capital spend predominantly being capability driven and taking place by strategic buyers / investors.”
Moreover, M&A activity has tended to be “concentrated on a smaller number of larger deals predominantly with foreign strategic investors, with financial sponsor (e.g. PE and VC) activity being less prevalent.”
This market consolidation trend, with larger and more profitable players acquiring smaller, often “capital hungry fintechs, has contributed to the number of independent fintech firms operating in Australian down to 767 (from a previous high of over 800 firms in 2022) – a more sustainable level for the size of the local market and current economic headwinds affecting the sector.”
The majority of the decline, was due to fintech firms “ceasing operations (~4.5%), with a smaller proportion of firms being removed from the landscape due to M&A activities (~3%).”
While KPMG continue to see FIs cooperating with fintech firms, the focus has shifted away from themes such “as customer acquisition and growth, to cost management, compliance and profitability.”
Additionally, rate cuts which were previously expected during 2024 have not transpired due to inflation being “stickier than previously expected, adding pressure to an already complex capital raising environment.”
Overall, current investor market sentiment is still “leaning towards caution and safer investments, with VCs still wary when it comes to investing, not just in fintech, but across the FS landscape more broadly.”
Looking ahead, and with elections looming locally (and indeed in a number of global geographies), the market is “likely to continue to remain cautious in the near term.”
The KPMG report concluded:
“With the possibility of a monetary policy easing commencing in 2025, we could be close to the end of this market cycle, with investment expected to ramp up as the cost of capital decreases and the wider Australian fintech landscape presents as a more sustainable and competitive marketplace.”