But deal volumes fell as investors backed mature firms, suggesting market may be consolidating.
Whilst fintech investments in Australia shrugged off COVID-19 concerns to grow for the fourth-straight year, deal activity and funding deal size recorded a noticeable decline—suggesting that the sector is consolidating as investors become pickier in where they park their money.
Financial technology investments in Australia grew at a compound annual growth rate (CAGR) of 63.7% to reach almost $1.55b in 2020, from only $215.3m in 2016, reports FinTech Global. The industry notedly enjoyed great government, business, and regulatory support.
But the pandemic put pressure in the fintech sector in another way, with early and mid-stage segments of the investment market noticeably dropping. Last year saw first time funding for deals under $50m fall, with the segment raising only $301.9m, a decline of 34.9% compared to 2019.
Deal activity also continued to decline since its high of 108 transaction in 2017, dropping to only 63 in 2020. This is also its lowest ever since 2016.
This trend of increased funding but dropping number of deals suggests that the Australian fintech sector is consolidating and investors are turning to established companies.
Notedly, over half or 55% of last year’s funding came from three deals over $150m completed by Judo Bank, propelling it to unicorn status.
As the Australian fintech industry matured, the share for deals valued at $10m and over increased from 9.8% in 2016 to 36.6% in 2020, with investors backing established companies to expand into other regional markets, added Fintech Global.
In contrast, the share of deals under $5m has been shrinking and reached only 49.9% in 2020 from making up over 85% of the deals in 2016.
However, Fintech Global did not close the possibility of this trend getting overturned.
“The trend might be reversing, however, as we saw an increase in the share of deals under $1m as investors repositioned their portfolios and looked to back new innovative solutions to challenges brought by the pandemic,” the report noted.
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