The biggest opportunities for Australian fintech

EY report highlights money transfers and payments as key growth areas.

"Young and wealthy" are not words usually included in the headline of a global financial journal. However, it’s those two words that are likely to inspire startups, to lead innovation in technology and to change the way we bank, pay and even think about our money, as fintech (innovative ways of using technology in finance products) continues to evolve.

An article in the December 2015 issue of The Journal of Financial Perspectives, produced by the EY Global Financial Services Institute, was headlined “Fintech is gaining traction and young, high-income users are the early adopters.”

Drawing on a survey of 10,131 digitally active consumers, it looked at fintech adoption in global markets, specifically Australia, Canada, Hong Kong, Singapore, the UK and the US.

The headline was attention-grabbing to say the least, but who are these young and wealthy consumers, and how is this an opportunity for Australia?

The Fintech Adoption Index

While a lot has been said about the companies behind fintech technologies and innovation, there is less information about the consumers that those technologies are being produced for. EY, in an “attempt to fill this information void”, developed the Fintech Adoption Index, which uses data to capture fintech adoption levels among digitally active consumers through a large-scale global survey.

Those surveyed were asked whether they were currently using two or more fintech products. Almost a quarter (25.2%) in the 25 to 34-year-old bracket said they were, 21.3% of 35 to 44-year-olds indicated they were, as did 17.7% of 18 to 24-year-olds.

A similar question was posed as to whether consumers plan to use at least two fintech products in the foreseeable future. Almost half (47.8%) of 25 to 34-year-olds indicated that they would, while roughly two fifths* of both those in the 18 to 14 and 35 to 44-year-old age bracket said the same.

*41% of 18 to 24-year-olds and 40.1% of 35 to 44-year-olds

So where do the financial indicators come in?

The respondents who indicated they were more likely to use two or more fintech products, or who were currently using those products, also tended to earn more. Almost 60% of people earning USD$150,000 or more may soon be adopting two or more new fintech products, while 44.1% in that income bracket already have at least two fintech products.

Why do those surveyed like fintech services? Out of the six possible choices, the clear standout choice was the ease of setting up an account, which 43.4% of those responded chose. The next was more attractive rates and fees at 15.4%, followed by access to different products and services at 12.4%.

What are the opportunities for Australia?

According to the survey, Australia is almost on par with the EY Fintech Adoption Index global weighted average of 15.5%, sitting only slightly below at 13%. The report suggested the “proportion could swell to twice these levels, or even higher, within 12 months.”

By considering the main markets adopting fintech and the reasons they prefer them to more mainstream products and services, there are opportunities that can be identified for not only startups but also established companies and financial service providers.

EY identifies one of the main fintech categories as money transfers and payments, which allow “consumers to test the waters with simple transactions that don’t involve much risk or commitment.” Other categories include peer-to-peer platforms, which Australia has started to explore, online stockbroking and spread betting, that is identified as being popular in Australia, and using non-banks to transfer money.

There are other several key fintech categories identified, along their adoption in different markets and some opportunities that may be explored in Australia.Th explorations of these categories being presented alongside the clear advantages of the groups who are likely to adopt them presents some opportunities for Australia’s growing fintech hubs. While we’re not at the beginning of Australia’s fintech journey, we are at an important stage, and research such as this can help us along the way.