'The great British fintech invasion' Hans Van Leeuwen, the AFR
Not long before coronavirus struck, British tech entrepreneur Ryan Edwards-Pritchard left his job running a business finance start-up in London and headed to Byron Bay for a mate’s wedding.
He was on gardening leave, so he decided to stay on and have a look around. As well as seeing the sights, he spotted a business opportunity: a gap in the financing market for small and medium enterprises (SMEs).
Fast-forward to the end of the year, and Edwards-Pritchard is living in Manly and building up his SME-finance fintech Cape, which offers a credit card to SMEs that can double as a form of working capital.
“Australia has a lot of similar traits to the UK. One of the most important is that it’s an oligopoly banking industry where the banks don’t want to be oligopolies – they don’t actually want to serve every single customer,” he says.
“The incumbent banks really struggle with the fact that SMEs aren’t homogeneous. … For cost reasons, the banks have a one-size-fits-all approach when it comes to how they service and lend to them.”
Cape is one of the latest in a swarm of British fintechs that have descended on Australia in the past 12 to 18 months. Some three dozen players have set up shop – that’s pretty much one every two weeks. Even the closed borders and social restrictions of the COVID-19 pandemic have not deterred them.
Britain’s Department for International Trade says it has worked with 31 companies, covering a bewildering gamut of services, and that does not include a clutch of others who are going it alone such as Cape, Azimo and OakNorth.
Demographically, Australia is a relatively small market; but the combination of the new consumer data right (CDR) regime, which closely resembles Britain’s more longstanding open-banking framework, and a scene dominated by the relatively slow-moving big four banks has proved alluring.
“We’re not China, we’re not the US, we’re 25 million people. But fintech is relatively new in Australia,” says David McCredie, CEO of the Australian British Chamber of Commerce in Sydney.
“There are some long-established players, but the real burst of innovation the UK has seen in the last 10 years, Australia is a little bit behind on that journey. So the market environment is still relatively fresh. And the CDR legislation means there’s now an opportunity to play.”
The admission of defeat last week from local neobank start-up Xinja may have sent a shockwave through the market, but it did not change what the Brits are seeing: a big demand-supply gap, within which lurk plenty of niches for the savvy specialist.
On the demand side, they say Australian businesses and consumers have a sophisticated and expanding appetite for innovative, cheaper and customer-centric products.
“The reason Australia is an interesting market is that people do seem to adopt new technology and do stuff on smart phones reasonably frequently and with a high degree of enthusiasm,” says Michael Kent, whose forex/remittance service Azimo launched Down Under in late October.
“That’s something we need. We need people to feel comfortable using mobile banking, buying stuff online, doing daily tasks on digital.”
On the supply side, existing players haven’t moved nimbly to meet the need – even after the banking royal commission put a rocket up the industry.
“If you look at Australian banking margins there some of the highest in the world. Despite everything that has happened in the last 18 months or so, they’re still very high,” says Dan Silver, chief operating officer of home-grown fintech Stake.
“So people look at it first of all through the lens of performance, and margins are really high therefore there must be an opportunity; then when you start to dig in, that also means there may be some apathy in terms of the product offering and the product development in those markets.”
Philip Hammond, a former British chancellor and now a strategic adviser to incoming small-business lender OakNorth, says it is a consequence of the global financial crisis in 2008-09.
“Your banking sector never came under the same pressure that banking sectors in Europe and the US did – never came under the same pressure to drive efficiencies, never came under the same regulatory pressures to change the way things were done and tighten up,” he says.
“That probably means that some of the reviewing and revising of the way things were done that was carried out in other jurisdictions might not yet have been completed – or even started, in some cases – in Australian banks.”
The banks may see that as a harsh call, but that is the perception. While none of the new arrivals wants to come across as a know-it-all Pom, there is a sense among them of being battle-honed in the testing crucible of the British market.
“Australia is at an interesting point, it’s starting to grasp this fintech phenomenon. But it’s probably eight to 10 years behind Europe, and that offers a massive opportunity,” says Will Banks, who has moved to Brisbaneto set up a neobank named Infinity.
The drawback, he says, is that many investors and potential supporters are yet to appreciate what the market dynamics are likely to be.
“For example, they ask how our bank will take customers from another bank. But who says we’re going to take them? Most customers in the UK and Europe have accounts with more than one bank,” he says.
“That’s older thinking, legacy thinking. People say it’s a crowded market here. Relative to other territories, it’s not crowded yet.”
Irish-British fintech Swoop – which offers SMEs a platform that uses their data to find the best-fitting and most competitive loans, grants or other products and services – echoes that theme in its own niche.
“The UK market is quite mature in terms of the number of different types of brokers you have, whereas in the Australian market that level of maturity hasn’t quite hit yet,” says Swoop co-founder Ciaran Burke.
“But it’s becoming more and more popular for businesses to look at alternative finance – the number of brokers in the business finance space is growing. Getting something like Swoop into Australia during that upward growth trajectory really suited us.”
Swoop first had a WhatsApp chat about opening in Australia in late May or early June, he says, and by October 30 it was good to go. That is another feature which attracts the Brits: with no language barrier and very similar cultures and regulatory frameworks, it’s as smooth a market entry as you can find.
That is partly because both the British and Australian governments have been pulling out all the stops. Hammond and his then opposite number as treasurer, Scott Morrison, set up the “fintech bridge” in March 2018.
More than a photo opportunity
Promising fintechs from Britain and Australia are plucked out and chaperoned around the target market, meeting potential clients or partners and talking to regulators.
There have been 11 trade missions in two years, 31 promotional events across the two hemispheres, 250 introductions, and more than 500 “pieces of advice”, according to British data. They are claiming a share of the credit for 27 British fintechs getting to Australia and 31 heading from Australia to the Old Dart.
“Has the fintech bridge done anything that wouldn’t have happened anyway? I think it has. Without that flag-waving, you don’t get that visibility of the opportunity,” says McCredie.
“It isn’t just a nice piece of paper and a photo opportunity. It’s alive and well and iteratively learning about itself and its role.”
Infinity’s Banks, who wasn’t part of the bridge but who scored a super-express Global Talent Independent visa (as did Cape’s Edwards-Pritchard), says one of the main differences he has found between Australia and Britain is the regulatory culture.
The British regulators watch the fintechs like a hawk, he says, ensuring they stick to the business plan they submitted for approval. “In Australia that doesn’t exist, to the point where you could pursue a fundamentally different business model,” he says, though he adds that things are evolving quickly.
One of the remarkable things about the British fintech invasion is that it has continued unabated even though COVID-19 border restrictions have stopped some execs from jetting in to set up the shop.
Azimo’s Kent is targeting a particular market – the migrant communities who mostly now use bricks-and-mortar providers such as Western Union – and says he can reach them without a big ground presence.
“Over a third of our customers are invited by other customers on WhatsApp or Facebook Messenger. Word of mouth is absolutely huge,” he says. “The good thing about digital marketing is that you can pretty much do it from anywhere. That core expertise of how to reach these people sits in our centres in Amsterdam, Krakow and London.”
Swoop CEO Andrea Reynolds says her business relies on networking, which meant that until they had local troops they spent many a London morning on back-to-back Zoom calls.
"Back in the day, pre-COVID, to set up in another country it would 100 per cent be that you needed to go there, you needed to do it in person, every meeting you had should have been face-to-face. We’re pleasantly surprised at how easy it has been to get us this far virtually,” she says.
As things get back to normal next year, Australia will be digesting the scale of 2020’s British influx. Assuming most avoid Xinja’s fate, will the Poms crowd out the home-grown players and stifle domestic innovation?
McCredie expects the confident Brits will trigger locals to innovate, generating healthy competition that increases the size of the pie. And the incomers themselves are keen to stress that they see themselves as part of the domestic scene.
“I am genuinely honoured and grateful to be in Australia,” says Banks. “I may not be Australian by birth but what I’m creating here is Australian and I’m very proud of that. We’re looking at creating 148 jobs for Australians. Were not trying to put a UK template into Australia and make it fit.”
Edwards-Pritchard waxes equally lyrical: "It’s a vibrant fintech ecosystem that we’re proud to be a part of, and the products that are coming out are ground-breaking.”
Whatever their fintech prowess, if there’s one thing you can rely on the Brits for, it’s a silver tongue.
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