Fintechs have the opportunity to make a positive impact by offering a global population easy access to financial services, where they may be excluded by traditional institutions.
After the success of our 2021 series, BDO is pleased to be continuing the Fintech Fridays webinar series in 2022. Join BDO Global Fintech Leader, Tim Aman, as he hosts industry experts for our bi-monthly webinar series covering the diverse subsectors of the fintech space, including blockchain, capital markets, customer acquisition, and more.
The coveted unicorn status: Revolut
Revolut was founded in 2015 in the UK and rapidly became one the UK most valuable FinTech’s. The company aims to challenge traditional banks by completely removing all hidden banking costs and providing customers with a much more consumer-friendly experience. Since its inception, Revolut has expanded into dozens of countries around the world and first entered the Australian market in 2020.
Revolut offers banking services featuring currency exchange, debit cards, virtual cards, Apple Pay, interest-bearing 'vaults', commission-free stock trading, crypto, commodities, and more. They first entered the global market in 2019 after announcing a global deal with Visa. Following this announcement, they then expanded into 24 new markets.
They continue to expand rapidly around the world and have a story that most fintech companies can only dream of.
Read on to learn more about the opportunities and pitfalls in taking fintechs global.
Taking fintechs global
The global fintech market attracted over US$100 billion in funding in 2021, more than double 2020’s US$48 billion. This signifies the highest level of funding in the fintech industry to date - driven primarily by the payments sector, followed by banking, digital lending, wealth tech, insurtech and capital markets tech.
While the rapid growth can be largely attributed to COVID-19 and the need for digital financial technology, the growing interest of the general global population in fintech solutions can’t be ignored. This interest is not only prevalent in more traditional Fintech hubs such as New York, Singapore and London, but is also emerging in underbanked regions in Southeast Asia and Africa. Of the 83 countries ranked in findexable’s 2021 Global Fintech Rankings, more than 20 per cent are new entrants, demonstrating increased financial inclusion in emerging economies.
Although many start-ups in the sector are region-specific, serving the needs of the local population, the opportunities for Australian fintechs to move abroad, particularly in Asia-Pacific, are immense. According to Austrade, Australia’s business and cultural ties with Asia make us an ideal base for regional operations.
Taking a fintech global isn’t without its challenges. Many companies struggle with taxes, government grants or incentives, and global regulatory compliance. In the rush to take operations overseas ahead of their competitors, many fintechs aren’t effectively planning their business growth and operations. This can result in errors including tax costs, missed government incentives, or even brand damage due to mistakes becoming public.
Common pitfalls when going global
Taking a fintech global can present a myriad of problems, particularly if there are fundamental flaws in the business model and operational performance. Many businesses are formed rapidly and without adequate preparation, often in fear that another competitor will beat them to market.
Fintech start-ups often cite their competitive advantages, such as innovative technology or frequent product roll-out, when pitching for funding. However, these competitive advantages alone are not sufficient in determining a growth and operational strategy.
Australian fintechs should understand local competitors and their positioning in the market before they look to compete on the global stage. It is equally important to understand local and regional tax obligations and regulatory compliance.
The Australian Government is currently looking to address the regulatory framework for fintechs. Most recently, the Select Senate Committee released their final report on Australia as a Technology and Financial Centre, making 12 recommendations following extensive consultation with the sector. It is vital for fintechs in Australia to continue to monitor the updates to these regulatory frameworks and ensure they are complying.
It then becomes a question of choosing the right regional market to target for expansion. At BDO in Australia, we anticipate fintech growth in Asia will continue, particularly with Australia’s new Emerging Markets Impact Investment Fund luring private capital to support economic growth in the region.
Government initiatives and programs
The Australian fintech market has seen incredible growth in the past few years, boosted by new regulatory conditions to support entrepreneurship and the rise of non-traditional finance.
2022 will see the introduction of more government initiatives and programs such as the new Asialink Business Fintech in Vietnam Capability Development Program, in partnership with the Department of Industry, Science, Energy and Resources (DISER) and Austrade. Commencing in March, the program offers a comprehensive online training series for Australian business leaders in the fintech sector who are exploring opportunities to plug-into Vietnam’s fintech market.
Australian companies will also continue to reap the benefits from existing trade agreements such as the Australia-Singapore Digital Economy Agreement, formed in 2020. Agreements such as these enable greater cross-border data flow, digital trade facilitation, open government data, improved digital standards and greater fintech and regtech collaboration.
As the global fintech sector continues to evolve and mature, so will government initiatives and cross-border agreements. We can also expect improved regulatory frameworks supporting local fintechs in their growth.
According to the World Bank Group, the past decade has seen 1.2 billion previously unbanked adults gain access to financial services across the globe. However, 1.7 billion adults remain unbanked and there is significant opportunity for fintech companies to help this population.
While almost half of the world’s unbanked population resides in China, India, Pakistan, Indonesia, Nigeria, Mexico and Bangladesh, it is not just emerging economies that struggle with this issue. According to the Federal Reserve, 22 per cent of Americans were unbanked or underbanked in the USA prior to the pandemic – these levels are expected to have increased since the onset of COVID-19.
Fintechs have the opportunity to make a positive impact by offering this population easy access to financial services, where they may be excluded by traditional institutions.
At BDO in Australia, we understand the needs of fintech businesses of all shapes and sizes. Our local teams offer specialist advice for fintechs looking to expand their operations internationally, offering the unique advantage of cross-border solutions with a presence in 167 countries and territories, and 1,728 offices around the world. Contact us to find out how BDO can help you to scale your business.