By Michael Lukman
Note: This article was first published on the Gen Advisory website on 1 October 2020.
Australia's FinTech sector is weathering the COVID-19 pandemic better than some, but many FinTechs are still doing it tough. The sector deserves our support as we approach the end of a tumultuous 2020 and prepare for an uncertain 2021.
Local success stories like AfterPay are the silver lining of COVID-19, but such successes mask what is actually happening in our FinTech sector, warns the chief executive of FinTech Australia, Rebecca Schot-Guppy.
"Many FinTechs are scraping by. In the past few months, I’ve talked to many founders who – like most business owners in Australia – have made tough decisions about hiring, firing, and whether or not they can continue to run their business into 2021," Schot-Guppy recently told the Australian Financial Review.
"COVID-19 has created an insidious situation where, for the first time, promotion of industry success could actually be counterproductive. This is because policymakers see the success of the few as the bellwether for the many, and will make decisions on this basis."
Review of R&D tax incentives required
Historically, venture capital tends to dry up 12 months after a crisis, not as an immediate response to it. Canberra must prepare for a point where venture capitalists and other funders may not be able to back some of the most promising companies, even at a reduced valuation.
As such, there is an immediate need to review R&D tax incentives payments for all innovative companies in response to COVID-19 and consider increasing the rate from 43 to 65% for the 2020 financial year, while facilitating early access to claims.
"Regardless of the success we may see coming out of the sector, buoying the FinTech industry must still be a national focus," Schot-Guppy says. "The government must play an active role in ensuring its success as it will be a creator of jobs and help ease our road to recovery."
The Australian Investment Council agrees that, at this time, it is vitally important that the private sector partners with the government to regain the capacity to support the innovation ecosystem, emerging entrepreneurs, and their businesses.
"Scaling-up new, fast-growth businesses can bring significant employment and economic benefits that will flow to all sectors of the Australian economy," said chief executive Yasser El-Ansary in his submission for the October federal budget.
"It is therefore critical that the current generation of entrepreneurs is supported and encouraged to drive innovation and contribute to the next wave of employment and economic growth. Without this support, Australia risks losing the next generation of new, internationally competitive Australian businesses to other markets around the world."
Taking action to prevent Fin-Techs leaving Australia
Our observation is that – even during COVID-19 – Australia's FinTech sector continues to be an engine for economic growth and employment.
Authorised Deposit-taking Institutions (ADIs) are often credited as the shock absorbers during a crisis like COVID-19, due to their strong balance sheet. At the moment, ADIs are being forced to focus on and prioritise management of hardship assistance requests, while monitoring the quality of their loan books. This means they have been forced to defer some non-essential spending.
Meanwhile, FinTechs have continued to invest, employ, and grow. It is Gen Advisory's view that FinTechs can also act as shock absorbers for the economy. If we fail to support them, there is a risk they will move to other jurisdictions that are more FinTech-friendly, and Australia will lose a long-term strategic advantage.
The Gen Advisory team is passionate about helping Australian ADIs and FinTechs to fulfil their regulatory and commercial objectives. Should you have any questions regarding this article, please get in touch with our team.