Is FinTech Investment Facing a Turning Tide?

Every month in FinTech land is busy, exciting, and dynamic with this month being no exception. As you will read further below there have been great examples of FinTech innovation reflecting the broad-church, FinTech community hard at work.

This month I am going to kick off with some observations and views on the international VC marketplace (and ideate what it might mean for Aotearoa), some updates on the FinTech community, upcoming events, new product/brand launches and more. So read on.

The Economic downturn. What does it mean for FinTech innovation in Aotearoa New Zealand?

Observing international news and following the fast-correcting stock markets, one would naturally think that FinTech companies (or those invested in innovation) might be facing an uphill battle seeking VC investment.

Yes there are certainly indicators around the world that there is a fast decline in FinTech related investment, but as ever it pays to take a deeper look – and see individual markets in context. In our case what trends do we see locally – and what are our international export destinations looking like?

Here are a few perspectives gathered in just the last week.

The not so good….

From the Financial Times. “Half a trillion dollars wiped from once high-flying fintech’s”.Shares in recently listed FinTech’s have fallen an average of more than 50% since the start of the year, compared with a 29 per cent drop in the Nasdaq Composite. Their cumulative market capitalisation has fallen $156bn in 2022….. blames the “tumultuous economy” for slowing down revenue growth and driving up losses”

Or from established Banking Group, Goldman Sachs “warned recently of slowing growth, with half profits in the recent quarter (which covers mergers, IPOs and capital investment) with Q2 earnings falling by 47%. More here

Or not so bad… CB insights report and their other research which notes some massive falls (such as the likes of Stripe teardown of its valuation by 28%), or worse Klarna’s valuation down a whopping 85% on its latest funding round! However, they make an interesting observation around those who have raised plenty of investment from 2021 well placed and noted that (even with a 33%+ decrease in global FinTech investment) this is still above the high water mark in 2020.

Maybe we should reset our expectations by taking out the ‘hype’ and exuberance of 2021?

And The good and better news

So what about the UK and other observations from more FinTech friendly market places?

Well Innovate Finance have recently noted that in the first half of 2022 total capital in FinTech globally reached $59B with the UK share of this being $B9.1. This is still a 24% year-on-year increase from H1 2021 despite the global slowdown and even in the face of a massive reduction in the 217% YoY growth of 2021 is still a good indicator of new solutions. (note NZ was 30% YoY in 2021 – TIN100 Fintech report)

As a nation who has brought in already, the equivalent of the Open Banking (CDR legislation as we are exploring in NZ) it has accelerated a dynamic market place and seen a good growth in Third Party Provider FinTechs seeing a growing uptake of Open Banking capability. (e.g. a 30% rise on consumers to $21M open banking payments or 10% growth YoY). See the report here

So how are we doing in Aotearoa? Is there any evidence of a slow down? It may be too hard to determine yet, especially for a small market and where deals are smaller, can take longer or are less obvious – and certainly never the scale and size we see overseas!

From our three reports this year we don’t have any factual evidence of a decline in funding or direct impact – yet. I welcome reader feedback here, but from conversations with our members, I am not hearing of negative sentiment.

Indeed, to the contrary. We are still seeing good follow through on funding, launches and partnering though there is of course the follow on from earlier effort to be expected. There are a few examples from the last couple of weeks which exemplify how some fintech’s are expanding in Aotearoa New Zealand and abroad, some are noted further below;

InsurTech Javln raising $M6.8 just last week for expansion in to Australia
Dosh partnering with Visa to expand its payment platform – and then winning the Canstar award for most innovative company (see announcement below)
The launch of funded mortgage platform Tella
The partnership between BlinkPay and Westpac
File Invite raises $10m for their series ‘A’ round to expand their File sharing services

What are likely influencers and impact for Kiwi FinTechs?

Shifts on where funding comes from?

Shifts on investor sentiment, or are investments in Fintech now a better deal, especially for early stage, pre IPO investment?

Maybe we will see bank debt funding and loans as now more appealing than VC investor funding given they are now a more stable and predictable route to funded growth?

To do a little more qualification on some of the above points. I had a conversation with Blair Harrison from the ASX, a long time and active member of FinTechNZ. He noted a couple of factors which he is seeing that generally support the above points. In our conversation we covered a few other factors he is also seeing that generally support the above points.

Yes IPO’s have pulled back worldwide, and for ASX largely to pre 2021 levels. Fintech however remains an important and thriving subsector for ASX
That macro economics of geo politics and inflationary pressures are becoming clearer and seem to have settled (and thus more market certainty)
The biggest positive factor is that Fintech interest and demand remains, and if anything, is accelerated by both consumer demand, sector investment and government interest.

Blair’s other insight was that there remains strong pre IPO interest in Fintechs, and indeed these companies are also seen now as better value and (priced) better.

Finally Legislation as a driver.

We have long indicated that the messages and indications our government agencies put out helps the sector respond. Recently FinTechNZ has been engaging with MBIE on CDR legislation and RBNZ on the long-term views on CBDC’s. This is certainly a helpful engagement and while too early to pass on the status I am confident that by the time we reach the FinTech Hui conference in February we will be clearer and can share important updates in the Hui during the ‘Meet the Government’ sessions.

In summary then, is the tide really turning?

Don’t quote me on this! My view is that we will see more global corrective pressures. Looking nationally I predict ongoing interest and sector growth.

Nga Mihi

Jason Roberts

Executive Director