NZ ‘fintech’ firms will face belt-tightening pressure amid an investment drought that saw a massive funding slump in 2023, the latest annual review of the sector suggests.
The 2024 report released last week by research group, Technology Investment Network (TIN), shows the local market attracted just $20.5 million of new investor money last year in 16 deals versus more than $185 million splashed over 30 transactions in 2022.
“… local fintechs will need to exercise cost discipline and nurture sustainable growth strategies, such as fast-tracking market penetration through strategic partnerships,” the fintech market review says.
But NZ was not alone in the investment dry patch with global fintech funding down 42 per cent year-on-year in 2023 to land just under US$114 billion, according to a KPMG study.
Nonetheless, a dearth of new capital and straitened economic times has already hit local privately owned fintech companies, in particular, the report notes.
“The need to achieve sustainable growth and profitability can be felt more keenly by private firms, particularly during times of economic adversity,” the annual review says. “This is reflected in recruitment, which fell to 11% (79 hires) for private firms, down from 30% (170 hires) the year prior.”
TIN counts four listed firms in its universe – Xero and TASK Group on the ASX along with NZX firms Smart Pay and PaySauce – with the remained classified as either foreign-owned or local private operations.
“Laybuy and 9Spokes were among eight financial services firms to withdraw from the ASX in 2023,” the report says.
Another NZX-listed company, Pushpay, exited the exchange last year after a takeover by an offshore firm, marking the 11th fintech to fall into international hands in six years.
Despite the dramatic fall-off in new funding, NZ fintechs generated record revenue of $2.6 billion in 2023 – largely on the back of Xero (53 per cent) and three other large businesses, the annual review shows: more than 80 per cent of NZ fintech revenue was sourced offshore.
While Xero is the billion-dollar bedrock that much of this growth is built on, a critical mass of large companies is building. The number of firms with over $5m in revenue has more than tripled in the past ten years to 23: these firms form the basis of this report.
Greg Shanahan, TIN managing director, says in the publication: “While Xero is the billion-dollar bedrock that much of this growth is built on, a critical mass of large companies is building. The number of firms with over $5m in revenue has more than tripled in the past ten years to 23: these firms form the basis of this report.”
Fintech is now the leading revenue-generator among NZ technology sub-sectors in the TIN world.
At the same time, the local fintechs covered by the report spent over $2.2 billion last year on staff remuneration ($1.1 billion) sales and marketing ($611 million) as well as research and development ($517 million).
Jason Roberts, executive director of industry body Fintech NZ , said in the report that the sector is primed for a “watershed year” in 2024/25 period with legislative tailwinds blowing from the Consumer Data Rights bill and open-banking moves.
The government-assisted impetus would “act as a force multiplier, creating a virtuous circle of increased collaboration, investor confidence, and business opportunity”, Roberts said.
“TIN predicts that fintech revenue will more than double by 2028, so long as key players are not tempted offshore. Local open banking is the key to growth.”