Sydney September 15 2021: Financial technology companies may lead Australia's financial sector in going public, seeking to tap the market's appetite for innovation and potential unicorns.
Australian investors "have a solid understanding of early-stage companies and the risk [to] reward balances of investing in such companies," said Marcus Ohm, Perth-based partner, corporate and audit services at accounting and consultancy firm HLB Mann Judd. "Fintech is an important part of the overall finance sector in Australia and has a lot of potential."
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Given the ongoing shift toward digital, fintech companies now have a better chance of attracting investor attention, after specialty finance and asset managers dominated IPOs in Australia's financial sector in the past three years. Digital lender Judo Bank Pty. Ltd. has been reported to be eyeing an IPO in November. Other firms that may list this year include buy-now, pay-later platforms Limepay Pty. Ltd. and Beforepay, according to a Jan. 11 Australian Financial Review report.
Funds raised by financial services companies via IPOs in the first eight months of 2021 surpassed the total in the previous two years. As of Aug. 31, seven companies in the financial services and fintech sectors had debuted in Australia, raising A$1.02 billion, S&P Global Market Intelligence data shows. That already exceeds the A$1.00 billion raised between 2019 and 2020.
Listings this year include residential mortgage and consumer lender Pepper Money Ltd., which raised A$500 million in the biggest IPO of 2021, and asset management company WAM Strategic Value Ltd., which raised A$225 million. Australia hosted two fintech IPOs this year: Butn Ltd., which operates a payments solution for organizations, and Propell Holdings Ltd., a digital finance platform for small and medium-sized businesses. In the first half, 85 companies in total raised A$3.5 billion, according to ASX data released in August.
Australia's fintech sector comprises a fast-growing cohort of companies, led by the buy-now, pay-later sector, or BNPL, and other non-traditional finance platforms, according to ASX.
Despite a recent surge in COVID-19 cases, the shift to online and digital, for example in e-commerce and social media, has created interest in the consumer ecosystem and "we are seeing heavy investment into digital enablers, data analytics and speed to market innovations," said Tim Coyne, Oceania financial services strategy and transactions leader at EY, formerly known as Ernst & Young Global. "Market conditions have been buoyant, supporting this ecosystem shift via IPOs as investors have sought to pick winners."
One of the best-known names in the Australian fintech market is the BNPL platform Afterpay Ltd., which debuted in 2016 and has subsequently become the acquisition target of U.S. payments platform Square Inc., owned by Twitter Inc.'s Jack Dorsey. Zip Co Ltd., one of the largest BNPL players in Australia that counts the likes of Microsoft Corp. and Adobe Inc. among partners, is also a success story.
Australia was sixth globally for fintech based on the quality and quantity of privately owned fintech companies, as well as the local business environment, in the 2021 rankings published in June by data company Findexable and banking software-as-a-service platform Mambu. In Asia-Pacific, it came in second after Singapore.
"The good news is that Australia has a capital markets environment which is conducive to innovation, with low barriers to listing compared with other countries around the world," HLB Mann Judd's Ohm said, referring to lower minimum thresholds of profit and assets for companies to list on the ASX. However, increasing competition might make it harder for newer fint…