In 2007, cash accounted for 69% of all consumer payments in Australia. By 2019, cash payments in Australia had fallen to 27%, while in other parts of the world, cash remained the dominant method of payment. In the Eurozone, for example, cash accounted for 73% of payments in 2019.
Fewer Australians are paying with cash than ever before, and a growing number of fintechs are driving innovation in Australia’s already advanced payments sector. With tech-powered solutions that are moulding consumer expectations, the number of fintech companies in Australia more than doubled between 2017 and 2021.
As the shift towards cashless payments has accelerated globally since the pandemic, Australia’s payments sector is in a prime position to become a world leader in payments technology.
The Australian payments landscape
The last two years have been transformative for Australia’s fintech ecosystem. Not only is the payments industry in a unique and exciting position while the government updates old laws and regulations to better reflect current technology and support future innovation, but the need to digitise customer interactions worldwide has also led to record global investment in the Australian fintech sector.
Between 2019 and 2020, global investment increased by over 250%, with the sector attracting almost A$2bn from venture capital (VC), private equity (PE) and merger & acquisition (M&A) investors in 2020 alone. When it comes to payments technology, it’s clear that Australian fintechs have the potential to lead the world.
According to the EY FinTech Australia Census, 82% of fintechs either met or exceeded their capital raising expectations in 2021. While this is a dramatic increase from 57% the previous year, it’s only the beginning of the journey. To attract investment in 2022 and beyond, fintechs will need to demonstrate the flexibility and agility required to innovate and meet the ever-evolving expectations of consumers.
Real-time payments, blockchain security, the rise of super-apps, and the evolution of payments acceptance are redefining the Australian payments landscape. Looking ahead, a powerful series of payment solutions will be critical for startups looking to reduce their reliance on founder funding and achieve high investment from early seed rounds.
The rise of cashless payments
The pandemic has fast-tracked Australia’s digital-first approach and accelerated many inevitable shifts, from the rise of the gig economy to the rise of cashless payments. Prior to the pandemic, Commonwealth Bank of Australia (CBA) predicted Australia could become a cashless society by 2026. However, the most recent Global Payments Report by Worldpay says the Australian economy is projected to be 98% cashless by 2024.
Although ATM withdrawals have dropped by more than half since 2012, record numbers of $50 and $100 notes have been withdrawn, but not spent, since the pandemic. According to RBA economists, this behaviour is a common response to economic uncertainty.
When it comes to spending money, however, consumers are taking advantage of Australia's fast, efficient and convenient electronic payments system. In fact, 55 million non-cash payments worth $650bn are made in Australia every day. These non-cash payments come from an ever-increasing number of fintech sources, including digital wallets, buy now, pay later (BNLP) apps, and even cryptocurrency.
While 40% of Australia smartphone users reported weekly use of their digital wallets in 2019, this figure increased to 71% by 2021. The use of BNPL apps has also tripled in recent years, while the use of cryptocurrency as a payment method is predicted to grow rapidly once Australia’s new regulatory framework is in place.
This data certainly points to cash becoming either an obsolete or niche method of payment in the near future.
Fintechs and the SME lending sector boom
Following the royal commission’s recommendations for stricter lending criteria, traditional banks are increasingly likely to reject loan applications from small businesses. As a result, a quarter of all Australian SMEs struggle to access the credit they need to survive, let alone grow and develop.
Even for the small businesses with the property-backed security and perfect credit scores required to secure a bank loan, the application process is slow and tedious. Requiring long application forms, accountant reports and waiting periods of several weeks or months, traditional lenders are holding businesses back in Australia’s fast-paced payments landscape.
With a funding gap of more than A$90bn, a rising number of fintechs in the SME lending sector are seizing this opportunity and offering tech-powered solutions. The likes of Judo Bank, Moula and Prospa are providing SMEs with quick and easy access to credit, and with five million Australians employed by over 2.4 million SMEs, the SME lending sector can expect to see continued growth and innovation in 2022 and beyond.
The future is bright for Australian fintech. Those that embrace automation, payment orchestration and embedded finance will dazzle the most. To discover how Zai can help you with your payment goals, get in touch.
Download our guide on how payment technology can help your business make the most of the opportunities that lie ahead for the Australian fintech sector.