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The buzz around the incoming recession, inflation, and unstable markets has businesses from all industries preparing for 2023. The Ernst & Young FinTech Australia Census was released earlier this month and KPMG’s Australian Fintech Survey Report was released in the summer. The published results are showing a shift in trends and priorities in the sector. We’ve identified five challenges FinTech companies will face next year and five possible solutions that will help businesses come out on top in 2023.

Upcoming Challenges and Solutions for 2023

1.      Investors are less comfortable parting with cash

Fuelled by tax and financial incentives, 2021 was a year in which all focus was placed on growth. The Australian FinTech ecosystem had the perfect conditions for capital raising, product development, and launches. For the first half of 2022, Australia still had tough Covid-19 policies in place, the borders were closed and the push toward digitization was still in full force.

Nonetheless, capital raising did not increase in 2022 and now, investors’ focus has shifted toward profitability. Investors are less comfortable parting with cash and with 67% of KPMG’s respondents expecting to raise capital over the next eight months, this will be a challenge in 2023. For early and mid-stage start-ups the pressure will be on performance and yielding results. New start-ups, however, will struggle to raise capital and when they do, terms are likely to favor investors. How do they get around this?

Simply put, some investment is better than no investment. This is particularly true for start-ups trying to get products to market. With competition on the rise, timing is everything. Raising capital for your product launch on time can mean the difference between launching and not launching, between being a market leader or a follower. While agreeing to terms that are somewhat one-sided might seem risky, it’s important to remember that market behavior is cyclical, and tides will turn eventually. Another course of action is to explore alternative funding. For example, E&Y reported that interest in government grants is growing.

2.      Australia’s talent shortage

Australia is going through a talent shortage that may not be resolved in the next year, and for FinTech companies attracting and retaining talent has become increasingly difficult. According to KPMG’s survey, 95% of respondents plan on hiring in the next eight months but only 31% were satisfied with their ability to recruit. Finding a balance between hiring talent needed for scaling the business and compensating that talent without breaking the bank will be key.

Developing a strategy and exploring multichannel recruitment will allow organizations to face the shortage. Here is a practical guide we have prepared for businesses looking to hire in Australia in 2023.

3.      Standing out from the competition

With over 800 FinTech start-ups and counting, the competitive landscape Down Under is increasingly populated. With companies popping up in verticals within verticals, businesses are less likely to launch a truly unique product into the market. How will organizations stand out from the competition?

Focus on product design. If the company’s business plan has an exit strategy in place through acquisition, achieving excellence with a niche product will separate it from the pack. Multiple businesses in the FinTech space are being built around the same or similar products, particularly in the Lending and Payments subsector. Whether it is having the best code, the best software, the best platform, or providing the most efficient service, concentrating their resources and efforts on product design will get them ahead of the competition.

Alternatively, prepare a roadmap to expand early on in your business plan. This could look like developing a product into a platform. This roadmap does not have to be definitive, and it can always change depending on the business’s priorities and development. The point here is that being a one-trick pony is only good if you are the best at it. If a business wants to position itself as a market leader, it will need to have an expansion plan.

4.      The problem with international expansion

Whether it’s geopolitically or in tech leadership, there is a feeling of uncertainty in the air right now. And while E&Y deems Australian FinTech strong enough to weather the upcoming challenges, political and economic instability might dampen business’s expansion plans overseas.

KPMG found that Australian businesses are split in the middle when it comes to having expansion plans in the upcoming months. The 50% that do want to branch out overseas are looking to do so primarily in the USA (23%), UK (22%), and Canada (14%) but these markets have some challenging barriers to entry. With an intense level of competition in the USA and North America, it’s either go big or go home. The UK is still weathering an ongoing energy crisis mixed with political uncertainty.

Organizations Down Under should set their sights closer to home. Singapore and Southeast Asia can become a stable base for expansion. The Southeast Asian market has an incredibly high adoption rate for tech, and is historically underserviced when it comes to traditional banking, plus there is a growing need for agility and flexibility in digital financial services.

Furthermore, with big players facing crises and uncertainty, Australia’s current political stability post-election presents an opportunity for the FinTech market to position itself as a global leader and potentially rise from sixth place globally to the top five in the FinTech Hub rankings.

5.      Building a Long Runway

The consensus is that we will be heading into a recession in 2023, affecting all markets around the world. Rising costs, a tightening on capital raising, and the talent shortage will make it hard for salaries to keep up. But in crisis, there is always opportunity.

While most companies will hold course and keep steady, unfortunately, there will be some left behind. Australian FinTech businesses will need to build themselves a long enough runway to keep operations afloat for the next 12 to 24 months. The businesses that manage to do so are more likely to keep securing funding but will also be creating a window of opportunity to strategically acquire talent. The best talent will be attracted to market leaders that can benefit from their expertise and innovation. Furthermore, early-stage backers invest in people, and securing top talent will be crucial when they assess an organization.

Storm2 – Your Partner in Growth

As the Australian FinTech marketplace continues to flourish while facing upcoming challenges, Storm2 is your partner in growth and will support you on your journey to success. We specialize in connecting the best FinTech talent across APAC, Europe, and North America. Get in touch to learn more and follow our LinkedIn for regular insights on everything FinTech.