Since launching its fintech offerings early last year, Acorns Australia has been embraced by consumers looking for alternatives to traditional financial institutions, but its chief executive and director George Lucas says Australia still has a way to go to improve innovation and support for startups in the space.
Acorns is an app that allows users to invest their spare change in five diversified investment portfolios by automatically ’rounding up’ leftovers from small transactions like daily coffee purchases, incrementally investing these roundups and allowing users to track the performance of their portfolios.
Acorns Australia was founded in 2015 as a joint venture with Lucas’ company, Instreet Investment Limited and US fintech giant Acorns Grow, which was founded in 2014. The Australian operations were officially launched in February 2016.
Since then, the startup has signed up over 1% of the Australian population, and chief executive George Lucas says the app has seen “a very high adoption rate” among Australian consumers. The company now has 340,000 users on the platform, 120,000 active monthly users, and has reached $100 million in funds under management.
Lucas spoke with StartupSmart about the growing trend for specialised fintech offerings in the country, and the challenges startups in the sector currently face.
The future of fintech
Lucas says Acorns Australia is not the only fintech platform to be seeing “great adoption” in Australia, pointing to the successes and “huge growth” of Afterpay and zipMoney as evidence that Australian consumers are hungry for new fintech offerings.
Earlier this year, Australian consumers ranked fifth in the world for fintech adoption, and a recent report found Australia is overtaking the likes of Japan to become the second largest market for alternative financial services in the Asia Pacific region, sitting behind China.
Lucas believes the rise in popularity for fintech services is a result of a paradigm shift towards financial services and advice being delivered in small, focused offerings, rather than as comprehensive services.
“People historically think of seeing financial advisers being a holistic procedure where they talk about your entire financial future and plan,” Lucas observes.
“Now it’s being offered in bite size pieces — if you want to borrow money to pay you go to Afterpay or zipMoney, if you want to put money away into a fund you go to Acorns, rather than a big, holistic approach,” he says.
These “bite size” offerings are “making way for more startups” in the fintech industry, Lucas says, as consumers increasingly look for niche, focused offerings.
“The concept of giving holistic financial advice may not be as important to people [any more]. Getting advice where and when they want it is going to be more important, and that’s what fintechs can offer,” he says.
Lucas predicts this trend will also open up room for more fintech offerings that utilise artificial intelligence (AI), especially AI that helps consumers improve credit ratings and manage their own finances.
Australian businesses are already adopting similar technology to help analyse their own data and performance, including from Sydney-based Hyper Anna, which recently closed a $16 million funding round to fuel international expansion.
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Problems the fintech sector faces
Despite the apparent high rates of fintech adoption among consumers, Lucas says startups in the space are still facing major roadblocks.
“The biggest problem we all face is customer acquisition — to disrupt the large banks it’ll be all about customer acquisition [in the future],” he says.
While Lucas believes the sector will see “more incremental changes” on this front, he says the “biggest problem in Australia is that it’s too heavily dominated by the big four banks”.
“It makes it very hard for any fintech that’s attacking business-to-retail or B2C [business-to-consumer] to operate in that environment; the cost of acquisition for the customer is so high, to deliver a cost-effective model is very difficult,” he says.
Lucas says the federal government can do more to support fintechs by lowering barriers to entry to the sector and executing the recommendations in the financial services enquiry, such as open data regulations.
“They know what they have to do they just have to do it,” Lucas says, stressing that time is of the essence in the fast-moving world of fintech.
“The reason why its called fintech is it has technology and it moves quickly; if we are put one year behind [in policy] that’s quite a big step behind the rest of the world,” he says.
In saying this, Lucas admits it’s a “hard balancing act” for the government to keep the fintech industry regulated and protect consumers, and it is “not a task I would want to have”.
Australia’s fintech copycats
While Lucas says there are innovative fintech startup being born in Australia, he admits the Asian markets are well ahead of the curve when it comes to truly original fintech offerings.
“To be honest we are doing a lot of copying — fintech like P2P [peer-to-peer] lending is just copying what’s going on overseas,” Lucas says.
“The most innovative fintech is being done in China, and Asia as a whole,” he says.
He attributes this innovation to the fact that these societies have fewer ties to traditional financial institutions, which “makes for very innovative products” because of the eagerness for consumers and investors to adopt alternative financial offerings and challenge the status quo.
This eagerness is something Lucas says Australia still needs to work on cultivating in its own fintech ecosystem, which he says is often still hindered by traditional financial institutions.
“We really do need an ecosystem that encourages people to get out and give it a try, and that ecosystem isn’t 100% there,” he says.
Lucas says local fintechs are encountering significant difficulties when looking to raise capital, because inevitably one of the “first questions anyone asks you is how do you stop a big bank from copying you”. And he predicts this practice of banks ‘copying’ startup offerings will becomes more prevalent in future.
“Some questions you don’t want to answer because in reality you don’t really know the answer,” he admits.