Op-Ed by Bob Belan, Co-Founder & CEO of Symple Loans
By almost any measure, 2020 was a year like no other. After two decades of unabated growth, the Australian economy faced a set of unprecedented conditions brought on by the global Covid-19 pandemic – an event that no one had foreseen and very few were prepared for.
Over the past 12 months, businesses have had to navigate through a series of challenges exacerbated by the imposition of travel bans, large-scale lockdowns, supply chain disruption, capital markets distortion and the erosion of confidence in the economy which impacted consumer spending and business investment alike. And while the latest statistics show that the technical recession is now behind us, there remains an air of uncertainty about exactly what’s ahead as the country begins down the path of recovery.
The Upside Of The Downturn
This last year highlighted many of Australia’s inherent strengths. 2020 has shown that the efforts of Federal, State and Local Government, The Reserve Bank, Regulators and Treasury can be coordinated to support the most vulnerable business sectors. For leaders of both large and small companies, it’s also underscored the importance of embracing and responding to change – accepting that the past 30 years of growth is unlikely to repeat and that a new set of corporate strategies are needed to navigate through the economic peaks and troughs that are typical of most developed economies.
The Australian consumer has also shown resilience and prudence. The latest data from the RBA shows that the Australian household savings ratio increased from less than 5.0% earlier this year to 18.9% as social assistance benefits boosted household incomes and as consumer spending fell as a result of restrictions. The increased savings rate has provided households with a healthy ‘buffer’ to draw upon in the coming quarters, which is likely to have a stablising effect on the economy and help dampen the impact as Government stimulus begins to unwind. Importantly, RBA data also shows a sharp decline (~25% reduction) in high interest rate credit card debt which has helped lower the household interest expense burden and improve cashflow. In addition, consumer confidence is back on a positive trajectory. Roy Morgan data from December has revealed a 3pt increase in consumer confidence which is now only 0.6pts lower than the same time last year.
An Unquestionably Strong Banking System
The country’s traditional banking system has been tested and proven stable. What’s also become clear is the resiliency of Australia’s emerging fintech industry. Well managed and well capitalized fintechs have emerged as stronger companies now positioned to accelerate their pace of growth and market share gain in 2021 and beyond. Benefiting from cutting edge technology and the use of advanced analytics, most local fintechs have demonstrated their ability to not only survive but thrive during this period of economic volatility – aided by adaptable business models and agile operating strategies that can be adjusted quickly to changing market conditions.
In the aftermath of the GFC, large US and UK banks took steps to reduce lending exposure which created a demand/supply disequilibrium. This was particularly pronounced in the consumer and small business unsecured lending space which created an opportunity for digital lenders to fill the void – a trend that has continued unabated in these markets since and one that is likely to be a key feature of our own banking system over the next decade.
Understandably, local investors have looked at the fintech industry with a certain degree of caution. This new generation of disruptive, technology-driven companies had never before encountered an economic contraction. This has no doubt weighed on investors and likely subdued capital flows into the sector from both a debt and equity perspective relative to other overseas markets. The dynamic is changing, however. Investor confidence continues to grow as evidenced by strong retail and institutional support for local fintechs in both the private and public equity capital markets over the last few months, which is expected to continue throughout this year.
Fintech’s Role In The Recovery
Innovative products, services and management teams flourish during times of crisis and true fintech companies have this opportunity to demonstrate their ability to differentiate themselves versus traditional incumbents. Our homegrown fintech industry is a strategic asset that will undoubtedly assist in the nation’s economic recovery in the same way that US and UK fintechs stepped in post GFC.
In what has been an extraordinary 12 months, this latest global downturn may well be Australian fintech’s moment to shine. While the long term effects on jobs and wages remain to be seen, what’s clear is fintechs’ potential to be a force for good during this crisis — driving positive change in this moment of adversity.