Australian fintech and business environment – what’s to come in 2024?

Stirling Streeter, Enterprise Account Director, CreditorWatch

Australian businesses are confronting a major margin squeeze across 2024 through multiple factors. Interest rate increases, cost pressures (insurance, fuel, rents and wages), ongoing supply chain disruptions, declining forward orders and lower consumer demand are all conspiring to impact the bottom line.

CreditorWatch’s Business Risk Index data for February shows that invoice defaults are at record highs and invoice values have fallen to well below pre-COVID levels. This indicates that cash reserves are being depleted and margins are becoming tighter. An increasing number of businesses have less cash coming in, which means they are then finding it more difficult to pay their own suppliers. They are also cutting the size of their orders and running down inventory. This has ramifications throughout the supply chain.

So, how will fintechs navigate this period of historically low consumer and business sentiment?

As we look to the business landscape for the remainder of 2024, I’m reminded of conversations we held at CreditorWatch’s offices in December as part of a live recording of Dexter Cousins’ Fintech Chatter Podcast. Guests from some of Australia’s leading fintechs including Parpera, ProSpend, LoanOptions.ai, Primer, Constantinople, Prospa and Lendi, came together to reflect on milestones and learnings from across the year, and to dig into data on the health of the Australian economy and trends shaping the fintech sector in 2024. 

Here are the key takeaways from our discussion:

1. Mid-2024 should provide some clarity on when business confidence is likely to return.

   CreditorWatch’s Business Risk Index, and the range of data sources that sit within it, predict that while 2024 will be tough, there will be clarity by the end of the financial year as to when business conditions are likely to turn. The turn in trading confidence will likely be dictated by the first rate cut from the RBA. At this stage we should see businesses gain the confidence to start hiring again, invest in technologies, and take on more debt to drive growth. 

2. Small businesses are on a path to rationalisation

   In the small business space, Greg Moshal, CEO of Prospa, outlined how 2023 marked a significant rationalisation among small businesses because of rate rises and inflation. This was a long-expected outcome, given 2021 brought a huge boom for many small businesses thanks to consumer spending being at all-time highs. But as revenue grew, so too did costs, which squeezed the overall profitability of these businesses. Today, SMEs are most concerned by rising costs of goods and services (58%), and customers spending less (36%). While SMEs are incredibly resilient and continue to innovate and seek paths to profitability - including investing and taking on business debt to grow – industries linked to discretionary spending and those with several subcontractors, fixed cost contracts, or rapidly increasing costs for raw goods, continue to struggle the most. The businesses that have been able to reduce their cost base, streamline their operations, or consolidate their workforce with the best talent available in a time of record low unemployment, are those that are best positioned for growth in 2024.

3. Through it all, Australians remain fiercely loyal to their mortgages

   While interest rate rises have disproportionately affected Australian consumers and SMEs with mortgages, these individuals have prioritised paying their mortgages at all costs. Sebastian Watkins, COO of Lendi Group, discussed how this is now causing interesting knock-on effects across the market in less familiar ways, including the shift in how lenders are measuring loan serviceability for those refinancing. He also hinted that the business and government sectors have not adequately acknowledged the mental health impacts of mortgage stress. As people sacrifice spending on other areas of their life to meet mortgage repayment requirements, Lendi expects to see the impact of this on mental health in 2024.

4. SME and consumer expectations are driving new opportunities for fintechs

   As data becomes more accessible through initiatives like the Consumer Data Right (CDR), fintechs that service small business customers should look to leverage it to provide highly engaging experiences that match consumer’s expectations. We’ll see an emergence of new offerings that make life easier for business owners and save time by giving them greater visibility across their personal and professional finances.

One thread was consistent across discussions. Australian businesses – particularly our SMEs – are incredibly resilient. I was encouraged by the creative conversations taking place as to how the fintech and business sectors can innovate and grow in 2024. The first six months of the year represent a good opportunity for businesses to assess whether they’re getting the best outcomes from their resources, and plan for aggressive growth when more favourable conditions arrive in the second half of the year.