Saturday, May 21, 2022

FROM XERO TO HERO: Here’s what’s happening in New Zealand’s $2 billion fintech export sector

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The first thing to know about New Zealand is that sheep are not the biggest export.

Or Hobbit movies. It’s dairy, worth about NZ$16 billion, nearly 30% of the country’s export earnings.

The second thing to know is that the tech sector is the second largest source of offshore income after dairy.

And the fast-growing fintech sector is unofficially Aotearoa’s 6th largest export, generating about NZ$2 billion

The value of fintech to the nation that Xero has given to the world has been revealed in a new report from Technology Investment Network (TIN).

TIN’s inaugural Fintech Insights Report offers a deep dive into the $2 billion industry, looking at a range of benchmarks, including size and significance, key export markets, investment challenges and opportunities, along with a comprehensive list of 84 Fintech startups. companies based in New Zealand.

TIN Director Greg Shanahan said Kiwi fintech has been one of the fastest-growing market sectors in the TIN report for more than a decade, with compound annual revenue growth of 32% over five years.

In 2021, Fintech was the second largest market sector in the TIN report in terms of dollar value growth – accounting for nearly a quarter of all growth – and the third largest in terms of total revenue.

“The continued growth of cloud-based financial management and payment systems, accelerated by the COVID pandemic, will only strengthen the importance of the New Zealand Fintech sector as more tech companies and investors seek opportunities,” he said.

“In addition, the constant flow and high cost of implementing global financial regulation has provided a robust revenue stream for the industry, as well as the potential for further exciting innovation and entrepreneurship. As a result of its exceptional growth in the sector, it has also been at the forefront of investment and mergers and acquisitions, especially in the past two years.”

There were 19 fintech companies in the TIN200 ranking in 2021 and together they generated revenue of $1.8 billion, or 13.1% of total TIN200 revenue. (The annual TIN report compares the country’s top 200 high-tech companies and their global impact.)

Shanahan said total offshore revenue for these companies was $1.5 billion and grew by 21% in fiscal 2021.

TIN expects total global revenues for NZ Fintech companies to reach $2 billion for the fiscal year to March 2022.

The fintech sector’s growth in 2021 was $358.7 million; up 25% from the previous year, with Wellington-based accounting software company Xero accounting for more than 46% of industry revenue.

Unlike the TIN200, there was double-digit growth in all revenue classes of the company. Growth was highest for those companies with revenues between $100 and $199 million, which increased by 122.6%.

Here are the key insights from the Fintech Insights Report:

  • Foreign revenue growth for TIN200 Fintech companies has increased by 26.2% and is significantly higher than the average TIN200 export growth of 14.4%.
  • The largest export market was Australia, with revenues of $586 million; an increase of $111 million or 23.4%.
  • TIN200 Fintech companies increased their profitability (EBITDA) by 38.3% in 2021, with EBITDA representing 20.9% of revenue (the second highest among all secondary TIN sectors) and above the TIN200 average of 18.4%.
  • Fintech companies have expanded their workforce by more than 950 people by 2021; representing a growth of 14.2%, which is more than double the TIN200 average of 6.0%
  • The six publicly traded Fintech companies account for two-thirds of the TIN200 Fintech company’s revenues, with Xero and Pushpay’s revenues of $848.8 million and $270.1 million combined accounting for 61.1%.
  • The Fintech sector has the second highest average annual wage at over $100,000; 16.9% higher than the TIN200 average of $88,005.
  • Total wages and salaries for Fintech companies account for 43.1% of revenue, higher than the TIN200 average of 36.1%.
  • The Fintech sector increased its investment in research and development (R&D) by 36.9% to 20.5% of revenue, aided by the government’s tax incentive for research and development

The 2022 Fintech Insights Report is available for download here

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