Fintech sector to suffer ‘carnage’ as business models come under pressure: Tic:Toc

Tic:Toc’s chief expects “a lot of carnage” ahead across digital lending and buy now, pay later, as some business models aren’t able to withstand the tougher operating climate.

Tic:Toc founder and chief Anthony Baum said the company’s different shareholder base, funding lines and business model set it apart from other fintech players in the market. Picture: Emma Brasier

Tic:Toc chief Anthony Baum expects “a lot of carnage” ahead in the fintech sector, across areas including digital lending and buy now pay later, as some business models aren’t able to withstand the tougher operating climate.

His comments follow the shake-out that has already occurred in parts of the market, including Volt handing back its banking licence, AMP acquiring Nano’s residential mortgage book and buy now pay later group Openpay appointing receivers last month.

The challenging trading conditions are linked to an aggressive rate tightening cycle by the Reserve Bank, which has led to higher funding costs, and investors demanding a clearer path to profitability for start-ups and fintech companies.

“There’s a lot of carnage to come in fintechs, a lot, in terms of business models not making it through the next two years,” Mr Baum said in an interview. “We’re an enabler so I think it’s more if you need to run a balance sheet, if you’ve got credit risk, or you are not a real fintech ... it’s going to be really hard.”

Tic:Toc - a digital-lender, platform company and software-as-service-firm - counts a number of listed companies including Bendigo and Adelaide Bank, Insurance Australia Group and Helia Group, formerly Genworth, as investors.

Mr Baum said he believed the company’s different shareholder base, funding lines and business model set it apart from other fintech players. “We were break-even in November 2021, then through the course of 2022 we raised $54m … we’d expect though to be profitable again this calendar year,” he added.

Tic:Toc was on Friday approved by Australian Competition and Consumer Commission as an unrestricted, accredited data recipient under the Consumer Data Right, which partly reflects the government’s open banking regime.

The Consumer Data Right – which has started in the banking and energy sectors – gives consumers more control of their details and information, enabling them to share the data businesses hold if permission is provided.

The regime was touted as a way to boost competition and to enable consumers to more easily switch providers or update personal details across firms. “We always had an objective to be accredited for Consumer Data Right,” Mr Baum said, noting better access to data would assist in improving customer experiences and better managing risks and responsible lending practices.

But the open banking reforms and use of the new functionality by customers has been slow going.

Westpac chief executive Peter King last month took a swipe at the domestic open banking rollout because few customers were engaging with it, which he said didn’t represent an efficient use of the bank’s resources.

Mr King said that of Westpac’s 14 million customers, just 9000 were opting to use the Consumer Data Right.

ANZ is yet to become a data recipient in open banking, but it is anticipated as the lender gets closer to rolling out its digital mortgage under its Plus brand, that will align with its accreditation. ANZ’s three major rivals are data recipients as well as data holders within the regime.

Mr Baum said the nation needed to build the ecosystem of accredited Consumer Data Right participants for the system to gain traction.

“It will also drive competition, which is why it was introduced in the first place, and that is why it goes so slow because the incumbents understand that and they fear that competition,” he added.

Mr Baum’s comments came as payments provider Cuscal on Friday announced it has agreed to buy a controlling interest in Basiq, a Consumer Data Right platform. The stake was purchased by Cuscal from investors including Westpac’s and National Australia Bank’s respective venture arms, Visa and Touch Ventures.

More broadly on competition in the mortgage market, where the major banks all announced this week they would pass on the RBA’s March rate hike, Mr Baum said loan affordability and financial pressures were spurring a lot of interest in refinancing. That is also being buoyed by borrowers who are coming off ultra-low fixed rate loans and shopping around for better rates, albeit at markedly higher levels.

While Mr Baum agrees with the prudential regulator’s 3 per cent loan serviceability buffer, which banks add to a person’s mortgage rate to assess their ability to repay, he doesn’t think it should necessarily apply to those that are refinancing to lower rates. “They (the borrower) are financially better off and the economy would be better off as a consequence of them being able to do so,” Mr Baum said. He believes if a borrower has been meeting repayments and is moving to a lower rate loan banks shouldn’t be required to reassess their serviceability, as is the case currently.

Mr Baum does agree with the regulator continuing to insist banks assess new loans with the 3 per cent buffer, despite some players calling for the buffer to be reassessed given the 3.5 percentage points in rate hikes since May 2022.

He also expects sweeping changes in the landscape in coming years as Tic:Toc tips digital mortgages will increase as a proportion of the total home loan market, and technology investment spend will become a bigger issue for smaller participants.

“There’ll be more change in the next five years than there’s been in the last 15 in banking and financial services,” Mr Braum said.

Separately, Tic:Toc had a successful result at a trademark hearing this week when it came up against popular social media app TikTok.

“The law has recognised our prior (brand) use and that facilitates us being able to trade as we want to, on both the home loan business and the enterprise business, under the name Tic:Toc,” Mr Baum said.

“The reality is that we were here first … Australian trademark law respects that.”