Revolut, Afterpay’s results shouldn’t spook investors

Fintech Australia boss Rebecca Shot-Guppy. Source: Supplied.

This earnings season possibly has a lot of market watchers confused as to what to think about the future of fintech.

Locally, the story could not be better. Afterpay is adding over 20,000 new customers a day, and its results are comparable to some of the greatest technology companies in the world. They are leading the charge for further global investment into our sector, which can only be positive for our overall economic recovery.

Globally, the picture isn’t as rosy. In more mature markets, investors have significantly higher expectations of their unicorns. UK neobank Revolut, for example, reported strong customer and revenue growth, but its losses tripled. What made this result stand out, is that the company’s CEO Nikolay Storonsky told the market in May that the company would break even this year — well after the economic impact of COVID-19 was known.

There are some contrasting results out there right now. This may translate into a more tepid approach for fintech from investors going into 2021. But before the naysayers come out to talk the entire industry down, I wanted to point out why most fintechs are successful in the first place.

Aside from their ties to the finance industry, every fintech shares one common trait. They are all purpose-built and focused on providing a better service for an existing market. They are aimed at creating competition in a robust and highly regulated industry that hasn’t really been challenged for decades. Fintech encourages incumbents to innovate and collaborate like never before, and that’s only good news for both consumers and investors.

There are plenty of examples of this here in Australia. Wisr offers consumers personal loans at a reduced rate to the major banks. It also provides its customers the tools they need to manage and pay their debt down faster — it‘s a lending company that’s deliberately geared towards wanting you to pay less interest.

Athena Homeloans and Tik: Toc: are largely taking the same approach to the home lending market. Again, they have built their market by focusing on creating a loan product that saves consumers money and actively encourages them to ditch their home loan as quickly as possible.

Then there’s Afterpay. While there is controversy around Afterpay encouraging consumers to spend beyond their means, you cannot deny they are a much safer alternative to the product already capitalising on this trend: credit cards. Afterpay charges no interest until payments are overdue, can automate payments out of a bank account or debit card and actively encourages consumers to manage their debt and pay it off when due. They have geared their system to protect consumers from the apathy that leads to inflated interest bills and damaged credit scores, while still allowing them to purchase items they need in a manageable way.

The only thing holding back these products, and many others from success is time and regulation. They are built from the ground up to serve consumers, and as the public learns about them, they will gain momentum. Afterpay is a key example of this, but we expect this to happen more broadly across other fintech players in Australia as well.

This is the point that investors and fintech watchers should be focusing on going into 2021. We should only raise the alarm when a fintech deviates from its core mission to serve the customer. Otherwise, these companies are on track to succeed. With the right funding and regulatory settings, it’s inevitable.

Rebecca Schot-Guppy is the CEO of FinTech Australia.