2017 was a busy year for fintech in Australia. According to the EY Fintech Australia Census, a number of key metrics demonstrated the sector was maturing nicely.

Firstly, the number of fintechs post revenue went from 57 per cent in 2016 to 71 per cent in 2017, while the median post-revenue growth kicked up by a solid 208 per cent. Secondly, a growing number of local entrepreneurs now appear to also be looking outside of Australia for growth opportunities. Compared to 38 per cent in 2016, 54 per cent of businesses surveyed in 2017 now claim they are looking to expand overseas in the next 12 months.

And whether it’s a perceived Brexit bounty or just a soft spot for Old Blighty, despite Asia being squarely on our doorstep (and experiencing unprecedented growth), the United Kingdom is still the favourite destination for expansion. 49 per cent of respondents named this as their first choice, followed by Singapore at 40 per cent, and Hong Kong at 22 per cent.

While the sector as an aggregate will no doubt continue to push forward – you can’t stop progress after all – a number of headwinds and tailwinds could have a disproportionate effect on some of the sectors outliers. We examine a few of these below.

Day of reckoning for fintech lenders

While still puny by global standards, Australia’s marketplace lending sector – which according to ASIC doubled in size in 2017 – is set to come under much closer scrutiny in 2018.  The Small Business Ombudsman intends to deliver a report in February that will form the basis of an industry code, designed to protect small business borrowers from predatory lending. Despite parading themselves as white knights, some lenders have been accused of  slugging borrowers with interest rates of up to 115 per cent.

Tailwind: The fintech lending community has been involved in building the code of conduct, so no doubt will be across the new rules of engagement well in advance. Those that can prove they are squeaky clean will be embraced by the Australian public’s Fair Go mentality. With local marketplace heavyweight Prospa rumored to be heading for an IPO in 2018, no doubt they will be keen to ensure they are living up to the Ombudsman’s standards well in advance.

Headwind: Following a number of high profile scandals adjacent to the fintech sector, public sentiment on the money makers and takers is already cool. Any public naming and shaming once the code is issued could be fatal, especially in the relatively crowded lending market.

Royal commission

After banks were dragged through the coals of a ‘possible Royal Commission’ for over 3 years by the nations media, the Turnbull government finally bowed to public and opposition pressure, and came good on their threat in late November. In a carefully orchestrated move, the major four banks (future subjects of the enquiry), ensured they were positioned on the front foot, penning an open letter requesting the government act to end speculation by announcing the enquiry. However buried within this inevitable acquiescence was a classic ‘defense is the best offense’, strategic play.

Rather than bear the brunt of being the only major institutions in the spotlight, the four major retail banks requested the enquiry be widened to include Australia’s union dominated, $2.3 trillion superannuation sector.

The move could be considered a stroke of political PR genius on behalf of the banks. Over the past 3 years more skeletons than one could have imagined have emerged from the closets of Australia’s major banks – from financial planning scandals, interbank rate rigging and money laundering on a global scale. But with executives exited (or on the way out), trial by court of public opinion well in motion (or coming to an end), it’s quite possible there is little left for the Royal Commission to find.

When it comes to superannuation however, that is a completely different story…

Tailwind: The Royal Commission could be the ‘wipe the slate clean’ vindication the banks need. With fintech partnerships on the rise and a general sense that the banks, at least on the consumer front, are pushing forward with innovation and enhanced customer experience, then my contrarian view is that this is on the whole positive for the sector.

Headwind: The superannuation sector has been caught flat footed, although it can’t be that much of a surprise to some of its most senior executives. Used to being ignored by its customers (and ignoring them in return), whipping up public support in a short period of time, in order to ensure they forgive any transgressions that may emerge during the commission may be tricky. It is the perfect storm in which to launch a new superannuation business – which is partly why a rash of fintechs are having a crack, mine included.

Blood in the streets for digital banks

While local banking regulator APRA may have loosened up on who it is willing to issue a banking license to, it appears new digital banks are possibly equally as loose on their purpose for existing. While Monzo, Starling and Atom are idolized by their cousins in Australia, idolatry has its downsides, namely blinding entrepreneurs to stark market realities, including number of potential customers.

In addition, unlike China, Australia lacks the fundamentals that make a copycat approach hugely viable here. Firstly, once you look beyond the ‘banks are bad’ rhetoric, consumer banking services aren’t really that terrible, so ‘faster home loans’ and ‘faster payments’ just won’t be the 10x enough reason relatively satisfied customers will need to switch.

That’s not to say there aren’t real opportunities in this space. If digital banks are to succeed here, they will need to dig deeper and address far more pressing problems. Like the fact home ownership is on a steady decline, and debt is ballooning out of control when pegged against stagnant wage growth. The irony is, it’s quite possible that these types of problems aren’t well suited to being solved by a bank, digital or not.

Tailwind: Xinja has so far been the noisiest in the market regarding its banking aspirations. They’ve partnered with crowd-funding platform Equitise, and will no doubt benefit from being first cab off the rank in terms of market awareness.

Headwind: International players, with several revisions to the play book already under their belt, muscling in and getting there first. Revolut is the biggest and most credible threat.

So as we farewell 2017, it’s clear, Bitcoin included, that there will continue to be no shortage of excitement in 2018. Thanks for being part of the Daily Fintech community, and happy new year and safe travels from me to you, wherever in the world you happen to be reading this post from.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.