Australian businesses are embracing the next generation in financial technology to help fuel new growth in digital channels despite current economic uncertainty, according to new research from global leader in financial services technology, FIS.

The inaugural 2023 Global Innovation Report asked business leaders in financial services and non-financial businesses in Australia about their business strategies and experience with embedded finance and Web3 including decentralised finance (DeFi), cryptocurrencies, and the metaverse, as well as environmental, social and governance (ESG) frameworks.  

According to the study, a broad majority of Australian businesses say they expect a major or moderate impact from each of these trends in the next 12 months: embedded finance (89%), ESG (88%), cryptocurrencies (86%), the metaverse (84%) and DeFi (83%).

“As the uncertainty of the current economic landscape looms, it is all the more important for businesses to invest in innovation focused on short term strength and resilience, and longer-term growth,” FIS vice president of capital markets for Asia Pacific, Nick Aronson said.

“Our research shows that key fintech areas such as ESG, embedded finance, DeFi, and to a lesser extent crypto remain a top priority for Australian businesses across finance and commerce as they look to position themselves for a fast-approaching digital future. Australian businesses and consumers have always been early adopters when it comes to advanced technologies, but prioritisation is fundamental.”

Embedded finance

Embedded finance is when consumers have unique, tailored financial services delivered to them at the point of need by non-financial companies. Embedded payments are most familiar to consumers, enabling the speed and convenience of paying for goods and services in an app, with just a single click.

Almost four in 10 (39%) of financial services firms say they will significantly invest in developing embedded finance products within the next 12 months, according to the study, while close to one-third (31%) of financial services firms that are investing in this space believe it will increase their competitive advantage, help them expand into new sectors and attract investment capital. 46% of non-financial businesses told FIS they are already offering or developing embedded finance services. 

Crypto and the metaverse

Despite 2022 having been a challenging year for crypto, the study shows that growth and investment in digital assets and the underlying technologies is primed to continue at a strong pace. Half of Australia’s financial services firms recognise decentralised finance (DeFi), which uses blockchain and digital asset technology to manage financial transactions, to be a major growth opportunity.

However, 59% cite poor user experience as a barrier to DeFi adoption, and 57% say they need to better understand the risks involved before they participate. Lack of clarity around crypto regulations (flagged by 29% of financial services firms) and lack of ecosystem services to support cryptos (34% of non-financial businesses) are the biggest barriers to greater crypto adoption.  

The majority (57%) of financial services firms are actively researching potential opportunities in the metaverse, while close to one-third (31%) of non-financial businesses say it will be strategically important to have a presence in the metaverse in the next 12 months. 

Data challenges and ESG 2.0 

As firms look to capitalise on opportunities in ESG, innovative technology that helps to report ESG metrics will play an essential role to further elevate this market-moving segment. Over half (53%) of financial services firms in Australia say ESG offers an opportunity to improve their competitiveness in the market. Respondents say the biggest challenge around ESG is insufficient internal data or tools (46%). To address the gaps relating to data, 59% say they are investing in technology to improve their ESG reporting and disclosures.