DNR Capital said an opportunity arising for investors in the Australian small cap sector is the increased use of technology in finance, with fast growing fintechs disrupting the industry.
Sam Twidale, portfolio manager of the DNR Capital Australian Emerging Companies fund said the big four banks have had a significant advantage in the use of data, making it difficult for competing players and new entrants to attract customers away.
Consumers’ banking data being made publicly available under the regime from 1 July will shake up the financial services landscape, he added, allowing smaller companies to take a share of the $30 billion-combined profit pool of the big four banks.
“We expect a range of new innovative products and services to arise to take advantage of Open Banking, with greater availability of data providing opportunities for Australian fintechs to thrive,” Mr Twidale said.
“We expect one company in particular, Afterpay Touch Group, to be a beneficiary from the transition to Open Banking by allowing the company to more effectively assess its customers.”
Although Afterpay was recently under examination in the senate inquiry into the buy now pay later sector, Mr Twidale endorsed the quality of its business model, saying DNR believes the enterprise has the capability to take share from traditional forms of credit.
“The product is resonating with consumers at an exceptional rate, providing an alternative to traditional credit cards where usage is declining,” he said.
“Given the sector’s rapid growth it has rightly attracted greater regulatory scrutiny, with the recent Senate Committee Inquiry reviewing the risks to consumers.
“Although regulation clearly needs to keep pace with technological advancements, we believe it is unlikely to stifle the significant growth opportunities for highly disruptive companies like APT.”
DNR also noted other companies benefiting from disruption in the financial services landscape.
Its Capital Australian Emerging Companies Fund also holds the specialist platform provider HUB24, as well as financial services software providers including Bravura Solutions.
