This week small business fintech lender Prospa lodged its IPO prospectus. The business is looking to raise approximately $146.5 million, issuing 40.3 million shares at $3.64 per share.

Longstanding venture partners Square Peg and Airtree have tipped into the book build, increasing their stake in the lender to 4.4% and 8.4% respectively.

The Prospa IPO is the second notable fintech float of the year after Raiz Invest. The micro-investing app, formerly known as Acorns Australia is offering 8.4M Shares at an offer price of $1.80 per share, as it looks to raise $15.12M.

With shareholders cutting their exposure to bank stocks in the wake of the Royal Commission, both IPOs could be refuge for retail investors looking to redeploy capital into financial stocks. Since the Royal Commission began, industry giant AMP’s share price has dropped by a quarter, eliminating approximately $4B in shareholder value along the way.

While many believe the Royal Commission is a watershed moment for fintechs, there is a question as to whether many, especially in the small business sector, can maintain their ‘faster but more expensive’ business models. This is no doubt on the minds of prospective Prospa investors. While there is no question cost is only one determinant in choosing a credit provider, as online services and applications fast become the norm, savvy investors into this space will be keenly aware that the ‘price for convenience’ moat is under real threat.

Another potential headwind will be the call for better and clearer disclosures on fees, in language SMEs understand. To that end, the Australian Small Business and Family Enterprise Ombudsman is on track to deliver an industry Code of Conduct by the end of June 2018.

One of the many issues expected to be addressed in the code is that of APRs. The catalyst report for the code indicated a distinct output should be prescribing better comparative measures for potential borrowers. While this is standard practice in the consumer lending space, few protections or considerations currently exist for small business.

According to the Prospa prospectus, at December 2017 the weighted average APR (on a gross loan basis) of the portfolio was 41.3%. Not bad if you can get it!

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 and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.