Recently I provided some expert guidance for a top tier investment bank, who were looking to understand the landscape in the SME digital lending space in Australia.
For those of you who are examining this sector as well, I believe there are several key themes worth paying attention to.
Enhanced regulatory scrutiny is the new normal
Against the backdrop of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, it seems regulation and compliance issues are shifting up the priority list for fintech SME lenders.
A large driver for this has been the establishment of a Code of Lending Practice. This collaborative exercise between some of Australia’s largest fintech lenders and a number of industry bodies is a positive sign for the ecosystem, especially if it wants to squarely distance itself from the incumbents commission baggage. The fintech lenders collectively owe a significant debt to Neil Slonim at theBankDoctor.org, who has helped pioneer this initiative.
Distribution challenges still not solved
Digital SME lending is still an uphill battle when it comes to distribution, with many players still reliant on boots on the ground, and commission streams with business brokers.
Increasingly accountants are a channel of interest, given their supposed proximity to small businesses. However the accounting industry itself is in a massive state of flux, as platforms like Xero uproot traditional revenue streams. Accountants have to learn to sell, a zone many of the older cohort aren’t natively comfortable in.
Capital is key
Capital constraints are one of the throttles on SME fintech lenders gaining scale. Many are now reporting success at sourcing debt facilities from banks themselves. This week Get Capital announced they had secured a $50M funding facility from NAB.
Differentiation is lacking
‘Online and fast’ just isn’t enough anymore. SMEs are incredibly variable – a café’s needs are significantly different to a dentist’s – and lenders should be adapting to this. Not just from a pricing perspective, but from a marketing, credit type and repayments model. I’m still waiting to see something truly, deeply customised.
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.