During a recent visit to Australia, I had the opportunity to meet several internal and external stakeholders of our Australian business. As the Senior Vice President – International Business, the expansion of OnDeck in overseas markets has been a priority for us, and Australia has certainly been an interesting market.
I spent time with the individual OnDeck teams to understand how they run their operations. Their passion for Ondeck and our mission of helping small business owners succeed really stood out. Whether it be Sales, Marketing, Finance or Operations, each stand by the value-focused nature of our organisation.
I additionally met representatives of credit bureaus and regulatory authorities, vendors and agency partners. I also met many Australian brokers looking for new ways to diversify their business. I was also lucky enough to engage with a few journalists who’ve been on top of the latest fintech wave in the country.
Fintech is growing faster than you think
Right before I started my trip, I read a recent KPMG report that revealed Australia is now the second-largest alternative finance market in Asia Pacific. The market has a value of over US$600 million. In fact, ten Australian companies, including OnDeck, even made the list of the world’s top 100 fintech innovators. Even more so, with the support of the Coalition, we’ve seen that fintech lenders have become more mainstream, in a relatively short period of time.
Fintech and technology companies are good at focusing on customer problems and creating positive customer solutions. Together, this helps drive growth. However, many incumbents have unfortunately been caught up in regulatory, business and investor issues. As a result, this detracts them from their most important stakeholder – the small business customer.
Many SMEs are looking for solutions online. They expect fast, online service in everything – from accounting to payroll, so why not financing?
The big four banks in Australia dominate the market for business lending. They account for more than 75 per cent of SME lending (87 per cent when big four subsidiaries are included). However, access to credit for Australian small businesses still remains a real issue.
Many SMEs are looking for solutions online – because that’s how they are running their business. They expect fast, online service in everything – from accounting to payroll, so why not financing? Moreover, time is of the essence for small business owners. They need to react to real time events and opportunities, and are constantly looking for ways to ‘take back their time’.
For example, for some of our Australian customers the Melbourne Cup and the run up to Christmas is a peak time in their year. They need a short term cash flow solution to maximise the opportunity. It could be for stock, extra marketing, more staff etc… Unfortunately for them, it’s not cost effective for traditional banks to service loans less than $100,000. They take too long, often up to 5-6 weeks or more to make a decision. Moreover, their solution is often longer term (3-5 years) and requires security.
Again, this is not aligned to the real-time requirements of their business.
In response to this, alternative fintech lenders like OnDeck use technology to develop a financing solution to help SMEs react to business opportunities like these. These lenders follow similar processes for credit underwriting, anti-risk and anti-fraud. But, they do so in a more responsive and innovative way, with great service and in real time.
Clear shift towards better customer experience
Expectations for transparency, ease of use and smarter solutions are becoming more predominant in financial services – just like they did in e-commerce or entertainment in the past.
Australian customers have trusted their traditional banks for decades – as consumers, business owners and as investors. Alternatively, now they are looking for 24×7 support. It can be inconvenient to keep going back to the branch, or having to deal with the mountain of paperwork.
Many major banks are aware of this. As a result, they are trying to determine how to transform their business and make it more tech-savvy. Many have therefore invested in, or partnered with, a fintech.
Open data will be a game changer, but what about small businesses?
Australia has traditionally been a closed market in terms of access to data and positive credit reporting. Ultimately, open data levels the playing field.
In the UK the banks are increasingly a part of the solution rather than being the problem. They have realised that, while some decisions might potentially hurt one division of the bank, it could facilitate growth in another.
Since my visit there has been good progress on both open data and comprehensive credit reporting (CCR) in Australia, we welcome Treasurer Morrison’s recent announcement that the government will mandate CCR by the banks. Enabling open access to customer data means alternative digital lenders will be able to make more responsible lending decisions. As a result, they are able to provide better solutions to more customers.
This concept, if adopted in Australia, will drive more efficiency and competition. The introduction of the CCR regime will additionally allow greater transparency for consumers. Ideally, it would be followed by a similar program introduced for the small business sector.
All of these are powerful trends that will continue to drive fintech adoption and in our case the growth of online small business lending.