2014 proved to be a big year for the Australian Alternative Finance industry. For much of the year, the only operational marketplace lender was Society One, the platform backed by Westpac’s VC fund, Reinventure. But we’ve seen an explosion in activity recently with ThinCats, RateSetter and DirectMoney all opening for business and MoneyPlace aiming to launch in early 2015. AltFi took a trip down under and met up with the big movers and shakers on the bubbling Australian Alternative Finance scene.
It’s fair to say that the market place lending industry in Australia is right at the start of its journey, perhaps where the UK and US industries were in late 2010 and 2009 respectively. That’s not to say, however, that it will take 4 or 5 years for the Australian industry to catch up. It is likely that the Aussies will be much quicker to get up the curve – all of the platforms that we met were globally connected and had studied in detail what is working and not working elsewhere. Tried and tested models from the UK and the US are being adopted and adapted for the Australian market – indeed two of the new platforms (ThinCats and RateSetter) emanate from the UK.
The size of the opportunity in the Australian market is vast. There is approximately A$100bn of consumer debt outstanding split roughly 40:60 personal loans to credit card debt. According the RBA, SME debt is approximately A$120bn, this captures bank lending to SMEs and estimates of non-bank lending range from A$20bn to $A30bn. MoneyPlace uses a great analogy to quantify the opportunity: the growth of Australian non-bank mortgage lenders in the 1990s. If the adoption of MarketPlace lending occurs at the same pace, it is feasible that marketplace lending will gain a 15% to 20% market penetration within a decade, making it a A$35bn to A$50bn industry. Looking at the other side of the equation - the supply of money, there seems to be no shortage of investment pools that platforms can tap into. Australia has a well developed superannuation, or pension, industry. Roughly A$175bn of this is held as cash in self managed ‘supers’. This could be easily invested via marketplace lending.
Currently, however, volumes are a tiny fraction of the figures discussed above. AltFi Data estimates that cumulative Australian marketplace lending volume to date stands at around A$20m.
Australia’s four biggest banks dominate lending, having accounted for 91% of loans to SMEs and around 80% of loans to individuals last year. Personal lending is a very profitable area for these banks with ROEs of 100%+ reported. The market is ripe for disruption by marketplace lending.
A key challenge for all the platforms that we met up with was the paucity of credit data available. Credit agencies in Australia have historically monitored the credit profiles of individuals and companies on a ‘negative’ basis rather than the ‘positive’ scoring that is employed in countries such as the UK and US. This is now changing, however it will take a several years for positive credit histories to be built up. This places an even greater importance on the credit models of individual platforms.
We met up with all the top platforms that are operational and several that are in differing stages of prelaunch. Below is a short description of the platforms, to learn more about each of them please click through to our full write up.
SocietyOne – The oldest and largest Australian platform offering consumer and livestock loans to sophisticated investors.
RateSetter Australia – Specialising in lending to consumers, this is Australia’s first, and currently only, platform to offer non-sophisticated investors the chance to get involved.
ThinCats Australia – The Australian incarnation of the established UK SME lender and currently Australia’s only SME focused marketplace lender.
MoneyPlace - A soon to launch online marketplace, that aims to cater for both institutional and retail investors.
DirectMoney – A ‘warehouse lending’ platform launched in October 2014 with big plans for 2015.
Loan Ranger – A short-term consumer lender that currently operates a direct lending rather than marketplace lending model but it is in the process of developing a P2P offering.
ProjectCrowd – An early stage real estate crowdfunding platform, aiming to be the first of its kind in Australia.