Following on from our AltFi Down Under series we continue to watch as the Australian peer-to-peer lending market develops at a rapid rate. Since the beginning of the year RateSetter Australia has received a $10 million investment, Stone and Chalk, a new FinTech hub has opened in Sydney and some of the banks, such as Westpac, are eyeing the space with interest – to name but a few developments. There is also a wealth of new platforms launching, one of which is InvoiceBid. We caught up with Co-Founder Charlotte Petris to find out more about the platform.
Can you tell us a bit about your background and why you decided to start the platform?
InvoiceBid was founded in 2014 by myself and Andrew Petris, a husband-wife team. We are both Chartered Accountants and previously were colleagues at RBS in London, however, following this our careers became quite diverse. I worked in corporate finance advising on M&A, capital raisings and IPOs before setting up my own consultancy advising start-ups on finance and strategy.
I noticed how tough it was for SMEs trying to grow a business without access to adequate finance and also how the industry has not kept pace with changes in technology. So we created InvoiceBid to bring together SMEs directly with investors. It’s a win-win in that business owners get working capital to grow their business and investors have direct access to new investment opportunities. We saw a huge opportunity to use technology to give SMEs a better deal.
While we were building the technology I spoke with many business owners. They were having the same problems I had seen before and were saying “When you launch, can we use it” Andrew heads up the investor side of the platform. His experience at Aberdeen Asset Management in London and Singapore managing private equity and hedge fund investments has been instrumental in getting high net worth investors on board.
Can you give us a brief introduction to InvoiceBid?
InvoiceBid enables businesses to raise short term finance by selling their unpaid invoices directly to a network of investors.
Unlike other marketplace lenders globally, the Australian market enables us to offer investors a secured investment by registering an interest on the Personal Property Securities Register. This gives our investors the advantage of a first ranking priority over the seller’s business assets. This further benefits businesses because we can advance up to 100% of the invoice value.
Why is there a need for InvoiceBid in the Australian market?
Late payment of invoices is a major cause of business failure in Australia. Like other economies around the world, cash flow is one of the top pressures facing businesses and access to finance remains challenging.
Following the 2008 financial crisis, Australian banks have been impacted by tougher regulatory capital requirements. Many of them have retrenched from certain types of lending, impacting their ability to lend to SMEs. In fact two of the four major banks exited the invoice finance market in Australia following 2008.
The Bank for International Settlements has recently ranked Australian banks as the most profitable in the world. The big four Australian banks have a wider net interest margin than most of their peers overseas. There is a lack of competition in the sector leading to an inflated cost of finance for borrowers.
On the investor side, our model is that we accept "sophisticated” or “institutional” investor money, including Self Managed Super Funds (SMSFs). Australia is uniquely positioned in that there are more than 200,000 wealthy individuals in Australia sitting on $700bn worth of assets. There are few options for investors in Australia, particularly in fixed income. Despite Australia having one of the largest superannuation industries in the world (close to $2 trillion), it has one of the lowest rates of returns to investors.
Tell us about the regulatory framework that applies to peer-to-peer lending in Australia.
Like many countries, Australia is in the process of setting the regulatory framework for marketplace lenders and this will continue to develop over the coming years. However, there already exists strong regulation particularly for consumer finance and rules governing the retail investor. Australia follows many of the international rules governing anti-money laundering and laws surrounding data privacy. At this stage, InvoiceBid provides its service to business sellers and sophisticated investors.
Looking at the specifics of the platform- what are the borrowing rates, fees and average interest yields?
Our platform fee starts at 0.7% and discount rates vary depending on the risk. Investors can expect to earn a return in excess of 10% per annum.
We are targeting an average invoice size of $100,000.
What type of company and investor are attracted to your platform?
Companies that are experiencing rapid growth and have large corporates as their customers are attracted to our platform. In particular, we have worked with businesses from the recruitment, creative, food and service industries. Because we don’t discriminate by business size or sector, we have been able to help growing businesses that have never had access to finance before.
The platform has attracted predominantly high net worth and family office investors with growing interest from institutions.
How do the investors pick their invoices? Is it via an auction model or are the funds auto-diversified?
It is currently via an auction model with fractionalised investment capabilities. However, we are already seeing demand from investors for additional investment options including auto allocation functionality.
What is the minimum and maximum loan sizes you can accommodate?
Minimum invoice size of $10,000. No maximum.
What is the minimum investment amount?
Where do you see the platform in a year’s time?
We are investing significantly in our technology to concentrate on further integrating processes and improving the end user experience. We will be looking to form strategic partnerships to drive growth and further build awareness of our product.
Join AltFi for its third annual Alternative Income Forum, exploring closed-ended funds (investment trusts) specialising in generating an income using alternative assets such as specialist finance, P2P lending, direct lending, asset leasing and more. Hear from the leading investors and fund managers in this rapidly growing market.