I asked Simon to summarise his philosophy of risk and what the highlights are for Ratesetter."Ensuring we have stable growth in a profitable way with no surprises," he said. His role is to ensure all risk decisions are based around an overarching credit policy. The company currently has made some $70m in loans, lending around $6m a month. An average sized loan is about $16,000, normally for a car purchase or a debt consolidation. Defaults are around 20bps of the total funded book, which is around $150k. While arrears are running at about 1.2 per cent. Recently Ratesetter launched a new channel for lending to SME's. "This is really exciting,” said Simon. “We have seen that in our UK business SME lending makes up over 30 per cent of their loan business."
International Experience
As Simon has also worked in the UK and Europe, I was really interested to understand whether his experience in global markets and within a large firm such as Amex meant he might look at credit in a different manner? One obvious factor for Simon, seems to be that "it is not a very evolved market here in Australia particularly in business credit". Many platforms really aren't doing risk based pricing in any sophisticated manner, according to Simon: "they say they are, but they aren't applying it in a very granular method of analysis. At Ratesetter we are applying risk based pricing".
Scarcity of Data
A constant refrain I hear from non-bank lenders here in Australia revolves around the scarcity of data, so I was keen to understand from Simon, how do you overcome that to make informed risk decisions? He felt that data scarcity doesn't make lending impossible, just challenging. These issues are the same as those faced by any non-bank lender, even Amex, so for the Ratesetter team they are focused mainly around 3 data sources:
1. Data drawn directly from the two credit bureaus of Veda and Dun & Bradstreet
2. Getting access to bank statements, which provides some clarity on where and how a customer spends
3. Minimizing the fraud element to ensure you have the right identity of the borrowers
But putting data aside, Simon feels that success really is about the customer experience, taking any friction away from the customer, making it easier for the customer, and creating a better experience. "I think decisioning and data here is comparable to overseas. But where the improvement can be is in the customer experience. Of course, Comprehensive Credit Data working fully is paramount, the market as yet doesn't have this." Said Simon.
Comprehensive Credit Reporting
We also discussed the fact that the Australian Banks have made many high profile investments and partnerships with a number of the Fintech lenders. The perception by both the public and our regulator is that banks are therefore working closely with Fintech lenders. These banks also are quite public about their support for Comprehensive Credit Reporting (CCR) and leveling the playing field around credit data. Yet ironically, many of these Fintech lenders will also tell you that these same banks are not supporting CCR. In Simon's view, "the only solution to this, is customers must demand the banks change and make it known that the data that banks hold, is first and foremost the customers."
Challenges
Recently Ratesetter launched a new channel for lending to SME's, I asked Simon for his thoughts on this move: "I think this is really exciting, we have seen that in our UK business SME lending makes up over 30 per cent of their loan business. The challenge here in Australia will be around continuing to source good SME underwriters given the competition in this area." Currently Simon has a team of 8 credit underwriters that are based in their Martin Place Sydney office.
"Are you comfortable that your tools are sharp enough to be accurately evaluating the level and type of risk you are taking on and you have the right structure in place to support those decisions?” Asked Simon. “Our Provision Fund is such a unique business offering our intention is to ensure that every lender gets back 100 per cent of what they lent." Profitable growth from credit worthy borrowers is clearly the strategy for Ratesetter going forward.
