Monday 16 April 2018
A huge round of thanks to our attendees and sponsors, all of whom made the event possible.
Banks – and how to cooperate with them – was the hot topic at the conference, showing how the tone of conversation between fintechs and incumbents has shifted the past three years.
Australia’s fintech lenders most agreed that working with rather than against banks was now the objective of most fintechs. But what does this cooperation look like? Read on to find out!
Australian fintech industry is very organised compared with other countries. The proactive approach means that the government stays away
Australia’s SME lending market has grown at CAGR of 151%. That’s just online lenders. The growth is huge.
Expect consolidation – in the US six have shut down the past year. This is a business that advantages the scale player. If you fail to reach that you’re in trouble.
Lending to consumers makes up the guts of alternative lending, and among them 54% of applications come from under 30s. There is no evidence of a transition to older people.
The proportion of population using alternative finance is low, around 2%. Although states vary widely with QLD at the top. Inner metro has highest penetration. Rural penetration very low. Yet it’s rural borrowers that are most underserved.
There is a severe deterioration in the quality of borrower in Australia that are approaching alternative lenders
Debt to income ratio in Australia is now around 180%, suggesting we could be in for some credit event
Ciolek said regulators have been concerned about automation and digitising. 42 days is the average application process and its getting longer.
Baum noted that his company uses 22 different technologies and put them together to achieve our end to end process.
Hatherley noted how new technology in homechain and regchain was helping redesign end to end home loans using blockchain. “Its for organisations trying to future proof. No-one wanted to do it first so we did it.”
Turner said consumers will act in their own self-interest if you give them the information. We’re trying to get rid of the information advantages that banks and brokers have had.
Stoyan noted that 63% of Australian’s cannot raise $3,000 in an emergency. More than 50% of Aussies spend all they earn. Many are going backwards and into more debt. So what do we do?
We should use open banking. The Royal Commission has shown there is no trust in banks.
Fintechs make up one fifth of all startups and the median revenue has increased 3x.
Banks are deliberately delaying to reduce competition on open banking. Guys like Macquarie and NAB are already doing it. So it’s possible and achievable.
Pollari opened saying he thought a lot of the regime complexity that generates profit for these banks will go away. They’ll have to give a better customer experience and lower their fees.
Bouris replied if you’re a non-bank lender you’re looking at a big premium on the borrowing side meaning the banks can underprice you. Yellow Brick Road, the company he started, could not do what it did today. The only model that works at the moment is being a broker.
Schenkel added that having a better product doesn’t mean you’ll be a successful fintech. And fintech lenders have been forced into the margins offering sub-prime unsecured small business loans which are small and risky.
Pellew argued that blockchain had much to offer fintech lending because it provides “an immutable single source of truth; a provable register of ownership and trust between parties who have none.”
“We’re allowing lenders to settle and originate their loans and securitise their assets without multi-billion dollar transactions to get the economies of scale. For buyers you get access to real time payment performance. No longer do you have opaque pools of loans you can now see what you’re buying.”
The panel discussed the differences in fintech across the Tasman. They mostly agreed that the NZ government is taking proactive and helpful steps for fintech.
Neil Roberts said he found the application process to be robust was constantly talk to the government. He noted that unlike in Australia, negative bureau reporting in NZ has been around for a while.
For Heussler, the main difference between the two countries is that the NZ market is parochial. “We have a sales team in Auckland and the Kiwis don’t like hearing that the service team is in Australia.”
Stanish added that NZ has very simple and clear legislation. You should be doing the right thing regardless of the regulation.
Dermot Crean opened discussion by saying that bank employees who understand how credit decision systems work are getting fewer in number.
Hornery said that banks exaggerate how much they lend to SMEs. The official figure is that 9 out of 10 SMEs that apply get their loans approved by the banks, but this is misleading as many never make it to the application process.
Tam pointed out that the market is highly varied and that there is no definition of SMEs. They’re all very different. She added that merchant cash advance are popular as they provide flexibility.
Simon Dennis opened by saying that data tells us that 80% of SMEs can’t get money from a bank. Run those numbers of 1.2m SME customers there’s a lot of people commercially that’s a huge problem.
Matt Leeburn said that conflicts of investment partnerships often happen. Most partnerships don’t work out in the end as a good article in the Harvard Business Revie points out. You must be truly aligned for it to work otherwise it won’t work.
James Boyle said a top difficulty with partnership is how they play out if a partner wants to team up with a competitor? He said the best solve was if you get the partnership right the co-dependency should become so deep that they come to us anyway.
Richard Williamson, on another note, said that China showed the way forward on fintech with Ant Financial having 400m clients and the largest credit bureau in China. Now the banks are coming to Ant to use the bureau. It’s a business they’re doing a fundraise. It’s leapfrogged the banks in so many ways.
Richard Blumberg said that investing heavily in legal and compliance was a must for fintechs in order to make sure that their model works. New entrants that don’t do this and make mistakes suffer dearly. He added that 92% of the personal loan market belongs to the banks thanks to credit cards.
Mike Laing said that the personal loan market was cannibalised and turned over to the banks thanks to the introduction of debit cards and eftpos systems, which enabled cards to be taken at point of sale. When eftpos came in that allowed credit cards to get online authorised purchases. The retailers up until that point had their own private label card programmes.
This panel looked at core products, risk and the average loan size.
Jonathon Kelly said that their best product was the core product flexi and that the average borrower took in $2,000 – 5,000.
Larry Diamond said zipMoney is a mix between credit and payments company, offering effectively a digital credit card. He said $1,000 – 5,000 is his company’s sweet spot for borrowers.
For Daniel Foggo and RateSetter, it’s about amortizing personal loans.The loans RateSetter looks for are typically around $35k, mostly for cars. “We’re doing this more at the point of sale nowadays. Really about the consumer finding a convenient way of funding this.”
In this interesting keynote Lisa Bora used top examples of companies that have made customer engagement easy.
Tesla, Netflix, Uber, Netflix, duolingo are the best ones. What they have in common is that they are ruthless in developing their product and set expectations.
It’s not always about product. Lemonade disrupted the commoditised insurance industry. It’s not about creating new digital assets. It’s about making sure you have the most relevant levers.
There are so many fintechs that it’s hard to stand out. This is where digitally fuelled marketing will be crucial because there is so much choice.
Fintechs also need to ensure they have a profitable business model. “We spend a lot of time with startups making sure they’re focussed on profitability.”
In this fireside chat Stephen and Dean explained the story of Credible, which has just listed on the ASX.
“We started in 2012, we began in student loans. We’re like Expedia but for consumer finance. We give borrowers the ability to see options from multiple lenders. As distinct from a lead-gen site, we’re helping the borrower through 90% of the process. Students were paying off debt without debt-based pricing.
“There was mass consumer confusion and people getting ripped off paying 8 percent interest rates when Libor was at 30 bps.”
Dean Dorrell, who backed Credible from the beginning, added that he was still very suspicious of the banks. “I think they think about fintech as a threat. But we’ve seen that banks are starting to see that fintechs have a competitive advantage in speed and the people they can hire. I think it’s still a number of years before banks will buy them.”
This distinguished panel looked at the much-discussed topic of how fair – or unfair – loans to SMEs had been.
Neil Slonim took the line that there needs to be more transparency on brokerage. Currently borrowers are getting put into loans that aren’t in their best interests because brokers re getting offered significant sums by fintechs.
Helen Gordon said that there have been positive steps made towards transparency and disclosure and the industry is making efforts to head towards a more transparent lending contracts.
Astrid Raetze noted that fintech lenders can and should do the right thing by SMEs and was optimistic about the future.
Anna Scott said that small businesses are time poor and often don’t have the lawyers to read through loan agreements.
This panel looked at how alternative lenders can generate funds to lend more easily.
This panel looked at Good Shepherd, a not-for profit that provides microfinancing for Australians who live on the margins. Seventeen per cent of adults in Australia experience financial exclusion.
Corrine Proske pointed out that millions of Aussies have very little access to credit, which places them and their families at risk of poverty and poor social, emotional and health outcomes. Good Shepherd provides small loans on fair rates to help these people.
Elliot Anderson gave the perspective of NAB, which is a partner of Good Shepherd and provides it with funding to a tune of $130 million a year.
This panel, the last of the day, looked at how fintech intermediaries fit in an industry that’s getting tougher and heading towards consolidation.
Peter White emphasised the role of brokers as a central intermediary, noting that they are driven by the National Consumer Credit Code. They don’t give advice they give assistance by law.
Michael Burke noted that things are getting tougher but there is still a major role for intermediaries, but margins and revenues aren’t as high as many hoped.
In his closing address, David Stevenson pointed out that Australia like the UK has a banking oligopoly and that’s a shame. But he stressed that onlookers should watch out for new players that are attacking the oligopoly.
He also urged caution about open banking, claiming customers are scared of it. He added that you’ll have a hard time even with open banking winning investors over.