Beating out the banks

Alternative lenders are leading fintech disruption of banking for SMEs, who now have faster, easier access to finance than ever before – and they don’t need to put their house on the line.

Fintechs have changed people’s expectations for customer experience in financial services. Until a few years ago, people had not experienced the same technical innovation from banks they had benefitted from in other areas of their lives.

Now, however, they can apply for loans in less than 10 minutes from the comfort of their own workspace, receive a decision in hours and funding within one business day.

Australians have always been quick to adopt new technology that makes their lives easier, and fintech companies are doing just that. The word “fintech” is used to collectively refer to businesses that are harnessing advancements in technology to improve deliver, and ease the cost of financial services and products.

With government and consumer confidence in fintech at an all-time high, the sector is at a tipping point. New Ernst & Young research has found that 37 per cent of Australians already use fintech. A series of high-profile scandals has eroded consumer trust in Australia’s big banks, and the number of Australians who say they would prefer to use a traditional financial services provider has dropped to just 10 per cent (EY FinTech Adoption Index Report 2017).

“A series of high-profile scandals has eroded consumer trust in Australia’s big banks.”

Why are small businesses obtaining loans this way?

Despite their important role in the economy, small businesses are often not considered for funding by traditional lenders because the loan amounts are low, and their business activity can be inconsistent.

Instead of sitting down with a bank officer to go through a business plan, financials and more paperwork, fintechs take a different approach. Everything they do is beyond the norm for traditional lenders. It is easy to apply online, and decisions are made quickly with funds available in the customer’s account within 24 hours.

In the case of Sydney online business lender Prospa, assessing the creditworthiness of a business means looking at more than 400 data points, including non-traditional criteria like:

  • Is there a thriving social-media presence?
  • Are any online reviews trending up or trending down?
  • Is the business in an area with population growth or decline?
  • Does the business rely on one major customer, or does it have many?

Smart use of technology means this analysis happens in as little as 13 seconds, enabling fast decisions and funding for time-poor small-business owners who need to seize opportunities when they arise. And more importantly, they are not asked to put the family home on the line as security.

The fintech products on offer in Australia are world class. Ten Australian companies were included In KPMG’s Fintech100 Global Innovators report for last year – more than any other country except the US. Three of these were included in the Global Established Leaders category, where Prospa came in at 24th, ZipMoney at 37th and AfterPay at 44th.

Why fintech may be best for your business

As more fintechs enter the market, it is not easy for busy small-business owners to choose which is most suitable for them.

Indicators of their strength include:

  • Clear, simple, easy-to-understand product and fee information
  • Online testimonials and reviews on independent platforms like TrustPilot
  • Transparency, including ownership – are the founders visible and accessible?
  • Industry and government partnerships
  • Award wins that demonstrate a strong, reputable company in business for the long term.

If you have any doubt, seek impartial advice from a trusted adviser like your finance broker or accountant.

Consumers and small-business owners are increasingly demanding invisible banking – faster, more convenient and accessible finance, with payment services embedded into their lifestyle and experiences.

Prospa has just passed the milestone of delivering half a billion dollars in loans to small business in Australia, and is confident the fintech industry as a whole will move from strength to strength in the coming months and years.

Anna Fitzgerald, Corporate Relations Principal, Prospa

This story first appeared in issue 19 of the Inside Small Business quarterly magazine.