M&A in online business lending sector tipped as banks move in
Mergers and acquisitions in the alternative small business lending sector are inevitable in 2017 as investors in fledgling start-ups push for scale to achieve profitability faster, according to David Goldin, global chief executive of one of those online lenders, Capify.
Mr Goldin is one of several leaders of the alternative finance scene in Sydney for Monday's AltFi Australasia Summit, which will be addressed by ANZ Banking Group chief executive Shayne Elliott.
The Australian Financial Review understands ANZ is conducting due diligence on local SME lender Moula with an eye to forming a partnership that would bring Moula into a network of start-ups that ANZ is building to assist small business customers.
With Tyro recently estimating that banks are failing to meet $60 billion in demand for funding from SMEs, each of the big banks is scrambling to create a strategy around unsecured small business lending after their neglect created an opportunity for fintechs to disrupt the market.
National Australia Bank last year launched its own unsecured SME product, known as QuickBiz Loan. Others are pursuing partnerships: Westpac Banking Corp has one with Prospa, a local player whose lending has just topped $250 million, while Commonwealth Bank of Australia has a relationship with US-listed OnDeck.
Industry sources suggest both the Westpac/Prospa and CBA/OnDeck arrangements are not driving significant volumes for the fintechs and may not have been fully embraced by either incumbent bank.
Speaking broadly about big banks working with online lenders, Mr Goldin said “a lot of these are 'press release deals': there is lots of talk, but they don't generate a lot of revenue or distribution. Just because it's a big name does not mean its a a big partnership.”
Capify will announce on Monday a partnership with ASX-listed Thorn Group, which will begin selling Capify's business loans and merchant cash advance products.
In the US, Capify recently sold its operations to Strategic Funding, a US private equity firm, to focus on Australia and the UK markets.
Mr Goldin said local players in Australia should prepare for more deals. Along with Prospa and Moula, fintechs offering funding to small business include Banjo, Bigstone, GetCapital, Kikka Capital, Marketlend, Timelio, InvoiceX and Skippr. In addition to OnDeck and Capify, global alternative SME lenders active in the Australian market include Spotcap, ThinCats, RateSetter and PayPal.
“The industry has matured to point where investors want to see profits,” Mr Goldin said. “There is lots of investor interest and access to capital, and it is 100 per cent certain that you will see mergers and acquisitions in the Australian market, given it is much easier to buy than to build.”
Another theme of AltFi on Monday will be regulation of the sector, which currently falls outside official controls due to a carve-out provided by the Corporations Act. Jens Woloszczak, the CEO and founder of Spotcap, will tell the event that regulation will benefit borrowers and lenders by increasing trust and ensuring all players are behaving responsibly.
Market sources say the disclosure of interest rates varies substantially across the sector and remains opaque at some companies.
Capify has launched a 'Business Funding Bill of Rights' for which it is seeking support from the rest of the sector in a bid to lift self-regulation.
The renewed focus on the SME sector by the incumbents comes as a recent East & Partners survey showed small businesses increasingly see their primary banking relationship as being transaction orientated while they look to diversify from their traditional lending relationships towards alternative providers based on price competitiveness, ease of use and technology.