Fintechs leading the way on transparency and small business funding

Australia’s 2.1 million small to medium enterprises (SME) are the backbone of the nation’s economy, employing more than 7.3 million people (or about 68 per cent of Australia’s overall workforce).

Fintech lending and finance firms are increasing providing the capital that these businesses need to invest and grow.

Fintechs are successfully bringing innovation and a new focus on customer needs.

This includes creating seamless online loan applications and software that analyses business financial data to deliver the best possible deal.

Some are applying innovative new finance business models, directly linking investors and borrowers, or helping businesses to unlock the value of their unpaid invoices.

In doing this, fintechs are providing new options for businesses.

FinTech Australia’s recent member ecosystem map shows our members who are active in the business lending space.

A series of recent reports have confirmed the growth of the fintech finance industry.

For instance, the 2nd Asia Pacific Alternative Finance Industry Report released in September 2017 found that Australia had leap-frogged Japan to become the largest alternative finance market in the Asia Pacific after China.

A 80 per cent increase in business balance sheet lending, between 2015 and 2016, was largely behind Australia’s improved Asia Pacific position.

Another report released in September 2017 – based on a survey of more than 1,000 SMEs – found there is rapid growth in the proportion of SMEs who are intending to use non-bank funding.

The report found that non-bank funding is now the first option for 21.7 percent of small to medium enterprise, up from 10.8 per cent in 2014.

Over the same time, the proportion of SMEs intending to use banks for funding dropped from 38.4 per cent to 27.1 per cent (as the chart below shows).

As the fintech lending and business finance industry grows and matures, it is important that there is an agreed framework in place which defines industry best practice.

For this reason, FinTech Australia in mid-2017 agreed to work with the Small Business and Family Enterprise Ombudsman and theBankDoctor.org to explore practices around transparency and disclosure to SMEs in relation to lending products, with the ultimate aim to improve SME’s access to funds.

On 13 December 2017, a roundtable was held between these parties, along with our member small business lenders and financiers. The roundtable included a video link between participants in Sydney, Melbourne and Canberra.

The roundtable was a highly productive conversation which illustrated the overwhelming goodwill and positive progress in regard to the project.

The roundtable brought together a sizeable community of lenders who are ordinarily competitors and have very different business models to collaborate on a common way forward for the industry.

The roundtable led to some very clear foundation elements and timeframes to the project.

A communique from the roundtable can be found here.