‘AltFi’ is the new buzz word that is gaining a lot of traction in Australia, and has to do with Alternative Finance industry which is still at a nascent stage in the country. This is juxtaposed to the situation in the UK and US where the existence of AltFi has been for some years now (4-5 years).
The emergence transcends from the fact that Australian big banks have always enjoyed a greater pie of the market share in the lending zone, but the banks have been throwing many challenges for small and medium enterprises (SMEs) lately. These challenges particularly relate to longer than anticipated processing time, higher costs and complex credit assessment (depending on factors such as availability of personal collateral and banks’ manual way of collecting information). The banks thus have started paying more attention to larger lends and ignored the SMEs to a great extent (it is worth noting that Australia has about 2 million SMEs that employ close to 70% of the total workforce).
In such scenarios, SMEs are unable to fulfil the financial requirements for capital raising for expansion of existing operations, venturing into new innovative zones and so forth. Alternate Finance thus seems to provide ways for small-to-medium Australian enterprises to raise funds through a wider choice of investments in a more efficient manner. It is interesting to note that many Fintech lenders (such as MoneyTech, OnDeck, Businessloans, Capital Finance) are paying attention to meet customised needs of the SMEs while smoothening the borrowing process for the customers and lowering the time for getting funds. Customers are often rewarded with healthy credit records as the lenders offer a blanket of rates entailing risk based pricing for borrowing purposes. Through this platform, SMEs get to borrow as per their funding needs either on an unsecured basis or secured basis against assets such as stocks. These features seemingly help the enterprises and are gradually leading to a disruption in the ice-cold lending ecosystem set by the banks.
To understand more, the Fintech lenders work on the principle of peer to peer (P2P) platformsthat rely on technologies such as cloud accounting technology for accessing bank account information and for credit assessments. It is estimated that the P2P SME lending growth can surpass $11 billion by 2020 given the current situation. However, the lenders do face an issue relating to accessing funds from the banking players owing to lack of a healthy track record, other minimal requirements satisfying the norms set by the banks or even on ethical grounds. Further, some experts have highlighted that a proper legislation to deal with fintech companies or alternative finance (based on peer to peer platforms) in Australia is becoming the need of the hour as most of the dealings, as of now, have been falling under Managed Investment Scheme regulation and this might not address all the issues in the proliferating industry. Though there are some challenges and risks at present, the industry has witnessed immense innovation in the last two years; and is expected to prosper more with a boost from technology advancement and a proper regulatory framework in place.
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