Marketplace lending (formerly known as P2P and P2B lending) has been big business overseas for a number of years and is taking off in Australia. The newest current provider of SME loans in Australia is banjo, a business twelve months in the making and which has launched with $7.5 million in seed funding from tech investors.
Banjo offers loans of between $5,000 to $250,000 for SMEs, via an electronic application that offers approval in hours and funds deposited in as little as 24 hours.
We caught up with Andrew Colliver, Chief Executive Officer of banjo, to find out more about the business structure.
Q: Why can P2B provide a better solution to the borrower?
A: P2P or P2B lending commenced some 10 years ago in the UK and USA, but remains a nascent industry in Australia. It has evolved to “marketplace lending”, a term used to describe business operating models that comprise balance sheet funders (corporate and wholesale funding), peer to peer funding models and/or hybrids of institutional and retail funding.
Marketplace lending can provide a better solution to the borrower. If you review the daily life cycle of a small business client, they have a series of tasks that need to be done efficiently. And 40% of SME′s apply for banking services after 6pm. So when you have fintech platforms such as Banjo being totally designed to take banking services to customers when and where they need it, vis a vis any device (mobile, tablet or PC) and remove the frustrations of paperwork….it becomes a powerful value proposition.
There are 2 million SME′s in Australia and 51% do not have a business lending product at all. The SME market is estimated at $250bn in Australia, with compound annual growth rates of 4-5%. But there are a large number of SME′s in Australia that either do not have a home to offer as collateral for a small business loan or they would prefer to not provide their home as collateral. Further, some 6 out of ten small business clients cannot be bothered approaching their bank for finance due to the difficult process and long time frames for approval. Banjo offers a totally electronic application process in less than 10 minutes, approval in hours and funds deposited to their nominated business account in as little as 24 hours. We review in excess of 300 data points in real time providing a holistic view of the client, and this enables us to make informed credit decisions. We believe we can improve access to finance for SME′s across Australia.
Q: How do you manage the investment risk for lenders?
A: Banjo Score® is a proprietary credit engine that data streams in real time multiple sources of data providing a holistic view of a client′s business performance. Borrowers are risk graded according to qualitative and quantitative risk factors. As part of Banjo, we created a new direct lending fund called The Banjo Small Business Fund. The fund has an Australian Financial Services Licence and is regulated by ASIC. Banjo operates a boutique investment management business utilising a risk controlled investment approach, focusing on the management of high yielding small business loans. The target return for investors is 8-10% per annum. We believe the high yield, high churn nature of our direct lending fund has a low correlation with property and equity markets, and may provide a good diversification strategy for fixed income investors.
Q: There are a number of marketplace lenders in this space now – what makes your model different to some of the others?
A: There are a handful of marketplace lenders, and the industry remains nascent in Australia. There a limited number of marketplace lenders focusing on the SME market due to the difficulty in solving for the information asymmetry existing in the Australian business market. In countries such as England, and the USA, a positive credit reporting regime has existed for some time. A positive credit reporting regime is being slowly adopted in Australia.
I do not sufficiently understand our competitors′ models to comment. For us, we offer loans $5000 to $250,000; we can provide loans to 450+ industry sub sectors out of a total 506 industry sub sectors in the Australian market place; we have a customer service team to complement the online experience; we have deep business banking, risk management and technology experience….and our process including execution of all loan documentation is totally paperless.
Q: What are your client acquisition strategies?
A: We have a very detailed digital marketing campaign, and a business to business channel management strategy involving strategic partnerships with accountants, and other third parties interested in assisting SME′s achieve their goals. We are currently in discussions with a number of third parties.