Robust funding, access to data and strong partnerships – crucial components for ongoing lender success
SYDNEY, FEBRUARY 29, 2016 – Australia’s alternative lending sector is set to go mainstream as early as 2020, according to the US’s leading online small business lender OnDeck, Inc. (NYSE:ONDK) (“OnDeck”).
Speaking at today’s inaugural AltFi Australasian Summit in Sydney, OnDeck CEO Noah Breslow said Australia’s rapidly evolving alternative finance market, estimated by research to be at $4.9 billion*, had the potential to outpace the US market in its shift towards mainstream. According to Breslow, Australian market drivers fuelling the speed of this shift include the heightened challenge SMEs face in accessing funding through traditional sources, faster technology adoption, greater relative investment and the more concentrated nature of the market.
A technology-enabled small business lender, OnDeck can evaluate, approve and fund small business loans in as fast as one business day. Research** on the sector shows new approaches to lending could tap into unmet demand for Australian SME finance worth up to AUD $70 billion. Research also estimates the total addressable market for new SME lenders is likely to grow to AUD $95 billion by 2020***.
OnDeck entered the Australian market in 2015 via partnerships with a leading accountancy software provider MYOB and Commonwealth Bank, Australia’s largest bank, to help close the funding gap between small business financing needs and the availability of capital from traditional sources.
In the US, the company has delivered more than USD $4 billion in loans to small businesses. A recent study conducted by top economic consulting firm Analysis Group measured the incremental impact of business activity funded by OnDeck loans on U.S. output and employment. The study**** found that for the first USD $3 billion in loans by OnDeck created an estimated 74,000 jobs and USD $11 billion in economic output.
“The small business credit problem is global in nature. Small businesses need working capital to buy inventory, or expand, or hire more staff, yet traditional lenders are not equipped to meet their financing needs,” Mr Breslow told the summit audience.
Since OnDeck started in the US in 2007, the market has followed three phases of evolution: from “low awareness” through “scepticism” and into “stampede”. Breslow predicted the fourth phase would be “maturity and mainstream”. This evolution has been reflected in the launch of OnDeck Marketplace® – a platform that enables US institutional investors to purchase small business loans originated by OnDeck.
Huge Australian market opportunity, yet not all lenders will succeed
OnDeck Australia uses advanced lending technology and analytics to assess creditworthiness based on a business’ actual operating performance and not solely on the owner’s personal credit. OnDeck Australia’s proprietary and well established small business credit scoring system, the OnDeck Score®, is continually incorporating hundreds of data points from dozens of sources, as it already does in the US and Canada.
“There is clearly a huge opportunity in the Australian market. While, from the customer point of view, alternative lending is still in the “low awareness” phase, we would expect the shift to mainstream in Australia to happen over a shorter period of time than in the US. The market is more concentrated and customer expectations are already higher so we could see ‘leaders’ emerge much faster than in the US,” Mr Breslow said.
Over the past two years, Australia has seen a rush of new market entrants across both consumer and small business lending and an overall increase in investment in the sector. Mr Breslow added that reaching the mainstream phase could eventually lead to consolidation and some players squeezed out of the market all together.
“From a lender point of view, having a robust funding infrastructure, a supportive and clear regulatory environment, access to credit and payments data and strong distribution partners are all critical success factors for the ongoing competitiveness and viability of the sector. Collaboration among the various industry participants will also be crucial to ensure customers are put first and offered the highest levels of service possible, and trust is developed in this fast emerging sector.”
Partnerships central to OnDeck’s Australian growth strategy
OnDeck entered the Australian market in 2015 with two market leaders as distribution partners: MYOB, a leading online accounting software provider and Commonwealth Bank, Australia’s largest bank and a known early adopter of technology innovation.
OnDeck Australia CEO Cameron Poolman said partnerships were central to reaching and conveniently servicing Australia’s over two million small businesses.
“Our goal is to provide a credible lending solution to small businesses, which represent the backbone of the Australian economy. We are already on the path to transforming mainstream small business lending in Australia by making on-demand working capital more accessible and the overall process faster, so every business owner can spend their time growing their business instead of trying to find financing,” Mr Poolman said.
In Australia OnDeck offers short to medium term loans from 6 – 24 months, for amounts between AUD $10,000 – $150,000, with daily and weekly repayment options.
For more information please visit www.ondeck.com.au
+61 (2) 8248 3747
+61 (0) 420 949 852
Notes to editors
* Macquarie and Rfi Banking Series, Australian Banks: Computer says Yes (March 2015)
** Macquarie and Rfi Banking Series, Australian Banks: Computer says Yes (March 2015)
*** Morgan Stanley, Global Marketplace Lending: Disruptive Innovation in Financials (May 2015)
**** On Deck Capital, Inc. sponsored economic impact study (November 2015)
About OnDeck Australia
OnDeck Australia is a technology-enabled small business lender 100% focused on giving small businesses on-demand access to working capital. Our vision is to power the growth of small business through credit and technology innovation. In Australia, OnDeck’s proprietary small business credit scoring system, the OnDeck Score®, incorporates hundreds of data points from dozens of sources. Using advanced technology and analytics, OnDeck Australia assesses creditworthiness on a business’ actual operating performance and not solely on the owner’s credit.
OnDeck Australia is backed by NYSE-listed OnDeck Capital Inc., which has delivered more than USD $4 billion in loans across the US and Canada since 2007. OnDeck entered the Australian market in 2015 with two market leaders as distribution partners: MYOB, a leading accounting software provider, and Commonwealth Bank, Australia’s largest bank. For more information, go to www.ondeck.com.au
This press release contains forward-looking statements regarding the potential growth and development of the Australian alternative small business lending industry. These statements are neither historical facts nor assurances of future developments. They are based only on our current beliefs, expectations and assumptions regarding anticipated events and trends and other future conditions. As such, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and in many cases outside our control. Therefore, you should not rely on any of these forward-looking statements. Actual events may differ materially from our expectations. In addition, we assume no responsibility for third-party research and information. Except as required by law, we undertake no duty to update the information in this press release.
The Australian alternative lending opportunity: Fast facts
- New approaches to lendingcould tap into unmet demand for SME finance worth up to $70 billion (or a 9% increase in system business credit)
- SME market is most commonly populated by professional services and retail trade industries at 15% each, followed by construction 9% and manufacturing 8%
- SME market (<$10m turnover) represents 38% of business banking profit
- New opportunities could see this grow from $4.9 – $6 billion by 2018
Source: Macquarie and Rfi Banking Series, Australian Banks: Computer says Yes (March 2015)
- The total addressable market for new SME lenders is likely to grow to $95 billion by 2020
- Loans of below $500,000 to SMEs have only grown at 1.9% between 2010 – 2014, while loans between $500,000 – 2 million have grown at 3.4%, indicating that lower-balance loan applicants may be having difficulty securing finance
- According to RBA statistics, more than 15% of firms with fewer than 20 employees stated they were unable to obtain financing from their bank
Source: Morgan Stanley, Global Marketplace Lending: Disruptive Innovation in Financials (May 2015)
- 2 million SMEs employ 7+ million Australians (70% of employment)*
- Produce 60% of private sector economic output (more than half a trillion dollars)**
- Since 2000, SME loans of less than $100,000 have grown at slower rate than loans of $2m+
- 40%+ of rejected loans were for less than $100,000
- Nearly one third (30%) of SMEs missed out on business opportunity due to lack of credit***
- 37% of SME loan rejections are due to lack of collateral (move to service-based businesses)
Source: NSW Business Chamber, Small Business Access to Finance (November 2013)
*Note that Treasury stats differ, stating small businesses employed around 4.5 million people in 2012-13, approximately 43% of private sector employment
** Note that Treasury stats differ, stating small business contributed 33 % of private industry value added in 2012-13