New Zealand is often grouped with Australia, but the nation has an impressively rising market for FinTech. Earlier this month, for instance, the nation got its fourth alternative lender: Lending Crowd. The company provides SMEs with loans of up to NZ$200,000 (about $137,000) and has nabbed a license from the Financial Markets Authority.
Lending Crowd is also looking to enter the Australian market (and others), but before it does, PYMNTS caught up with Managing Director Wayne Croad to explore New Zealand’s own challenges in the small business finance landscape and his thoughts on how alt-lenders and banks might coexist as these markets continue to change shape.
According to Croad, many of the issues surrounding small businesses’ access to working capital can be attributed to regulatory red tape.
“SMEs in New Zealand are not serviced well by big banks,” he said, adding that it’s not just a small business’ lack of money that makes them unable to obtain a bank loan. “SMEs and their owners have assets but are faced with bureaucracy and no access to a 100 percent online service to raise funds quickly.”
The issue of traditional banks lacking digital banking technologies to provide to their small business customers is not new and is not unique to New Zealand. In fact, it’s often pointed to as one of the reasons why alternative eLending platforms have seen such traction in recent years:;not only are banks uninterested in working with SMEs they consider to be high-risk, but many SMEs are uninterested in working with traditional banks that don’t offer quick, online banking services.
That revelation has caused some industry players and analysts to speculate that these online lending marketplaces and bankers are building strength to combat the traditional bank when it comes to small business financial services.
But according to Croad, the two sides can coexist and compliment each other. He explained that Lending Crowd is owned by Finance Direct Limited, a licensed and registered non-bank deposit-taker. This business model is one he believes can enhance the current banking climate and help traditional banks, too.
“Once the big banks pick up on this model, we are thinking they will see the sense in adopting and share the returns between themselves and private investors on equal terms,” he said, adding that that this can spread financial inclusion. “Banks’ access to Big Data and the adoption of the model we have now established will accelerate peer-to-peer lending into another mainstream asset class available to mom-and-dad investors and institutions on equal terms.”
Lending Crowd is approaching the market the way some other FinTech players have: introducing innovative technology and business models to the lending market but keeping those tactics open for others, including banks, to use.
Croad said that the company solely provides secured loans on property or a registered vehicle, a product, he explained, that is headed for a growth spurt.
“Over time, this asset class will give excellent, credit-rate borrowers the best interest rates in the market and provide investors with reliable returns,” Croad stated, adding that the company’s technologies surrounding the secured lending space will hopefully spread throughout the globe. “Our unique intellectual property on the secured loan space will help differentiate us from other platforms,” he said. “We plan to export this IP to other interested parties worldwide.”
By banking on the secured lending space, Lending Crowd is acting on its predictions for the direction the alternative lending and small business financing space will take in the coming years. For Croad, that forecast is all about how competition will weed out the success stories from the failed starts. The differentiating factor, he said, will be a company’s ability to mitigate borrower risk.
[bctt tweet="The ultimate winners will be the players with the best reputation for risk mitigation."]
“The first stage of peer-to-peer lending has been about brand awareness and volume of business,” he explained. “The reality, though, is the ultimate winners will be the players who provide reliable returns to investors and have the best reputation for risk mitigation.”