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The Alt-Lender’s 2016 Survival Guide

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The U.S. and European alternative lending markets sprouted quickly in 2015, but the Australian players are just planting their roots. One of the latest to do so is Waddle, a small business financing platform that caught media attention a few times this year, most notably when it teamed up with SME accounting firm QuickBooks to bridge small business customers managing their finances on QuickBooks with more working capital — via Waddle — to manage.

Waddle Cofounder and Director Leigh Dunsford offered PYMNTS a look into his views on Australia’s current state of alternative small business lending and where the industry on a global scale is likely headed.

Australia’s Alt-Lending Awakening

For many, 2015 was the year of alt-lending in Australia. Several players made their debut on the market and not just those that had already established operations overseas. Local players like Kikka and ThinCats are giving the competition a run for their money.

But according to Dunsford, the growth spurt has left one area of small business lending unfulfilled in the nation.

“The surge of lenders entering the market in Australia has been dominated by unsecured business lenders offering fixed-term loans,” he explained. “We’ve seen a few lenders pioneer this space in the last three years, followed by new lenders in the past 12 months coming online, driven by overseas lenders licensing their software or partnering with local entrepreneurs to grab hold of market share.”

Waddle, Dunsford added, is looking to stand out from the crowd as Australia’s first and only online lender to provide SMEs with automated, receivables-based invoice financing.

The company, which offers revolving lines of credit to borrowers, has made its mark largely by partnering with cloud accounting firms (like QuickBooks and MYOB BankLink). Crucial to its success so far, said Dunsford, is FinTech innovation.

Technology Fuels The Innovation Fire 

“Invoice finance has historically been plagued with higher administration both for the lender and the borrower,” the cofounder said. “However, growth of cloud computing has enabled an almost completely automated lending process within Waddle.”

[bctt tweet="Cloud computing has enabled an almost completely automated lending process."]

Developments in data analytics and machine learning have also proven critical to Waddle’s offerings. The platform automates the aggregation and assessment of real-time data regarding invoices and payments, meaning credit lines are adjusted based on these shifts and as soon as the data comes in.

Dunsford explained that this technology hasn’t necessarily changed the role of small business banking, just how (and the speed with which) it’s done.

“Essentially, the same business lending principles still apply today as they have always done,” he said. “However, technological advances in cloud-based computing, specifically SaaS offerings, are streamlining business processes and allowing data to be aggregated with API technology to facilitate other third-party services — like lenders — to connect and obtain real-time, accurate data that would otherwise not be available.”

This development means lenders can develop sophisticated algorithms to mitigate risk, assess creditworthiness, determine lending amounts and other practices — tasks that previously have taken weeks.

What’s Ahead For Australia — And Beyond

The small business finance industry is changing. That’s true in Australia as it’s true for nearly the entire globe. The Waddle cofounder told PYMNTS that these shifts will lead to new SME lending trends next year and beyond and force players to continue to rethink their positions in local economies.

For Waddle specifically, Dunsford said one goal the company is looking to nail down in the first half of 2016 is to wholly automate the lending process. But Australia’s alternative finance market as a whole will see its own changes, too.

For instance, Dunsford suggested, with late payments an ongoing issue for many small suppliers in Australia, invoice financing has traditionally been viewed as a solution only for late payments. But moving forward, this type of lending may soon be seen as a consistent solution to manage AR and AP processes, thanks to software — much the same way inventory software can integrate directly into accounting tools, he explained.

And while automation is a major ingredient in the evolution of small business financing, Dunsford said the alt-lending market is not likely to kick out human interaction, in Australia or elsewhere.

“It’s important to point out that although we let our software make a lot of our risk decisions, our credit teams admit that not everything is perfect,” he said. “There are solutions where data cannot tell the whole story, and good, old-fashioned conversations and strong relationships with clients are still a very important part of the business.”

It’s an exciting time to be an alternative lender in Australia, but it can be a nerve-wracking one, too. Offering his predictions for 2016, Dunsford said the industry will continue to see growth, though he reiterated that the majority will become players of the fixed-term lending space.

“Consolidation of this lending category will begin to take shape,” he continued, “as increased competition may eventually drive higher risk lending behavior to grab market share, ultimately ending in some lenders leaving the industry or pulling back on aggressive growth plans.”

It’s a prediction that is often made for other jurisdictions, too, meaning the new alt-finance platforms across the globe will need to begin thinking strategically about their role for SMEs if they wish to survive into the future.

“Lenders need to start thinking of themselves more as a supplier to businesses,” Dunsford said, “improving processes to make it easier and more efficient for SMEs instead of just supplying capital.”

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NEW PYMNTS STUDY: LEVERAGING THE DIGITAL BANKING SHIFT – SEPTEMBER 2020  

The September 2020 Leveraging The Digital Banking Shift Study, PYMNTS examines consumers’ growing use of online and mobile tools to open and manage accounts as well as the factors that are paramount in building and maintaining trust in the current economic environment. The report is based on a survey of nearly 2,200 account-holding U.S. consumers.

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