Don’t look now, banks (or maybe do look now) — alternative financing options are on the rise. David Goldin, Founder and CEO of Capify, shared with PYMNTS his perspective on the steady pace at which non-traditional ways of funding are set to majorly disrupt the old guard.
It's safe to say that many small businesses are no longer turning to banks for their financial support. At the same time, there has been a proliferation in the number of new platforms that are offering alternative sources of financing to SMEs. How do you expect the high street banks to react to all of this?
DG: I recently read an article about [JPMorgan Chase CEO] Jamie Dimon having made a speech during which he basically said, "Look, these platforms are trying to eat our lunch.”
And it could happen; alternative sources could one day become the preferred sources.
Compare it to when Uber first came out: Traditional car services said, "well, we've been around a hundred years; this is just a fad." And that obviously turned out not to be the case.
Similarly, alternative financing options are disruptive — and that word really means something. When something can be done, in any industry, more efficiently and more economically than the standard — and really, being more convenient is the key, especially for the small business owner that has limited time — it's going to increasingly draw more and more consumers.
You're seeing it starting to happen in the financial industry. As time progresses, you're going to see more and more small businesses look to places other than their bank to raise capital.
Capify recently announced a partnership with Alibaba that is going to boost SMB lending in Australia. Is Australia a strategy market for you, and how so?
DG: Capify has actually been four companies through its history. It started off with the old AmeriMerchant in 2002 in the U.S., then True North Capital started in Canada in 2007, and United Kapital in the U.K. and AUSvance in Australia in 2008. We sort of kept it under the radar that we were in all these markets, because we didn't want our competitors to know our strategy. But we rebranded the company as one global brand in July of this year.
It's not so much that we just entered Australia; Australia's always been a great market for us. Competition is definitely heating up in the Australian market in terms of alternative financing. We used to say it was 3 to 5 years behind the U.S.; now it's probably on par with the U.S. based on the number of new entrants that are coming into the Australian market.
The Alibaba partnership makes a lot of sense because, really, we were the only platform in the world that could offer SMB financing through a company like Alibaba in four major countries — and we plan on expanding to others. Because we are the market leader right now for alternative financing for small businesses for short-term funding for small- and mid-size deals, we were a natural fit for Alibaba, especially with our technology platform. The plan with regards to Australia, which we believe will be successful, is to really roll that out in those markets that Alibaba is currently in.
In addition to Australia, you're also in the U.S., the U.K., and Canada. What trends have you observed in those 4 markets, and are there similarities among them?
DG: The definite similarity is that Australia, the U.K. and Canada have seen more competition in margin call in the last 12 months than we've seen in the last 3 years. It's extremely competitive; margins have come way down to really match the U.S. pricing market.
As far as trends go, the U.S. dollar has gotten very, very strong, which has really weakened the Australian dollar — which is hovering at around 70 cents right now. The pound is down, the Canadian dollar is down, so there's definitely some opportunities as well as some challenges when dealing as a local company.
A recent survey showed that alternative financing and supply chain financing were cited as being least in demand by suppliers and buyers. At the same time, those can be some of the easiest types of loans to access. In your opinion, why isn't alternative financing more popular with buyers and suppliers?
DG: If I had the same marketing budget that Bank of America, JPMorgan and Barclays do, I think Capify would be just as popular as them. We'd be able to sponsor the U.S. Open and the World Cup, maybe Manchester United...
It comes down to awareness. Ask me that same question 3 to 5 years from now. It's no different than other things that just take time. Business owners aren't aware that all these options are out there. As companies go public, and the mainstream press writes more about alternative financing…I think if that survey was taken again in 18 to 24 for months from now, it would bear out much different results.
If you walked into a cocktail party with business owners that were not in the payment industry — not super-tech, or reading blogs all day long about alternative financing to know that there are ways to get money besides the banks — a few of them might know about our company from advertising, but nowhere at the level of those who were aware of the traditional banks.
This is a paradigm shift of changing people's behavior. It's going to take time, to get the word out that there are alternatives.