Global Spotlight: Australia

Each week, PYMNTS will turn the B2B spotlight on a single nation. This week we take a look at Australia, whose emerging alternative finance industry is gaining speed fast. Digital payments are now the norm in certain sectors and businesses are open to non-bank payment partners to keep up with the growth – and to access alternative finance.

Electronic Payments

The digital payments revolution has arrived Down Under. Two-thirds of businesses consider accepting electronic customer payments critical to their business, according to a March 2015 survey commissioned by IT services provider HCL Technologies performed by Roy Morgan Research. Accommodation and food service industries receive the most electronic payments (87 percent), with retail coming in a close second with 84 percent. Size also matters. Electronic payments make up the majority of transactions for Australian businesses with more than $1 million in annual turnover (64 percent) and those with 20 or more employees (72 percent).

PayPal is the most popular electronic payments platform with more than 30 percent of wholesale trade; professional, technical and scientific services; retail trade and manufacturing organizations using the technology. Not-so-popular is Australia’s proprietary New Payment Platform (NPP). Set to begin in 2017, the SWIFT initiative will process payments in real-time. Just 5 percent of businesses surveyed were aware of NPP and less than one-third had heard of the program, but couldn’t identify any details.

Electronic payments have also changed businesses’ relationships with their payment providers. Overall, business owners are happy. Nearly two-thirds are satisfied or more than satisfied with their current provider, but they can be persuaded to go elsewhere.

“One of the very clear findings of the study is that more than half of businesses will consider changing that relationship for better pricing of services,” Michael Horton, the country manager for Australia and New Zealand for HCL Technologies, said in a statement. “One in four can be swayed by more reliable technology or by faster funds availability.”

Alternative Lending

Competition is coming for the big banks across Oz. Last week, Morgan Stanley estimated the value of peer-to-peer loans in Australia will jump to $22 billion before the end of the decade. Small businesses lending will make up more than half of that total growing to $11.4 billion by 2020.

The future may be bright, but there are some challenges that could prevent P2P lending from taking off. Regulations from the Australian Securities and Investment commission “could limit the growth prospects for retail funding of marketplace models,” Morgan Stanley researchers wrote. Australia’s big banks could also pose a threat to the growth of P2P lending, as traditional lenders have “more than enough financial strength to complete aggressively” with non-traditional lenders.

Australia’s banking industry is largely unchallenged, but some experts believe it won’t stay that way for long. Citing the disruption of the travel and media industries by the Internet, they expect the same fate for big banks. One report by Macquarie Group estimated new players, including P2P lenders, could siphon off some $27 billion a year in the future.

OnDeck has plans to be part of Australia’s impending disruption. The alt-lending platform chose the nation as its first market outside of the United States. Through a collaboration with software vendor MYOB, OnDeck seeks to increase access to capital for small businesses nationwide. Set to launch within the year, OnDeck raised about $23 million to launch the Australian operation.

Government Support For SME Finance

The federal government opened a new line of investment for Australia’s startups and SMEs—wealthy investors seeking permanent residency. New changes to the Significant Investor Visa Program, announced earlier this month, mandate at least 10 percent of the $5 million investment requirement for the Significant Investor Visa be earmarked for venture capital or private equity funds.

According to Business Insider Australia, more than 750 visas have been issued over the past three years. If the numbers hold steady, the new policy could generate some $375 million in potential investments over the same period.

“These changes have the potential to fundamentally transform the landscape for investment capital available for thousands of startups and tens of thousands of SME businesses,” Yasser El-Ansary, CEO of the Australian Private Equity and Venture Capital Association, told the publication. The changes go into effect July 1.

Australia’s small businesses need working capital, and while the nation is beginning to welcome new alternative lenders, some experts say the solution has been right in front of them. Supermarkets have cash on hand because shoppers pay them before they pay suppliers. In a recent interview, businessman David Murray said he believes the solution is easy—supermarket chains provide small business financing. Two of the chains in question, Woolworths and Coles do offer financial services, but perhaps not enough. “I don’t want to pick on the supermarkets, but if they have positive working capital, they collect before they pay,” Murray told The Australian Financial Review. “Why couldn’t they use that cash to fund business?” Woolworths’ head of financial services did not rule out the idea, but did say the company is focused on payments and cards for now.

The introduction of both domestic and foreign alternative lenders in Australia has coincided with the nation’s recent embrace of digital payments technologies. Businesses Down Under are seeking out innovative ways to access and manage their funds, and through federal initiatives, SMEs are in a position to greatly improve their cash flow. Still, it is yet unclear whether the alternative finance sector will grow and gain traction enough to disrupt the traditional banking industry. Australia will just have to wait and see.