AFG ties up with US fintech to roll out SME lending platform

The Australian, September 27, 2016:

Small-business lending, not wealth management, will be the mortgage broking industry’s next growth engine, according to Australian Finance Group, which is busy trying to sign up lenders to its new technology platform powered by US fintech company Biz2Credit.

In August, AFG quietly formed an alliance with Biz2Credit to use the company’s patented analytics and financial services technology to give its army of 2650 brokers the ability to better offer small business loans alongside traditional mortgages.

AFG plans to roll out the platform early next year with a “panel” of 15 lenders that customers can choose from, including the major banks and new fintech lenders. This contrasts with the strategy of rival Mortgage Choice, which has rolled out a fin­ancial planning operation to win more of its customers’ business.

“The market really hasn’t been penetrated greatly by any of the broking groups. (But) certainly all the broker groups are discussing how to address the commercial market,” said Keiran Evans, AFG’s general manager of commercial. “You will see more discussion about this market — it is going to be the next growth phase … in the broking industry.

“Our brokers are coming across small-business customers every day for their home loan.”

On a visit to Australia this week, Biz2Credit chief operating officer Robert Kleiber said the banking industry had historically invested more in upgrading legacy technology in their retail banking operations, providing an opportunity for new players to improve the process.

The deal with AFG marks Biz2Credit’s first entry into Australia, a market Mr Kleiber says is attractive due to similarities in lending with the US, and “pretty weak” small-business technology. In the US, Biz2Credit has originated more than $US1.5 billion ($1.97bn) in small business loans. “We think it’s a market that’s really ripe for innovation on the small business side of things,” he told The Australian.

“This is a growing market and there’s a lot of opportunities that’s been under served.” AFG and Biz2Credit haven’t disclosed details of their arrangement, but Mr Evans said commission from banks for arranging small business loans would be similar to mortgages, comprising upfront and “trail” payments.

It has proven lucrative in the mortgage sector as brokers’ share of new loans has risen to about 52 per cent. Mr Evans said brokers’ share of small business originations was “a lot below” the mortgage market, despite the need being “far greater”.

He said AFG, which has seen its shares trade sideways since listing on the stockmarket last year, did global search for a technology provider to turbocharge small-business lending growth, claiming Biz2Credit’s platform best matched customers and ­lenders. Mr Evans, a former banker at ANZ, said better matching made the lending process more efficient, reducing costs. “Hence we are receiving favourable initial feedback from the lenders we are talking to,” he said.

“The banks are looking to invest in their back office, remove costs and improve their risk criteria and this software supports that fully (while) giving small business customers access to multiple finance choices in a practical fashion and that hasn’t been provided before.”

Mr Evans said brokers had historically struggled to compare lenders’ credit appetite given the greater complexities in small business lending than providing finance for a home. Lenders used different loan-to-value ratios, lent to different industries and specialised in various segments.

“This platform, through needs discovery, will highlight and match the customers’ requirements with the lender’s appetite,” he said. “I have no doubt that’s the real power of this proposition — providing real choice and aligning the credit application with the credit criteria of the lender and quite often they can be mismatched and that’s not a good outcome.”