Each year it’s worth looking back to take stock, and we’ve been doing some of that at Marketlend – we’re happy to see that Marketlend performance in 2018 was as strong as it has ever been. Watch Marketlend CEO Leo Tyndall outline what it was that made 2018 a strong year for Marketlend’s investors and borrowers, and what’s making him excited about the future of peer to peer lending. You can also read the transcript below.
We had a great year. So from a volume point of view we’ve been very successfully growing our book. At the same time, from a risk point of view, we’ve been able to ensure that our book has grown, but not increased the negative effects of such a growth factor. So what we’ve seen is our default rates have actually reduced, it’s gone down from the 4.6% that we had for the year down to around 2-2.2%. But what we’ve also seen is we’ve been able to control the product that we produce and that means that investors have been able to get a great return. So the average return from a net point of view has been 10.2%. What we’ve seen is that we’ve been able to grow, and as I mentioned in other videos, that we’ve seen a growth of our book double compared to last year, so we’re up to $61 million funded.
We still look at December being a strong month as well, but what we’re seeing very much is also an increased focus of due diligence and implementation of some of the measures we brought in early in the year. We send out an external accountant if the exposure’s greater than $250,000, which has helped us significantly to really get to know our client, and then spending a lot of time interacting with our client post settlement. So we’ve put on settlement clerks, you could put it, so that they can interact with them post settlement so that we can increase the utilisation as well of the actual portfolio. So it’s been a great year for us.
As far as staff goes we’ve now got a total of about 35 people. In Australia we have around 15 to 16. I count that number because we only just put on two new people again today. So we’re continuously growing the actual support staff. We’ve also got the Philippines team which is a total of 14 people, and then we have developers all over the world. So it’s been a great year for us.
Despite being a fintech, we know the importance of face-to-face interaction with real people. In the lending business, that sometimes means visiting an SME in person and getting to know their business from the inside out.
Below Marketlend CEO Leo Tyndall describes the importance of borrower interaction, and why it’s such an important part of Marketlend’s approach with large exposures. You can also read the video transcript below.
The changes that we did at the beginning of the year was to actually make sure that we have a lot more interaction with the borrower post settlement. Some of those changes included that for exposures over $250,000, we actually have an independent accountant who actually goes to their premises, kicks the tires, reviews their balance sheet, looks at all the other factors that could be of risk for the underlying investor.
One of the things that we’ve seen through our portfolio over four years now has been that some of the risk elements that are not as easy to see from just documents and the like, is exactly if there’s personal issues or if there’s something that we should be concerned about. For a classic example, one of our borrowers unfortunately passed away. That caused a stress on the book. Had we sent out the external accountant he would have given an idea that there wasn’t possibly enough succession in that position. Fortunately for us the insurer paid out and we were able to cover our exposure for all the investors, but it was something that … we would’ve been able to have a much better idea had we had someone go out, sit with them. It also from a borrower experience actually helps significantly as well. They get to know them, in a way it helps them understand their own risk.
So we implemented that at the beginning of the year and that’s been very successful. And that accountant is a chartered accountant. He goes out there, he does do a review, he does the report internally for us. We are not at the stage where we will be producing that report externally, but down the track we may be looking at a summarised report for that.
But the important part there is whilst we’re a fintech, we still are someone who actually does touch and go and see the investor and have a relationship with them. And I think one of the things that, if you would say over the four years what we’ve seen significant changes in, has been sure, when you’re lending the small amounts of $25,000-$30,000 you may get away with doing it all online and not actually meeting the client, but when you’re starting to invest significant money with them it’s very important to actually get to know your client. And from also an anti-money laundering point of view it helps us significantly as well.
As a small business owner, you may have already had an experience with a scam targeting your business. It’s reported that Australian small businesses lost more than $2.3 million from cyber attacks in the first half of 2018, with nearly 18 per cent of small-to-medium-sized businesses in Australia having been impacted by a cyber scam.
While this seems like it would only affect you, it can also impact your customers. For example, hackers can “spoof” your business email account so their emails look like they belong to you. They can then contact your customers and request payments be made to a different account instead of your own. One Australian business recently reported losing $300,000 to such a scam.
In another version of this attack, scammers can intercept your correspondence with suppliers, and then pretend to be the supplier in order to get you to pay them instead. Other popular tactics include ransomware attacks in which your data is encrypted and held hostage until you pay the scammers a ransom. Thieves being thieves, you can never be sure if you’ll receive your data back even if you pay.
With so many ways you could be targeted, detecting cyber fraud is a top priority. To help you, here are several tips we suggest you follow to recognise and prevent a potential scam.
1. Never click on any links or attachments in an email unless you know the source and can verify its legitimacy. Poor spelling and grammar usually gives away fake emails.
2. Install anti-phishing software.
3. Never wire money to anyone you don’t know in person. Asking for wired money via services like Western Union is a very common scam.
4. Never fall victim to an urgent transaction. Typically, cyber attackers want to get your money as soon as possible so they can disappear. Confirm the transaction with your usual contact if things seem suspicious.
5. Make sure you keep back-ups of all your data. This will enable you to return to business as usual in the event you fall victim to ransomware without having to pay the attackers.
6. Check the URL of any website you’re asked to access, especially ones where you have to enter sensitive information, to make sure the website is legitimate. A fake URL may look similar but can have spelling errors. If it is hyperlinked, you can check the website by hovering your mouse over the link. Otherwise, type the address in the search bar yourself if it’s a website you know, such as an online banking portal.
7. Make sure that any financial transaction you engage in online requires you to enter your details only after the URL changes from “http” to “https”, this means the connection is secure – all Australian bank log-in pages are https.
8. Limit who in your business has access to sensitive financial details to those who absolutely require it.
9. Trust your gut. If something feels odd, or you see an offer that seems too good to be true, then it probably is.
10. Report suspicious activity. Most Australian banks, telcos, and energy providers – the industries most frequently impersonated by scammers – have sections on their websites where you can report a scam. They also publish details of current illegitimate activity.
2019 looks like another good year for Marketlend, which is great news for you. A strong year for Marketlend means even more flexible finance for SMEs to grow, and more great opportunities for investors.
Watch Marketlend CEO Leo Tyndall’s 2019 outlook, what he’s excited about, and what he sees as the biggest challenges in the year ahead. Or, read the transcript below.
We’re looking at quite a very positive year ahead. We’ve recently engaged two new sales team who are ex American Express and we’ve seen a significant pickup in our origination volumes in the last year. So we see that in the last month, in November, we did 5.2 million and we see that we’re possibly looking at similar numbers or even doubling those numbers going forward.
With the avalanche of these new products we’ve brought out, essentially UnLock as well as GreenLend, we see a bit of energy there coming back from an investor base as well as from the borrower base. And so what we see is from that side, a very exciting year. From the risk side we have added additional measures to protect our position, or the investor’s position, and so where we see with that is that we see a continued good performance from the book and also seeing that our clients are actually gonna grow with it.
As far as the economy goes, there are some stresses that we are cognisant of and concerned about, especially the construction industry as well as the possible retail industry as the continual issue with the fact of the online businesses growing so well and the retail business, sort of, lease holds being a bit of a struggle. And so what we are focusing is on making sure that we try to diversify away from that as much as possible, or at least when we see those opportunities we ensure that we actually have additional protections for the underlying investors.
Government getting too heavily involved in business isn’t always a good idea, as it risks eroding the free market’s power to innovate. However, there is a place for regulation that gives all business the best chance to succeed.
When it comes to small business lending, Marketplace CEO Leo Tyndall says one simple change would make a huge difference to Australian SMEs, the requirement of a small business comparison rate. Watch the video or read the transcript below to learn how government can unlock the potential of small business.
I’m never a big fan of pushing government to do a lot of things because the the more involvement government has on business the danger it is that it actually doesn’t operate in a capitalistic environment. But what I do say the government need to do is ensure that there is a level playing field. To ensure that the SME’s able to make the right decisions.
What I mean by that is the SME itself should be able to within a very short period of time look at all the finance options and then go, “Yes. This is the price. This is the real price of my funds.” And to do that at this present moment, there isn’t a framework for every SME to be able to give a comparative rate.
So if we look in the mortgage market, you go and look at the advertising in mortgage market, you can say, “Well what’s the comparison rate?” and you can match them all and put ’em in a line and then say, “This guy’s got the cheapest rate ’cause this is his comparison rate and it’s the lowest.” We don’t have that in the SME market. And that’s what’s needed.
The SME market needs the requirement. What the government needs to do is say to SME lenders, “You must give a comparison rate. You must tell them what is the real cost of funds.” [The] very immediate time that [SMEs] touch base with you you should say, “This is what your cost of funds will be”, and so therefore the SME can quickly make a decision whether it is the cheapest or more expensive. Now you can say that you’re more expensive than the others and say these are the reasons why you’ve got all these other benefits. But you do need to give a true, clear price.
And that’s unfortunately not available at this time. So this is where I think the government really does need to step in and it’s only an extension of the Trade Practices Act or the the consumer laws. So it’s not like there’s a lot that they need to do there.
When start-up founders pitch their solutions to social and economic problems, they often sound far-fetched or idealistic. When everyday Australians think about start-ups, they typically think of phones apps, some new gadget at JB Hi-Fi, or a collaboration widget on their work laptop. While these ideas solve real problems and people rely on them, some problems are beyond the consumer sphere, far larger in scale, with the potential to impact entire economies. Small business lending is one of those problems, and fintechs are playing a vital role to solve it.
With the considerable credit crunch small businesses are facing from traditional lenders, many SMEs are looking to fintechs for answers because Australia’s big banks simply can’t consider the nitty-gritty when providing a loan. A few over-due payments, multiple credit enquiries, or a seasonal lull can often be explained when looking at the fundamentals of a business, but the big banks are too cumbersome to see the forest from the trees. This is because the banks are churning through thousands of applications a month, constrained by organisational policy and the behaviour of their competitors.
Every large bank now has an ‘innovation team’ and makes overtures toward Big Data as a way to increase their efficiency and outputs. Yet, the speed of their lending mechanisms is irrelevant – they’re making the same mistakes, only now they’re making them faster. The issue lies in the fact big banks rely solely on quantitative, rather than qualitative reviews of applicants, and are therefore unable to adequately service the small business community.
Fintechs can move away from that model – spending far more time talking with a small business and understanding their situation before making any credit decisions. In doing so, fintechs provide a life-line for small businesses that are facing the credit crunch and supporting many of the communities that investors, customers, and founders live in. For example, marketplace lending removes corporate interference from the credit process, allowing investors to gain higher returns while scrutinising the opportunity themselves.
This closer investor involvement leads to higher amounts of debt funding in the small business industry. Most savvy investors can recognise the difference between a company on its last legs and one that’s just had an off-season. For instance, a mechanic receiving no business because of poor customer service and a farmer who has had a bad season due to drought are two completely different prospects.
Individual investors are able to consider the bigger picture and understand the broader context of the business. In the mechanic example, a quick Google search would uncover the litany of unsatisfied customers, so while the farmer and the mechanic might have similar quantitative results, looking at them qualitatively separates them – the farmer might receive funding while the mechanic wouldn’t.
By placing investors and borrowers as close to each other as possible, as is done in marketplace lending platforms, those businesses best placed to turn their fortunes around can be identified and funding facilitated, rather than having them slip through the cracks.
It is impossible for banks to enter this level of nuance when assessing credit applications. Both the farmer and mechanic would be rejected in this example.
As bad as these shifts in the economy are, they do provide breathing room for new innovations and allow us to see the real-world benefit of new financial technologies. At Marketlend, we hope to provide where the banks have failed, and see the continued benefits for all of our lenders and borrowers.
Small and medium sized business don’t get a lot of tax incentives in Australia, both compared to larger firms and overseas competitors. One of the few SMEs can claim is the Australian Reasearch & Development tax incentive. But Marketlend CEO Leo Tyndall says the R&D tax incentive needs to be improved for SMEs. Watch the video or read the transcript below to find out how.
One of the issues than an SME has when they start up for the first one to, say, five years is that the only tax breaks that are available to get is if they’re determined to be an R&D company or something similar. Now ironically, if you’re an R&D company in Australia, unless you can prove that your R&D is out of Australia, and for a lot of these, especially in even our space where the technology’s not here, it’s offshore, you can’t get the benefit. You can’t get a tax break. So if you look at other countries where, you know, SMEs or people have actually started up some type of new business that is a new concept, they’ve been able to get that break and that enables them to grow.
I mean, the Googles of the world and all of these type of guys. You know, this is something that the government should really have a better look at and say, “Okay. We’ve got these incentives, these grants, and R&Ds, but if the R&D grant is only working for if the R&D’s done here, how can I do that when the R&D doesn’t come from here?” What you want to say is, “Okay. Are they taking R&D from offshore and then putting it in here so that then they can develop their own R&D here?”
Every business has its share of pain points, but SMEs have a unique set of challenges when doing business. Marketlend CEO Leo Tyndall says managing cash flows is the number one SME business challenge in today’s market, exacerbated by a lack of capital with borrowing terms that match the needs to SMEs. To learn more, watch the video or read the transcript below.
I think the biggest pain for the SMEs is truly cash flow, the inability to be able to match their cash flows and be able to turn around and cover their expenses and their operating business at the same time as receiving money from their customers or paying for goods. So if you look at a typical cycle, you’ll find that the SME turns around, provides a service and then has to wait 30, possibly 60 days to get paid. Obviously during that time it’s got to run a business. It needs to pay its bills, pay staff, these type of things. And they lack the cash flow to do so.
The other difficulty they have with that, or the reason why they have that difficulty is that there’s not as many options that they have out there for funding. So the financiers that are available in this type of space aren’t offering them a short-term type of 30, 60-day type credit facility. They’re offering them something like a P&I business loan, which doesn’t really match their cash flows. And then if you look at the bank side, you’ve got the difficulty with the banks not really looking at it unless there’s property collateral. So it’s not really structured in a way that matches what the SME needs to run its business.
Each new year brings a chance to make changes for the better, but with a federal election just months away, this year is one of the more unpredictable. One thing is certain: SMEs will play a key role in the development of the major parties’ business policy, and for the resulting direction of the economy.
With an early budget, the election will probably be held in May, and at this stage it’s not likely to be a tight race. A December Newspoll found 55 per cent believe Labor will win, while just 24 per cent back the government for re-election. But even strong polling guarantees nothing, so both parties will be desperate for support, and every coherent group of voters will be up for grabs. SMEs are high on the list, representing everything from Mum and Dad operations to industry leading firms.
That’s a mixed blessing. While both parties courting the sector should lead to progressive policies that benefit both business and the economy, the promise of wholesale change can increase uncertainty. A closer than expected election could also result in political uncertainty, which would cause additional anxiety for the economy as a whole. That could have a pronounced impact on SMEs, especially if the availability of capital is affected.
For SMEs to enjoy smooth sailing after the election, both major parties need to be clear on what their policies are, and why they believe in them. The parties must prove they’re serious about supporting Australian business, with the intent to follow through on their promises regardless of the political landscape post-election. A promise not kept does more harm than good.
More importantly, policies that support SMEs and the overall economy must be sold to the public. That’s the job of politicians and the business community.
SMEs are the lifeblood of the Australian economy, and what’s good for SMEs tends to be good for everyone, especially during a domestic housing downturn and an unpredictable global political climate.
By helping the Australian public understand the importance of strong SMEs, the political and policy incentives of politicians become aligned. With everyone paddling in the same direction, it’s much more likely we’ll find a path around those dangerous waters.
Managing cash flow can be a challenge for any business, especially an SME when a single supplier, buyer or loan can have a big impact. Marketlend CEO Leo Tyndall looks at how an SME can fix its cash flow, particularly making intelligent use of trade credit facilities to extend payment terms. If you want to read the full transcript, see below.
Well, there’s a number of options they can fix their cash flow. Obviously, they can take on trade credit facilities similar to what we offer. And what they can do there is, they can actually, essentially get us to pay and then they can turn around and they can collect the money from their client 30, 60 days down the track and repay us.
The other way that they can improve their cash flow obviously, is with the growth of their business is to change the terms of their debtors on the other side, but that’s not ideal because they may lose business. So it’s more like looking for financial options which actually match their cash flows themselves.