Tag: Alternative Lenders

Charting The Financial Services Revolution

I caught up with Glenn Hodgeman, the brains behind the upcoming AltFi Australasia Summit  2018 to be held in Sydney on the 16th April at Doltone House Jones Bay Wharf.

This is the third annual event and is designed to bring various industry players, private equity, venture capital, innovators and regulators together to share insights at the inflection point of the fintech revolution as it moves “from marginal into the mainstream”.

The revolution underway is partly being driven by new innovative players and platform providers who can move quickly, without legacy, whilst larger more established players wrestle with legacy systems and culture, yet some are now beginning to see the potential. The potential opportunity is significant, not just paving the cowpaths, but to create totally new business models and new customer value propositions.

Glenn believes the large incumbents will increasing be focussing on “big corporate” borrowers, which creates space for small fleet of foot players to address in particular lending in the consumer and small business sectors.  Of course there are also a myriad of cashed up investors seeking to get footholds into the opportunity stack

AltFi have strong connections with London, and they believe Australia is currently perhaps 4-5 years behind the leading edge there. This creates opportunity to learn from events overseas, as well as from New Zealand, Israel and local success stories.

Glenn was keen to underscore the fact that the conference is not a “scatter gun” of concepts, from the alphabet soup which is Fintech, but rather he wants to drill into a small number of high potential critical areas, from lending, payments and robo advice.

Topics scheduled include global case studies in alternative finance, the thought leaders in the Australian Banking and Finance Industry, Digital Mortgage lending, Microfinance, alternative SME lending and point of sale credit.

This is rich menu, and the event is likely to be well frequented.

You can get 20% off the conference price by using this link, and the promotional code DigitalFinanceAnalytics.

I get nothing from this, but it does offer some additional benefit to DFA Blog readers! I may see you there.

Alternative Lenders Are Driving The Personal Credit Market

Household debt in Australia continues to rise. But the strongest growth at 15%, is found in the sub prime Alternative Lending Personal Credit sector.

So it is worth considering the personal credit market holistically.

Drawing data from our cure market models we estimate total personal credit to the ~9.2 million Australian households currently amounts to $164 billion. This is separate from the $1.7 trillion secured debt for owner occupied and investment housing.

Within that banks and mutuals (ADI’s) hold $42 billion in credit cards, and $66 billion in personal loans of all types. But this leaves Alternative Lenders, (non-banks) with around $56 billion, or 34% of all personal credit. The chart below shows the relative shares since 2006. The Alternative Lending sector is growing faster than credit from ADI’s.

Relatively, overall personal credit has grown at around 2.6% in the past 3 years. Within that, credit card debt has been static, ADI personal credit rose 2% but Alternative Lending credit rose 5%.

In fact ADI’s have stepped up their personal lending as mortgage lending has eased, with an 8% rise in the past 12 months. We expect this momentum to continue, with a strong focus on vehicle credit, another risk area!

Alternative Lenders include many large well established companies, as well as a rising tide of new online lenders, including P2P loan providers. In fact online has become the predominate origination channel.  As they are not banks, ASIC is the primary regulatory body.

But looking in more detail, the sub prime segment of Alternative Lending has growing significantly faster at around 15% per annum over the past three years, compared with 5% for all Alternative Lending. We define sub prime as households with VedaScore/Equifax Score below 622, or a poor credit history, or adverse personal circumstances.

There are a range of products taken by households in the sub prime segment, including unsecured personal loans, Medium Amount Credit Contracts (MACC), Small Amount Credit Contracts (SACC), secured and unsecured car loans or loans on other capital goods, and loans secured by assets, such as cars post purchase.

Our surveys show that a considerable number of highly in debt households with mortgages also hold loans with Alternative Lenders. Such loans might be difficult spot during an assessment of a mortgage loan application, thanks to the negative credit records which are only now morphing into comprehensive credit.

This is a concerning trend and is further evidence of the debt laden state of many households. It also helps to explain the gap between stated finances on a mortgage loan application and the real state of household finances.

Note SME’s are excluded from this analysis.