Supermarket operators will be able to coordinate immediately to ensure consumers have reliable and fair access to groceries during the COVID-19 pandemic following the ACCC’s granting of interim authorisation.
The interim authorisation will allow
supermarkets to coordinate with each other when working with
manufacturers, suppliers, and transport and logistics providers.
The purpose of this is to ensure the
supply and the fair and equitable distribution of fresh food, groceries,
and other household items to Australian consumers, including those who
are vulnerable or live in rural and remote areas.
The authorisation allows a range of
coordinated activities but does not allow supermarkets to agree on
retail prices for products.
“Australia’s supermarkets have experienced
unprecedented demand for groceries in recent weeks, both in store and
online, which has led to shortages of some products and disruption to
delivery services,” ACCC Chair Rod Sims said.
“This is essentially due to unnecessary
panic buying, and the logistics challenge this presents, rather than an
underlying supply problem.”
“We recognise and appreciate that
individual supermarket chains have already taken a number of important
steps to mitigate the many issues caused by panic buying. We believe
allowing these businesses to work together to discuss further solutions
is appropriate and necessary at this time,” Mr Sims said.
The ACCC granted interim authorisation on Monday afternoon after receiving the application last Friday.
“We have worked very swiftly to consider
this interim authorisation application, because of the urgency of the
situation, and its impact on Australian consumers,” Mr Sims said.
The Department of Home Affairs has
convened a Supermarket Taskforce, which meets regularly to resolve
issues impacting supermarkets. Representatives from government
departments, supermarkets, the grocery supply chain and the ACCC are on
the Taskforce. The interim authorisation applies to agreements made as a
result of Taskforce recommendations.
This authorisation applies to Coles,
Woolworths, Aldi and Metcash. It will also apply to any other grocery
retailer wishing to participate. Grocery retailers, suppliers,
manufacturers and transport groups can choose to opt out of any
arrangements.
The ACCC will now seek feedback on the application. Details on how to make a submission are available on the ACCC’s public register along with a Statement of Reasons.
A $46 billion emergency supplemental funding proposal the White House budget office submitted to Congress last week to battle the coronavirus outbreak has ballooned to $242 billion in the Senate amid frenzied negotiations. Lawmakers remain deadlocked on several key provisions. Via The Hill.
A
summary of the supplemental spending legislation provided to
stakeholders by the Senate Appropriations Committee says it would
provide $75 billion for hospitals, $20 billion for veterans’ health
care, $11 billion for vaccines, therapies and diagnostics and $4.5
billion for the Centers for Disease Control and Prevention.
More
than 75 percent of the $242 package — approximately $186 billion — will
go to state and local governments, fulfilling a central Democratic
demand to bail out cash-strapped states such as New York.
The
supplemental would also provide $20 billion for public transportation
emergency relief, $10 billion for airports and $5 billion for the
Federal Emergency Management Agency disaster relief fund, according to
the summary document.
Other
items include $12 billion to the Pentagon, $10 billion in block grants
to states, $12 billion for K-12 education and $6 billion for higher
education.
The
pending Senate appropriations measure is significantly larger than the
$45.8 billion request the Office of Management and Budget submitted
earlier this week to “address ongoing preparedness and response
efforts.”
A
huge chunk of the money, $119.4 billion, would go to the Departments of
Labor, Health and Human Services, Education and related agencies.
The Departments of Transportation, Housing and Urban Development and related agencies would receive $48.5 billion.
The Citizen’s Party Robbie Barwick and I discuss the new legislation which has been introduced into Parliament to ensure bank deposits cannot be bailed-in.
If passed this would be a major coup. You can help.
The Citizen’s Party Robbie Barwick and I discuss the new legislation which has been introduced into Parliament to ensure bank deposits cannot be bailed-in.
If passed this would be a major coup. You can help.
We discuss our submission to the Senate Inquiry into funding for the SME sector. The proposed bill will provide incentives for the big banks, but do little to address the real issues. We offer an alternative approach, using data from our SME surveys.
We are pleased to offer our submission for consideration.
The Bill as proposed will do little to address the underlying SME funding
issues we have in Australia, despite benefitting the incumbent major investors
through their equity shares. It might play well from a “we are doing something
for SME’s” perspective, but in reality, it will do little.
To address the real problem of SME funding, we recommend
a FinTech style structure, as already proven in the UK and elsewhere across
Europe. This would enable the allocated funds to reach more businesses, but
more importantly also facilitate a transformation of lending to the SME sector
in Australia, including driving incumbents to lift their game.
This transformational play would demonstrate the
Governments active support for the SME sector, but also lead to broader and
deeper change, to the benefit of the local economy.
Introduction
Digital Finance Analytics is a boutique research and
advisory firm which curates a rolling 52,000 firm survey each year, with ~4,000
new firms added each month. The survey is a telephone omnibus and is executed
on our behalf by a reputable service bureau. It is statistically accurate
across the country.
We design the questions, and analyse the results using our
Core Market Model. The survey has seen running for more than 15 years. We have
several clients who subscribe to our data services, as well as those to receive
copies of the free summaries. Clients include several financial services
companies, FinTechs and Government agencies, within Australia and beyond.
We hold information about their business structure, banking
relationships and financial profile, as well as their digital behaviour. This
provides a multi-factorial basis for our underlying segmentation[i],
which has proved to be both stable, and insightful over time.
There is tremendous diversity in the SME sector, and as a
result one size certainly does not fit all. We believe strong segmentation is
essential to be able to translate strategy into effectively action. We focus on
what we call “the voice of the customer”.
This enabled us to develop models and descriptors for each
of the clusters. Businesses are placed within the model descriptions in a
best-fit manner. We believe that the results should be judged largely on the
interpretability and usefulness of results, not whether the clusters are “true”
or “false”.
When these stable segments are cross-linked with our
research, we can compare the different needs and opportunities across the
groups, and we can prepare segment specific treatment plans for each.
The custom segmentation we use is well distributed by count
across the business community. Growing business and Cash Strapped Sole Traders
are the two largest groups. As expected, the count of Large Established Firms
is the lowest.
In the light of our research, we have reviewed the
provisions of the proposed legislation and wish to make three major points.
SME’s Are Indeed an Essential Part of Our Economy.
The small and medium business sector (SME) is a critical
growth engine for the economy, with more than 3 million businesses offering
employment for more than 7 million Australians. The characteristics of these
businesses are varied from newly founded part-time entities, through to
businesses employing up to 100 people and with a turnover of up to $10 million
each year. More than 77% have a turnover of less than $500,000 each year. 91.3%
have an annual turnover of less than $2 million each year. So, one size does
not fit all.
The largest industry segment is Construction (17%), followed
by Professional, Scientific and Technical (12.5%) and Rental, Hiring and Real
Estate Services (11.5%). Financial Services (9%) and Agribusiness (8.25%) are
the next two. Note that Mining accounts for only 0.4% of all SME’s.
Nearly half of all businesses have been trading for less
than 4 years. Cash Strapped Sole Traders are most likely to fail (55% in 5
years), followed by Cash Strapped Sole Traders and Stable Subcontractors. The
highest failure rates are found in Transport, Financial Services, Real Estate
and Construction.
Most SME’s are true small businesses and one quarter of
SME’s have a sales turnover off less than $50,000 each year, and more than half
have a turnover of less than $150,000 per annum. Most low turnover businesses
are unincorporated. Those businesses with larger turnovers are more likely to
be formed as a company.
Looking at the state distribution, 60% of businesses are in
NSW and VIC.
Funding Is Indeed A Growing Problem for SME’s.
We have detected an increasing problem where more businesses
are unable obtain suitable finance to enable them to grow and invest in their
businesses. Underlying this is the fact
that demand from households and businesses for services from the SME sector is
waning as the broader economy falters. SME’s are the canary in the economic
coalmine!
For many segments, the need for working capital is the main
issue, and the main cause of this need relates to delayed payments. This is
particularly a concern among some smaller businesses. The average debtor days
is still elevated, with 45% of firms reporting an average settlement time from
invoicing of 50-60 days. There were minor variations across the states. Debts from Large Corporates and Government
entities are both taking longer to settle due to “enhanced” cash flow
management techniques.
The average number of banking relationships varies across
the segments. Larger and more complex businesses are likely to spread their
relationships. Others, in need of funding, will also try to access facilities
from many sources, and so have more complex relationships.
Satisfaction with banking services remains in the doldrums,
with around half of all businesses dissatisfied, or very dissatisfied with
their bank, and only 17% very satisfied.
The satisfaction rating did vary by segment, with more established
firms who do not need to borrow the more satisfied, while newer smaller firms,
seeking to borrow, the least satisfied. For them access to credit was a
significant issue.
Compliance and price were the two most significant causes of
dissatisfaction, though only 5% said obtaining funding was the root cause of
their concerns. When asked about their propensity to switch lenders, 61% said
they would consider moving. However, when we examined their length of time with
existing banking relationships, many are rusted on long term. The inertia, and
the gap between intent to switch and switching is explained by a combination of
time constraints, complexity of switching and lack of available alternatives.
Again, this footprint varies by segment.
We continue to see the rise of FinTech lenders operating in
Australia. Around 23% of SME’s have applied, and a further 10% say they will
apply for funding. Overall awareness is rising, although there are some
concerns about the true costs of borrowing from this source.
Many lenders are reluctant to lend to the sector, require
security (mortgage over property for example) and funding is expensive. Banks
prefer to lend to households as opposed to businesses, partly because of the
relative capital ratio costs and lower risk profiles.
Some businesses are turning to the growing FinTech sector,
where unsecured finance is available, at a price, but getting funding through
these channels can be expensive because of lack of true competition and high
demand.
Finally, we agree with the proposition that Australia
currently lacks a patient capital market for small and medium enterprises. But this is not the main issue blocking the
growth of the sector. Access to straightforward credit is.
But the Proposed Bill Is Targeting the Wrong SME Segments
We understand the fund will invest between $5 million to $15
million in small and medium enterprises that have a turnover of between $2
million and $100 million, where they can demonstrate three years of revenue
growth and a clear vision to expand.
Established Australian businesses will be eligible to apply
for equity capital investments between $5 million and $15 million.
Small-business owners will not have to give up control for this investment.
The Business Growth Fund’s investment stake will range from
10 to 40 per cent, setting a balance between business owners keeping control of
their business and providing enough incentives for investors. Initially, the
Business Growth Fund could support 10 investments per year, with the aim to
increase to 30 per year as the fund develops. Banks and superannuation
contributions could enable the fund to grow to $500 million.
Our research indicates that this particular segment is
small, can already obtain funding for such expansion (many would fit within our
“Business In Transition” segment), and as a result we do not believe many would
be prepared to give up such a large stake in their growing businesses. It seems
this is more orientated to offer investors and the financial sector a return,
than being shaped best to provide support for those small businesses which need
assistance the most. The small number of transactions envisaged will also not
assist many businesses, and the target is clearly not the bulk of those with
real funding needs.
Thus, we cannot support the current proposal (which we also
note is imprecise in terms of the assessment processes, return hurdles and
other matters). Our view is that the current proposal appears rushed, and too
high-level. But our main point is, it is targeting the wrong SME’s.
We Think There Is A Better Option
We believe there is a better option to assist SME’s in their
growth agenda. The truth is there is a dearth of financing available from
existing major players. Their risk and capital ratios mean they prefer to lend
to households for mortgage purposes, then to small business. As interest rates
fall, this pressure is being exacerbated.
We think a better model would be to provide funding via the
emerging Fintech sector, by either providing funding to flow to existing FinTech’s,
or by creating a new Government backed marketplace where FinTech’s and SME’s
can transact.
There are good examples of such models[ii].
For example, in the UK, the main contenders are Tide (focused solely on SMEs,
small or medium-sized companies) and Starling (which has retail accounts as
well). In France, the big player is Qonto. In Germany, there’s Penta and Hufsy
(which is based in Denmark). In Norway, Aprila. For “micro-businesses” of 1-10
people, there’s Holvi in Finland, Coconut, Anna and CountingUp in the UK, and
Shine in France.
Tide now claims over 1.4% of the UK’s SMEs as clients (up
from 1% in December 2018), and is gunning for 8% market share by 2023, aided by
a £60m UK government grant.
Meanwhile, Starling has 46,000 SME members, up from 30,000
in March, with £100m from the same government grant to develop its business
banking offering.
Qonto in France has grown from 15,000 small business
customers to 40,000 in the past year, and is expanding into Germany, Spain and
Italy this year. Finnish startup Holvi, which was bought by Spanish bank BBVA
in 2016, claims 150,000 customers and is expanding into France, Italy, the
Netherlands, Ireland and Belgium.
There is a lot of space for growth because the European
market — with 24.5m SMEs — is still extremely dominated by the big lenders. In
the UK, for example, four big banks have a 90% share of SME banking.
This was an intentional strategy from the UK Government to
disrupt the inadequate SME sector. And in response the incumbents have been
forced to respond and are now upping their game and starting their own
digital-focused business banks as well to compete. In November 2018, NatWest
launched Mettle. Santander’s “start-up” small business bank, Asto, also
launched in the UK late 2018 Meanwhile, HSBC is building its own small business
bank start-up, known internally as Project Iceberg.
In addition, the cost of funding to SME’s has dropped and
the Fintech sector has developed, supported by the core injection of UK
Government funding.
These digital plays cover a wide range of services which
SME’s need, as well as basic payments, transactions and lending. And they are
tending to create a marketplace where businesses and service providers and
lenders can interact. This is transformational.
The SME experience has been significant, with easier access
to funding, faster decisions, and the resultant rebalancing of the industry has
lifted mainstream lenders too. If a similar model was replicate here, the SME
sector would win. Australia would win.
Conclusion
The point to make, is rather than a thin deal flow
targeting larger SME’s which really do not need assistance, a revised strategy
could facilitate transformation of finance to SME sector. Thus, the planned investment
could be made by the Australian Government, but leading to more productive
outcomes. If we were to replicate a UK model, we think it should be the current
inflight Fintech-based approach, rather than one which favours incumbents, and
which does not deal with the core issues Australian SMEs face.
Thus, we recommend that the current proposed Bill is
withdrawn, and the strategy redeveloped to take account of the emerging Fintech
scene
Martin North
Principal
Digital Finance Analytics
9th February 2020
[i] Our
partitional clustering approach means that the segments are defined using multi-factor
cluster analysis and split into non-overlapping tribes, rather than in a
hierarchical tree. To achieve this, we developed a proprietary scoring system
based on Lloyd’s algorithm, (also known as Voronoi iteration) for grouping data
points into a given number of categories. This is often referred to as k-means
clustering. The modelling is iterated sufficiently to enable adequate
separation between clusters, as determined by Lloyds’s algorithm.
The government has released the draft legislation implementing 22 recommendations and two additional commitments which arose from the Hayne Royal Commission, including recommendations 1.6 and 2.7 which establish a compulsory scheme for checking references for prospective financial advisors and mortgage brokers. Via Australian Broker.
Before the royal commission began, under
ASIC’s Regulatory Guide 104, both Australian financial services
licensees and Australian credit licensees were meant to undertake
appropriate background checks before appointing new representatives,
through referee reports, searches of ASIC’s register of banned and
disqualified persons or police checks.
However, despite this requirement’s existence, the royal commission found financial services licensees weren’t doing enough to communicate the backgrounds of prospective employees among themselves, highlighting that licensees “frequently fail to respond adequately to requests for references regarding their previous employees” and that they do not “always take the information they receive seriously enough”.
As such, financial advisers facing
disciplinary action from an employer were able to simply leave and find
another to employ them.
Recommendation 1.6 and 2.7 seek to address this systemic weakness.
The latter looks to promote better
information sharing about the performance history of financial advisers,
focusing on compliance, risk management and advice quality, while the
former made sure this change is extended to mortgage brokers as well.
According to the draft legislation, the
reporting obligation “targets misconduct by and serious compliance
concerns about individual mortgage brokers” and “recognises that in the
industry, other parties such as lenders and aggregators are often well
positioned to identify this misconduct”.
Obligation to undertake reference checking and information sharing
New law: Both Australian financial
services licensees and Australian credit licensees are subject to a
specific obligation to undertake reference checking and information
sharing regarding a former, current or prospective employee.
Current law: Australian financial services
licensees are subject to general obligations, including taking
reasonable steps to ensure its representatives comply with the financial
services laws and credit legislation.
Civil penalty for failure to undertake reference checking and information sharing
New law: Australian financial services
licensees and credit licensees who fail to undertake reference checking
and information sharing regarding a prospective employee are subject to a
civil penalty.
Current law: No equivalent.
The proposed legislation will be in
consultation until 28 February, with interested parties invited to make a
submission before the deadline.
Robbie Barwick from the Citizens Party and I discuss the countdown to the Cash Restrictions Bill Senate Report, on the 7th February, and what we can still do to impact the outcome following the hearing in Sydney last week.
