Last week, we looked at the basics of marketplace lending and why it's making such an impact on small business lending. You can catch up on that article here.
Across the globe, marketplace lending is one of the fastest growing forms of lending. Major international investment bank Morgan Stanley, reported that from 2010-2014, global marketplace lending enjoyed a 123% CAGR. They predict that, by 2020, marketplace lending to Aussie small businesses will reach $11.4 billion.
Good for marketplace lenders
The bank’s blue paper was titled ‘Global marketplace lending: Disruptive innovation in financials’. In it, researchers described how marketplace lending to businesses will grow much faster than lending to consumers. They talked about Australia’s “high online/mobile banking penetration [and] growing margins”. In other words, Aussies are comfortable doing important financial business online. And lenders that are agile – i.e. mobile, flexible and using technology smartly – are able to provide a high quality service.
True to this, most of the marketplace lenders in Australia are online-based. For example, Banjos entire application process is online. Thanks to security software and other capabilities that replace manual application assessment functions, lenders can get the info they need more efficiently. They don’t need to have a physical branch where borrowers can come in and hand in their paperwork, to be sighted in person. Credit and business information can be verified in seconds by connecting to official databases, including government registries.
It’s not just lenders benefiting from good technology (and positive attitudes to technology). Business owners and managers are getting an opportunity to have a closer look at what they want from their borrowing experience. Because there aren’t standardised packages in terms of rates, repayments and so on, business owners can look at their own books and define a deal that suits them. Some marketplace lenders like Banjo, offer the opportunity to chat with a consultant about how a loan will meet their broader business needs.
Good for businesses
With marketplace lending, approval criteria and rates are adjusted according to the applicant’s circumstances. There’s no single rate that applies to all borrowers. This means creditworthy businesses like yours can access cash at a better rate. Better performing companies get rewarded for their management skills. On the other hand, businesses that are doing it tough can still get access to the money they need to get ahead.
Similar to flexibility, accessibility means being able to complete the loan transaction from any location with an internet connection. Essentially, it’s a 24/7, 365 day service that is always open for your business when you need it. This has a range of important implications. For example, rural and regional businesses can access services they may otherwise have to travel to cities for.
Some banks think in black and white. To streamline their operations, they try to reduce the number of products they offer, and the criteria by which applications for those products are assessed. In contrast, marketplace lenders often focus on one type of loan and one audience (with Banjo, it’s business loans for SMEs). This means they can broaden the variables in terms of who they can accept and the different rates they can offer, whilst still processing loans quickly and efficiently.
Online-based lenders have a special incentive to keep their offer simple and their service has been formed with the goal of enhancing the user experience. The good news is, it’s more than possible to get all the essentials across without resorting to jargon and legalese.
It will be interesting to see whether Morgan Stanley’s projections on marketplace lending come true over the next few years to 2020. At Banjo, we believe they will. It’s an almost inevitable result of the changes in the way everyone – not just banks – does business. So what if marketplace lending doesn’t have fancy offices, besuited loan officers, and free keyrings? It’s not your style, it’s not our style. We’re agile, dynamic and mobile.
And we wouldn’t have it any other way.