Moula says small businesses still don't trust fintech

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This was published 8 years ago

Moula says small businesses still don't trust fintech

By Shaun Drummond
Updated

Fintech start-ups have a long way to go before they successfully get small business to trust new lenders and embrace digital business models, according to a new measure of how 'disrupted' the financial services sector is.

Start-up small and medium enterprise [SME] lender Moula and bank analyst Martin North have come together to try and measure the extent of such change in the financial sector via a new disruption index.

Martin North of Digital Finance Analytics says the Disruption Index will start with data from small businesses lending, but other sectors like payments will be added

Martin North of Digital Finance Analytics says the Disruption Index will start with data from small businesses lending, but other sectors like payments will be addedCredit: Brendon Thorne

The first index was published this week. It took two quarters of data from Moula, such as the number of SMEs inquiring about loans converted to borrowers, the average loan amount approved, application credit enquiries, and speed of application processing, and combined it with regular surveys of 26,000 small business borrowers by Digital Finance Analytics, which is run by Mr North.

The index now sits at 33.94, up 2.74 per cent since the end of the September quarter.

Aris Allegos, co-founder of Melbourne based Moula Money, says very few small business know there are now alternatives to the banks.

Aris Allegos, co-founder of Melbourne based Moula Money, says very few small business know there are now alternatives to the banks.Credit: Patrick Scala

"If it was at 100 that would mean the sector is completely digitally disrupted. That would mean that every SME was digitally connected through a mobile device, were aware of fintech, and would be interested in accessing unsecured loans," added Mr North.

"So where we are there is a significant amount of disruption in finance for SME and it is moving up quickly, but there is about 75 per cent of SMEs that say if the right proposition came up, then we would switch. They are looking for something that the banks are not providing, but they are not actually switching lenders. "

Other parts of the financial industry such as payments will be added in future, as well as data from other companies, including banks.

Moula co-founder, Aris Allegos, said despite a lot of media coverage of fintechs, most businesses are still unaware there are alternatives to the banks. Even if they do, they don't yet trust them enough to try them.

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He hopes the index will quantify the extent of the changes occurring in his sector, raise the profile of the new lending options among borrowers and influence government policy and banks.

"There is a lot of noise – we're all on this fintech bandwagon, but let's quantify it. Is or isn't there really disruption going on?," he said.

"We want SME to see the index and create trust in the segment."

Mr North, a bank analyst who heads Digital Finance Analytics, said it will in part measure the gap between what financial services businesses are offering and what customers want.

"It will include things like the adoption of smart devices, the extent to which SMEs are putting things into the cloud and using cloud services, the expectation that have on how quickly they expect responses from financial services providers, and how quickly lenders are actually processing loan applications," he said.

Most of the new SME lenders say they are not competing with banks because they are lending to businesses that banks do not because they are too small to be profitable. Most say they want to partner or be bought by a major bank, and get funding from them.

Mr Allegos said if the new players do deals with the majors, the index will rise. As such, he agreed it was really measuring the level of change in financial services rather than disruption.

"It is an indication of what's changing with respect to servicing the underlying SME. We don't care who is the enabler," he said.

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