Taking $6bn in business from the big four banks is no mean feat. But that’s exactly what Marie Mortimer, managing director of online loan portal loans.com.au, has achieved since starting the business in 2011.
The fintech has now set its sights on the investor lending market, launching a loan with a rate of just 1.99 per cent. While the incumbent banks may view the business as small fry now, Mortimer and her team have big ambitions. But she acknowledges it will be a tough fight.
“The finance industry is dominated by the big four banks. These institutions are backed by big budgets and will buy and copy the competition out of the market,” she says.
Nevertheless, two government initiatives are helping her fight. The first is APRA’s Restricted ADI Licensing Regime, which allows smaller neobanks to secure ADI licenses. The second is the Consumer Data Right (CDR) legislation, which gives consumers the power to direct their financial institutions to share their data with other businesses. It allows consumers to easily switch banks or lenders. Both support new players to enter the market and compete with the big banks.
“These initiatives also allow fintechs to provide products and services to big banks as they upgrade their infrastructure, creating a completely new ecosystem,” says Mortimer.
“This fosters genuine competition and fintechs and consumers will benefit,” she adds.
Funding the fintech dream
Aside from competitive pressures, access to finance to support their growth strategies is one of the biggest challenges fintechs face.
In the early stages start-ups tend to tap family and friends and angel investors to secure funding until their business grows to a stage at which a larger investment is required. This is typically followed by a series of capital raisings that tend to attract private equity partners and fund managers. As the cohort of fintechs grows, it’s becoming harder to stand out and attract investors, says Mortimer. But there are still opportunities to attract growth capital if you know where to look.
“Another way to raise funding is to seek out a larger company that can use your product. If you have an innovative product an established bank or financial
institution will benefit from, it may invest in your business to further its business plan and growth,” she adds. This is the model loans.com.au has pursued in its relationship with Firstmac.
Mortimer’s advice to other fintechs to attract funding is to ensure their financial information is organised and well presented.
“Along with your idea, put together a financial plan to present to potential investors. I’ve seen many fintechs present an idea but when asked about their financials, they don’t have their accounts in order. It’s hard to ask for investment if you don’t know your numbers because investors needs to know they will get a return on their investment one day.”
Mortimer acknowledges it’s been a lot harder to secure funding through the pandemic. “Fund managers and investors are being more careful with their cash, so some deals have been slow to market or have been put on hold. Likewise, some IPOs were anticipated in 2020, but they might not come to fruition this year.”
She says this may prompt a spate of mergers between likeminded fintechs to make the most of each other’s IP.
Addressing 2020’s limitations
The pandemic has presented particular challenges for fintechs, a sector that relies on networking and introductions to foster new connections and opportunities.
“It’s been a lot harder to network in 2020. But if any industry can move events online, it’s fintechs. Zoom meetings have actually made it easier for regional fintechs to do business and present to a wider network nationally and internationally,” says Mortimer.
Overall, she says it’s important to focus on the opportunities that have arisen out of this period. “This year has allowed companies to stop and review what they are doing and plan for the future. I have no doubt fintechs in Australia will rise to the challenge and come out the other side regrouped and ready to go. The fintech sector has only just begun; it has so much potential.”
