Moneytech will partner with insurtech start-up Factfin to give SMEs better access to working capital.
A specialist trade and debtor finance business, Moneytech has provided $2.5 billion in finance to SMEs since it began in 2003.
Access to capital continues to be difficult for SMEs in the wake of tighter capital requirements under Basel III.
According to Moneytech chief executive Hugh Evans (pictured left), this is set to be challenging in the shadow of the banking royal commission. Evans expects further tightening in the sector following the public inquiry with an even more conservative approach to lending standards, a view already shared by Small Business and Family Enterprise Ombudsman Kate Carnell.
“It still holds true in Australia that banks lend money to SMEs based on the size of your house. With the challenges under Basel III and the royal commission, it is expected banks will cut back lending to unsecured SME lending,” Evans said.
“At the same time, we have to make sure that we get the money back that we lend. Access to data will give us better insights into the risk of a business given that we can’t rely on property for security,” he said.
Here the partnership will bring Factfin’s expertise in data analytics and insights to helping the business assess the riskiness of its SME book.
While Moneytech has adopted a very prudent process in assessing SME risk, the approach could benefit from further automation.
“As more business’ shift online, they expect their finance partners to be online in all aspects of their business. Our partnership with Factfin will unlock digital risk assessment, giving us the ability to scale our services to more SMEs,” Evans said.
Factfin chief executive and co-founder Paul Reynolds (pictured right), said the firm’s analytics has been built off the emerging data economy. He sees initiatives like open banking initiative will further improve the accessibly of data.
“There is a lot of opportunity to access SME data under open banking. While SMEs have created a large data footprint through the adoption of services like online accounting services, banks are sitting on rich data sets. Open banking will allow us to access this data and build a better understanding of SME risk profiles,” Reynolds said.
“Cash flow is the main risk for SMEs and we see our role in making it easier for these businesses to use their data to help them access working capital to support their growth.”
The partnership with Moneytech comes two months after Factfin announced a partnership with global insurer Euler Hermes.
While it is very early days, there is the possibility of an insurance product in the pipeline, however the deal with Euler Hermes already allows Factfin to integrate trade credit insurance into its risk services.
Acknowledging the current scrutiny in the sector over fintech lending, Evans said insurance offers his business further security.
“There has been a lot of press about fintech lenders charging SMEs interest rates north of 40 per cent. In part the higher rates are a factor of the higher cost of capital given the risk of their loan book,” Evans said.
“Our partnership with insurers is a key part of our ability to manage portfolio risk, creating access to cheaper wholesale funding.”
Moneytech and Factfin are planning to offer their services direct to the market and will also look to provide white-label services to other financial service providers.
For Reynolds, the timing is right to be a business in disruptive technology.
“One of the reason’s I am excited about our partnership with Moneytech is their technology and ability to create really compelling digital services for SMEs. Our risk services will make this accessible to a large number of SME,” Reynolds said.
Factfin chief exceutive Paul Reynolds will be speaking at RFi Group’s Global Business Banking Summit this week.