“There are cowboys in the space and we wanted to give businesses confidence there are a range of fintech providers they can rely on and are doing right thing, and have appropriate protection mechanisms in place.”
Pricing summary tool
Each of the fintechs is now a member of the Australian Financial Complaints Authority and will be overseen by a code compliance committee. The committee is chaired by former FlexiGroup chief executive Symon Brewis-Weston and includes Bruce Auty, founder of The Risk Board, and Andrea Beatty, a partner at law firm Piper Alderman.
The fintechs have developed a pricing summary tool, SMARTBox, which will be provided to borrowers as part of the formal offer process. In a one-page document, it sets out pricing according to different ways interest rates can be calculated.
This comes after Prospa was criticised during its float marketing for disclosing interest payments using only a “factor rate”. Under the code, it must now also disclose an “annual percentage rate”, the “total interest percentage”, total cost of credit and average monthly payment.
The code’s adoption by the seven fintechs, representing more than 80 per cent of the online fintech market, will pressure other players to sign up to ensure customers are protected. These include Sail, ThinCats, TruePillars, Max Funding and Kikka. Other non-bank small-business lenders such as Scottish Pacific may also be encouraged to join and improve disclosures.
“Ultimately, it is everybody’s desire and expectation that membership will be broad and cover not just the other fintech balance-sheet lenders but the fintech debtor financiers, invoice and stock lenders, and then more broadly, the non-online, non-fintech SME lenders as well,” said SME advocate Neil Slonim.
“What we have learned from the royal commission makes it more important for this kind of mechanism to be expeditiously put in place.
“Because the banks are clamping up, SMEs are looking elsewhere more rapidly than they were a year ago, and that’s going to increase. The whole non-bank SME sector needs to embrace this form of transparency even more quickly than contemplated, in order to be able to fill the gap.”
FinTech Australia chairman Alan Tsen said other lenders could come on board.
“Having that transparency across the market is exciting for the customer, given some of the second-order effects will be more competition around pricing,” he said.
“These are the biggest names in the small business lending space, and having them collaborate with industry bodies to do something about the transparency in the market is a great starting point.”
The chief executive of the Australian Finance Industry Association, Helen Gordon, said the code created “a higher bar than any law requires – otherwise there is really no value in a code”.
“A key outcome for success is making these disclosures in a way that helps small-business owners understand the product, which in turn will give them comfort in the product as a real alternative to other products out there,” she said.
“We are confident they will see this is a way to grow the market in relation to alternative forms of finance and we have designed this to be something that others in the marketplace can get on board with.”
Members of the group considered code-complaint will use an accreditation symbol, or “trustmark”. If there is a breach, the code committee can order this be removed, or kick the fintech in question out of AFIA.
After Prospa cameunder fire last year for its high borrowing rates, which are now being reduced, Ms Carnell acknowledged that fintech lending costs were higher than banks, “but there are a range of other things they provide, such as speed”.
“The most important thing is a small business understands the products they are getting into, and the cost of those products, and have a transparent complaints mechanism if something goes wrong,” she said.
“The transparency and complaints mechanism in this code means small business now have the information they need to make a call on whether these lenders are a good way to go.”