Australia’s alternative finance market grew 88 percent in 2017 to US$1.15 billion ($1.56 billion) to keep its place as the second largest market in Asia-Pacific behind China, a report has found.
The KPMG report, based on a survey of over 300 alternative finance companies, found balance sheet, or business, lending grew 164 percent to US$574 million in Australia in 2017, while peer-to-peer and marketplace consumer lending grew to US$256.67 million.
Peer-to-peer and marketplace lending also grew significantly, increasing by a factor of 16 times to reach US$20.73 million.
Ian Pollari, national sector leader, banking and global co-leader, KPMG Fintech Practice at KPMG Australia, said that while the growth points to an “encouraging” level of adoption, there is still significant room to grow, with the total size of the alternative finance market only capturing one percent of total credit outstanding.
“Lack of both consumer and SME awareness remains a major obstacle,” he said.
Institutional support, however, is strong, with the report finding Australia had the highest institutional participation rate across the Asia Pacific region at 65 percent.
According to KPMG, Australian platforms have been able to adapt operational models and underwriting systems from both overseas operators and local banks, in turn attracting higher levels of institutional participation and funding.
However, Australia had the least consensus around platform perceptions.
Over 35 percent of Australian alternative finance platforms surveyed believe existing regulations are adequate and appropriate, while nine percent believe they are inadequate and too relaxed. On the other side of the coin, 27 percent stated regulations are excessive and too strict.
The findings are interesting given the focus the Australian Securities and Investments Commission (ASIC) and the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) have had on the loan terms of alternative lenders this year.
With new legislation around loan terms having come into effect in November 2016, a report from ASIC and the ASBFEO released in March 2017 found the four major banks had not taken the necessary steps to comply.
ASIC this past March then published Report 565, outlining changes that the big four banks had made to comply over the previous 12 months, and announced it would be examining the loan terms of alternative lenders.
With a survey released by ASBFEO, FinTech Australia, and thebankdoctor.org at the same time finding just 50 percent of the fintechs surveyed considered their contracts compliant with the legislation, small business lending fintech Prospa found itself being queried by ASIC ahead of its planned ASX listing in June.
The company originally delayed its listing for 48 hours in order to respond before postponing it indefinitely and amending its loan terms in September.
Meanwhile, buy now, pay later services have also been under the microscope of late, with the Senate voting to establish an inquiry into ‘debt vultures’, or the likes of debt management firms, payday lenders, and buy now, pay later services such as Afterpay.
The growth of the market is sure to continue as new services launch and the government throws its weight behind the sector.
The securitised loans will include both secured and unsecured lending to small businesses, and will be backed by Commonwealth bonds. The loans will not be provided by the government, but rather supplied through fintech companies and small bank lenders.
It is anticipated the scheme would run for five to 10 years with a planned review in two years to decide if more funds should be injected.