More Australians are losing confidence in dealing with big banks, with trust in the Big Four sinking to a two-year low.
A survey by Finder’s Consumer Sentiment Tracker found that customer trust in the big banks has fallen from a peak of 62% in April 2021, to 52% in October 2021.
Baby boomers are the least trusting, with just 41% placing trust in the Big Four.
The downward spiral has actually been a long time in the making, which all started with the 2017 Royal Commission into the misconduct of banks, and its subsequent aftermath.
The commission found gross violations of money laundering, false advertising, and even charging fees to the dead. Westpac’s record-breaking $1.3bn fine in 2020 soon became the poster child of the Big Four’s flagrant mistreatment of customers.
Then came the Open Banking initiative in July 2020, which opened the door to a new breed of small fintech players that promised what the major banks weren’t able to offer – personalised service and faster loan approvals.
Their core product was underpinned by new, mostly AI-driven technology that made it possible to assess credit applications and approve loans in a matter of minutes, all done online.
Borrowers soon moved to these new lenders in droves, taking away a large chunk of the market share from the majors.
Cash Converters leads the subprime market
One of the ASX-listed companies that saw a big opportunity in the nascent but rapidly growing fintech lending space was Cash Converters (ASX:CCV).
Mostly known around the country as a place to buy and sell secondhand goods, the company has pivoted into lending, becoming Australia’s ‘largest sub-prime, non-bank lender’ along the way.
In FY21, the company’s personal finance segment made up 53% of overall earnings, almost tripling its traditional business of secondhand goods retailing.
Stockhead caught up with CEO Sam Budiselik, who told us that as the major banks pull back in terms of their risk profile through COVID, the non-bank lending segment has really opened up, taking market share by using new technology.
“There’s been a proliferation of online fintech lenders that have come in to the market. So using technology to disrupt the banks is something that we’ve been focused on doing,” Budiselik told Stockhead.
“Cash Converters are in the subprime part of the credit curve,” he explained.
“Our borrowers have got some sort of credit file mark, like a delinquency, a bankruptcy, bank statements showing dishonor fees, so that’s traditionally the profile of a borrower a bank wouldn’t deal with because they’re too risky.”
The company has invested in technology that enables ‘happy path’ loan approvals to be completed in minutes, and an overall average of eight hours with funds disbursed immediately via its New Payments Platform (NPP).
“To enable speedy approvals, you have to have good technology and a rich data warehouse, which we have,” said Budiselik.
“The secret really is how you risk the applicant by utilising the 400-odd attributes that we know about them, taking various data from bank statements and credit files to predict what kind of borrower they will be.”
By using this technology, the company is also able to personalise the loans, giving lower rates to borrowers who are assessed as a lower risk of default.
Cash Converters currently makes loans of up to $5000 that sit under the the National Credit Act, which means it needs to abide by the same obligations that a bank would when awarding a mortgage.
The company has drawn on its large database from an unbroken 37-year operational history, taking its active borrowers now to almost 100,000.
Budiselik reckons the potential addressable market in this part of the credit curve could be as high as 3-4 million people, potentially presenting the company with a long runway ahead.
Its 150-odd stores in Australia, which it said could comfortably double without reaching saturation, provide a unique platform for the company to service borrowers.
“But I think the business will grow quite dramatically online. At the moment, about half of our approved loans come in through our store network, and the other half comes from online,” said Budiselik.
The major banks have taken note of the competition, and are building new platforms of their own.
Last week for example, Westpac announced it was investing in a technology to overhaul its loan assessment process that it said would cut down approval times dramatically. Currently, approvals from one of the Big Four could take anywhere between 15-18 days.
But according to Budiselik, trust would be hard to win back.
“The big banks have negative or single digit NPS (net promoter score), compared to Cash Converters which is in the 60s,” he said.
“For us, it’s really about understanding and taking care of each borrower, something the big banks often fail to do.”
Cash Converters share price today:
Other ASX listed fintech lenders
The ASX has been a breeding ground for many of the top fintech lenders in the country.
In this hotly contested segment, Plenti Group (ASX:PLT) has become the first listed fintech to achieve a $1bn loan portfolio.
Plenti has been able to achieve this milestone in just seven years, having been founded in 2014 and listed in September 2020.
The company’s massive growth has been underpinned largely by its automotive loan segment, which has increased in double digits every year.
In Australia, auto lending is a $35-$40bn annual market, which gives Plenti a long runway for further growth.
After another record first half, Plenti has projected to deliver a maiden bottom line cash NPAT profitability in the second half, estimated to come in at over $1m.
MoneyMe (ASX:MME) has also passed the $1 billion mark in loan originations in the last quarter, a significant milestone from its initial start-up in 2013.
MME’s CEO Clayton Howes said the $1bn origination milestone reflects the company’s consistent focus to invest in and develop the digital capabilities of its Horizon technology platform.
The company’s new automotive lending platform Autopay is also gaining significant traction, with dealerships and brokers signing up, as well as a faster than expected take-up from car purchasers.
It’s been a phenomenal year for MoneyMe, with its stock price rising by a full third in just the past 12 months.
Meanwhile, Wisr’s (ASX:WZR) loan originations currently stand around $750m and the company has stated that it will reach the $1bn threshold in FY22.
Wisr also plans to increase its Financial Wellness Platform customer base to 1 million users in FY22.
Share prices today:
At Stockhead we tell it like it is. While Plenti Group and MoneyMe are Stockhead advertisers, they did not sponsor this article.