The global CEO of SME lender Capify has revealed that the lender is focusing on growth in 2020, including potential mergers and acquisitions to broaden its reach into the small business finance space.
Speaking to The Adviser, CEO and founder of Capify David Goldin stated that the lender has doubled the volume of settlements through the broker channel in a year, as it continues its growth strategy spurred by a $135-million credit facility from Goldman Sachs.
According to the CEO, settlement growth through the channel has been driven by the lender’s new credit line, its merchant cash advance product, its expanded business development manager team (BDM), a surge of brokers offering SME finance and increasing awareness of the non-bank lending market’s offerings.
The US-based CEO told The Adviser: “There is a global theme that banks will only lend to a certain spectrum of small businesses. If you look at the scale, banks have the lowest cost of capital than anyone, which means they can lend at the lowest cost of capital. But that also means that they have to have the lowest default rate, because... there is not enough margin in their pricing. So, there's only a certain risk profile they can lend to. That’s where we come in.”
He continued: “We have been in the market for 10 years and [in] the first several years, when we were marketing, it was an education process [for borrowers and brokers]. Now, the message has gotten out… people are now realising there's a lot more places to get money than just the banks, in 2020.”
Mr Goldin added that an additional appeal was the speed and convenience of fintech lenders, such as Capify, noting that he thought the branch-led banking process was a “very, very antiquated way of doing business”.
According to the CEO, the lender is also popular with brokers for its lender partner service, which (for a share of commission), will place any deals that fall outside of Capify’s credit policy to a lender partner that can service that loan.
“There's no such thing as a lender that can accommodate every single transaction,” he told The Adviser.
“So if the product doesn't fit (the product type or the credit criteria, etc.), we have a panel of additional lenders now so that we can help the brokers monetise a lot more of their potential transactions.”
Mergers and acquistions
Looking forward, Mr Goldin said he expects settlements to more than double this year as the lender embeds its presence in the third-party space, extends its referral partnerships to accountants, and looks to potential mergers and acquisitions (M&As).
The Capify CEO noted that while the Australian SME fintech industry is younger than those in the US and UK, he suggested that the Australian market had “matured faster” than the others, largely due to the fact that many lenders in Australia have overseas funding partners or are owned by a foreign company.
However, he added that he believed there would be fewer lenders operating in this space moving forward, as players begin to consolidate.
Mr Goldin told The Adviser: “A lot of the players in this industry are not making money, they're not profitable… And I think the margins have fallen too fast in the Australian market. When you factor in the cost to acquire a customer — and we've seen it go up hundreds of percentages in the last several years — there's no way many of our competitors are making money, it's impossible…
“So, I think you will see consolidation,” he said.
Indeed, the Capify CEO outlined that the company is looking at M&As at the moment.
“Whether it's a direct competitor, or it's a synergistic company that has SME customers that could potentially be the equity owners, or if the ownership team is looking to monetise or partner with someone.... We think there's some synergy there for us to potentially build an ecosystem of services for SMEs, which is more than just financing.
While the CEO acknowleged that there is no “set plan of the specific products” it would look at, he added that the lender is in “exploratory mode" with several companies and was “looking in the market for those companies that have expressed desire to potentially do an M&A transaction”.
“It's really a case-by-case look at what the opportunities are, what their products and [whether] it's complementary enough to what Capify does,” he said.
Mr Goldin concluded: “The Australian market is a great opportunity for us and there is a great upside. The question is: How do you get to the customers fast enough? How do you make sure that it remains profitable growth for the industry?
“So, I'm most positive that you will see some sort of industry consolidation in the next 12 to 24 months,” he said.
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Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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