In this episode of Elite Broker, The Adviser talks to Paul Walshe of Fair Go Finance about how his business has evolved over time, why he’s developing technology to keep up with online players and his thoughts on open data.
Find out how Paul:
James: Hello and welcome to Elite Broker. I'm your host, James Mitchell, editor of The Adviser, and I'm joined once again by Annie Kane. How are you doing, Annie?
Annie: I'm fine, thank you, James. How are you doing?
James: Very good.
Paul: That's okay.
James: You launched the business in 2008, is that correct?
Paul: That's correct, yes.
James: What was the feeling around that time, because obviously that was prime GFC time? What was it like launching a finance business in that sort of environment?
Paul: I'd just come out of having another finance business, so I was quite comfortable with the business itself and the concept and the need for it. Obviously, in the environment there was a lot of other lenders pulling their products from the market and restricting criteria, so from my perspective it was a good time to enter the market.
Annie: You're a trained engineer, is that right, originally?
Paul: The background, yes, is as an engineer.
Annie: How did you first start off going from engineering into finance in the first place?
Paul: Initially, I bought a business. No. Prior to that I went from being an engineer into a management consultant and then into a corporate finance role. Then I bought a business that was in this industry and then I left my corporate finance role and ran that business, and then sold it, and then restarted this business. It was initially an investment into a business and it didn't have the right management approach to it. Essentially you're lending money and there was a lot risk around that. The risk policies weren't being managed properly and lending practices weren't prudent, so I left my corporate finance role, turned that around, sold that and then saw the opportunity to do it in more of an online capacity and started Fair Go Finance in 2008.
James: Tell us a little bit about Fair Go Finance, what the offering is and a little bit about the sort of clients that you see as well. You guys are obviously based out in Western Australia.
Paul: Our clients are all over Australia. We're pretty much distributed similar to the population. Our clients are really your everyday Australian. Could be truck driver, a teacher or a policeman, tradie. A whole range of people. We've got white collar, blue collar. Average income is about $70,000. From that perspective we've got a really diverse customer base that typically will start with us through, and certainly the origins of the business are in that credit impaired segment, but since then we've evolved our product mix to be a sub-prime, near prime, prime type categories with more focus on that near prime and prime.
James: In the mortgage space or in the personal lending space or both?
Paul: No, so Fair Go Finance is purely a personal loan provider. We work with a lot of brokers to help them attract and retain customers and we do that and we stay independent of them by not doing mortgages, just do personal loans. We developed an expertise in that market. We're developing technology in that market and one of our key customer bases is that mortgage broker, finance broker who's looking for a solution to either acquire a new customer or retain an existing customer.
Annie: Right, okay. You're talking there about actually developing technology. Can you give us some more details of what you're actually doing there?
Paul: You're seeing a proliferation of new lenders coming to the market on the back of technology being accessible, taking market share off banks, taking market share off other large non-banks. That evolution requires all lenders who are wanting to grow and wanting to acquire customers to continue to invest in technology. The kind of things we're doing are really around making products more easily available to customers, making it a very quick experience for them. I mean, if you look at what's coming into Australia, I was reading an article yesterday about Amazon. You could order a Christmas present with Amazon at nine o'clock on Christmas Eve and you're guaranteed to have it before Christmas morning. That's where the customer expectation is going to be soon in Australia. You've got to be focused on delivering that kind of service to customers soon. It's all around the customer experience.
James: It's interesting that you talk about that sort of technology element to personal lending because I'm just actually in the process now of just writing up a yarn about Direct Money and how they're using a new platform, which is I guess like a virtual sales assistant platform that they're trialling. Are these some of the groups that you have dealings with? People like Direct Money and the fintech lenders of the world? Are you in conversation with them or in competition with them?
Paul: No, we see Direct... From our perspective, the unsecured lending market in Australia is $100-140 billion depending on whether you include or exclude some certain asset classes, but it's a big market. The balance sheet sizes of Direct Money, Rate Setter, Society One, we're all still almost rounding errors to the big four sort of thing, so we're starting to get there and starting to get some traction, but hence, we work with Direct Money. We work with a lot of the new fintech lenders. One, because we don't provide every product to the customer. We have relationships with those. Customers do get better and more responsible lending from those lenders. We have a broader product range through working with companies like Direct Money and Rate Setter that then give our customers a better outcome. We don't see them as competitors. Certainly as partners and how we grow the market share of those non-bank fintech lenders.
Annie: Great, and you were talking there briefly about Amazon coming over to Australia and the expectation of someone being able to actually buy something online and have it delivered either that day or the next day. In terms of actually sort of…personal loans, is that what you're seeing people largely use their funding for? Are they coming to you like near Christmas, for example, and being like, "We need to buy Christmas presents," or is there a sort of common theme for people using the personal loan funding for one particular item?
Paul: There's certainly some seasonal aspects to demand and when people want to buy things and you know, whether it be David Jones or ourselves, you see that at Christmas time. Throughout the year there's a range of purposes that people borrow money for in an unsecured way. If you look, there's companies out there specialising in specific segments. Your cosmetic medical surgery. Could be a lender that has a whole business around that, versus lenders that are a broad segment of users. Debt consolidation's a common one. Household improvements, holidays, medical bills, which are very much your traditional loan purposes.
James: The personal loan space, as you've sort of alluded to, is very much dominated by the major banks still, just like most areas of finance in this country. Even though there's the emergence of online and fintech players coming in, it seems that the banks still hold the majority share, but there's been this movement to open up data to other players, other competitors. Data which the banks have up until now held onto. Obviously, the Productivity Commission came out with a report on this and it's something which I know that all four major banks' CEOs were being questioned about in a parliamentary inquiry recently. It seems like there's a bit of momentum being gained around that. Do you have any take about the use of data and how it, I guess, can be harnessed by groups such as yourself and some of the smaller lenders?
Paul: Yeah, absolutely. From our perspective, a customer is disadvantaged... Well, there's two groups of customers. You've got customers who will be advantaged and customers who will be disadvantaged by data being more available. Certainly, to make a lending decision, the more data you've got, the better. Certainly, where you can see payment history on that data in addition to negative data on the customer's credit file manual and what you see on their bank statements, which are only really a short term recent history. The more data you can access the better.
Having said that, that's from our perspective. I think it should be adopted by all lenders. I think you'd probably get a common theme around that. Where you've got the resistance to contributing that data, I suppose, is where you've got the historical market share and where you've invested billions of dollars building up that customer base. You're not necessarily going to want to share that asset freely. I can see the resistance to it, but from a consumer point of view, if I got divorced three years ago, it was a one off event, I'm now okay. I might have missed a few bills at the time, but I'm going to be penalised for the next two years despite my recent history being perfect. You've got a lot of people... I didn't pick divorce rates for one reason, but they're fairly high the divorce rate, so a lot of people are affected by that. That's what I'm getting at.
The freer that data is, and you see it in the US through FICO scores and that sharing. It certainly leads to a better outcome for consumers and that's what, certainly, we think should be the driver, but if you're the CEO of Commonwealth Bank and you've got a major market share, are you going to give that up easily and freely? I can understand his reasons for not wanting to participate as quickly as he could.
James: On the credit score thing, I mean, like you said, in the US everyone knows their FICO score. I think it's like quite a well-known thing. You just know what your credit rating is and what your options are. In Australia, that's not the case and there is momentum gathering, like I said, to bring that more into the fore. There's companies coming out now which offer free credit scores and things like that for people and are offering options about how they can improve their credit score. I was just wondering why you think it might be that, in a country like Australia where household debt is extremely high, higher than other countries and we seem to have a bit of a love affair, I suppose, with credit, why there's a lack of understanding around people's credit scores?
Paul: Yeah, I'm not sure as to why people don't know their rating score, or D&B score, or whatever it is. I think, partly, because it had been... The FICO score is something that is generated by FICO and then pushed out. They're a hub between lenders and so you've got your centrepiece where all lenders look into. Australia is structured differently. To me, that's probably the key driver behind it. There's not that central body that all lenders refer to. You could refer to D&B. You could refer to Veda. You could refer to other bureaus. Experian, I think, has got a competitor one as well. In giving it the data is incomplete, i.e. you're not seeing their recent payment history in America and South Africa and other countries, you've had a long time history of people contributing that comprehensive data, so the data is a complete data set. It's from all lenders and the score is then based on a lot more data, whereas in Australia it's not been compulsory and it's not complete, so the value in it isn't there. I think, because the value isn't there, lenders don't rely on it as much and as a result the consumer isn't aware of it as much either.
To me, I think probably the structure of the data sharing between bureaus in Australia is probably the key driver to it.
Annie: Just touching on that briefly, Paul, I know that in your role as Chairman of National Credit Providers Association you're obviously doing a lot of work in improving the image of credit providers and personal loan writing. Is there any work that you do there as well in terms of actually trying to get people more aware of their credit score?
Paul: As an association, no, and just for the record, so I've stepped down as Chairman. I'm still on the board of that though, but just so you're aware I stepped down as Chairman two weeks ago so I could focus on my business. As an association not a lot of it. The typical member of the NCPA is a small loan provider, so in that market the credit history of people is less important in terms of how a lot of our lenders see the credit score.
From our perspective as a Fair Go perspective, we are very driven to empowering the customer, informing them as to their score. We give every customer, applicant who's approved and declined, access to their credit file. We talk to them about their credit score and let them know what eligibility criteria other lenders have so that they have a path that they can work towards to improve their access to finance, to lower the cost of credit for them and improve the amounts they can get. From a corporate perspective, from our company, it's critical to us as a small loan provider that we help our customers understand that and improve their outcome, which involves us talking to them about their credit scores. I can't talk from other lenders in the association.
Annie: Of course.
James: That's almost all the time we've got, Paul, but I just want to ask you one final question before I let you go. That's for mortgage brokers out there who, for example, might just be writing resi home loans on a daily basis. They might have a customer who does have a question around personal lending, or the broker themselves is looking to diversify. What tips would you give them if they haven't written personal loans before or they're new in this space?
Paul: The biggest compliment we've had from some of the brokers that use us is that partnering with Fair Go Finance allows them to focus on what they do well and we deliver great service to their customer so they can focus on writing more mortgages, but also acquiring and retaining their customers, by working with specialists in that personal loan market. We help them acquire customers by getting the customer ready for a mortgage. If their customers have got a mortgage, we'll help them with personal loans to protect the trail that they've got in place. In partner with the specialist, we can help them navigate a market that is becoming more populated and more confusing.
James: Good words of advice. Well, thanks very much again for taking the time and best of luck with the business.
Annie: Thank you very much, Paul.
Paul: Really appreciate the opportunity. Thank you very much.
James: All right. That was Paul Walshe from Fair Go Finance in WA. Do join us next time on Elite Broker and of course, for all the latest news, insight and analysis, do check out theadviser.com.au. I've been your host, James Mitchell. Catch you next time.
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