The chief executive of an ASX-listed SME lender says non-banks and fintechs are increasingly partnering with Australia’s biggest banks.
The latest Scottish Pacific SME Growth Index, released yesterday, found that a record number of small businesses plan to use non-bank financing (22 per cent, up from 11 per cent in September 2014). Meanwhile, the number of SMEs intending to deal with a bank has fallen from 38 per cent to 29 per cent over the same period.
While SMEs are clearly moving towards alternative lenders, Scottish Pacific CEO Peter Langham says he can’t see the non-banks ever dominating the market.
“I think what we are clearly seeing is a difficulty within the bank structure to assist SMEs,” Mr Langham told SME Adviser.
“They need an awful lot of attention. You’ve got a higher business failure rate with the SMEs as opposed to the large corporates. So it is difficult for the banks to satisfy them under their current structure.”
Increased awareness of non-bank lenders such as Scottish Pacific and fintechs like Moula and Prospa has caught the attention of the major banks. So much so that they are now forming referral agreements with these alternative players, according to Mr Langham.
“We have referral agreements with a couple of the major banks,” he said. “Some of the banks have partnered with the younger fintechs to see what’s out there. There is a recognition from the banks that they might be missing out on something.
“Also, the SME space is very small within overall banking. If smaller players ever got to the stage that they were a threat to the banks they would just go in and buy them or copy them. But there is certainly a greater awareness out there for alternatives.”
Mr Langham explained that existing referral relationships between non-banks and banks are often driven by the banks’ desire to retain SME customers who they can no longer assist.
“There is a situation to either assist the bank because the bank can’t help with the client’s working capital needs but they would like to keep the client because they have other facilities with them and want to keep the transactional banking or they just want to keep the customer in some way,” he said.
“We can help when the bank can’t. It helps keep the client within that banking network.”
Mr Langham said referral agreements and partnerships between non-banks and the big four are “certainly on the rise”.
“We have dealt with banks in the past and we have a couple of relationships with them now,” he said. “A number of banks have also partnered with some of the small fintechs.”