Fintechs look to develop Code of Conduct

Fintech lending to small and medium-sized enterprises: Improving transparency and disclosure analyses the different approaches to disclosure across the fintech industry, makes recommendations on best practice and identifies commitments to action.

Items for action in the report include:

• The development of an industry Code of Conduct by June 2018 to cover fintech balance sheet lenders offering unsecured business loans. This is proposed to be a customer-centric document that will prescribe what a customer can expect in terms of transparency and disclosure from a lender.
• Expanding this Code of Conduct to other fintech lending and finance products over time.
• Fintech lenders to agree, by June 2018, to the contents of an easy-to-understand contract summary page. This summary page would include a common set of measures when making loan offers to customers.
• the ASBFEO and theBankDoctor.org to work together to produce a guide to assist small business owners better understand the dynamics of borrowing from a fintech lender. This will also be published by June 2018.

The report also includes a Glossary of Common Lending Terms as a first step towards driving a consistent industry-wide approach to the communication of these terms. The glossary aims to “ultimately make different contracts easier to understand and compare”.

The report reads: “The initiatives described above are strong steps towards industry self-regulation. Together, they could ultimately work in support of and alongside an industry Code of Conduct or Industry Charter with sections that tailor conduct to differences in business models.

“A code will not only serve to provide clear compliance guidelines for industry participants, it will [also] provide guidelines for areas that are not currently addressed by regulations or subject to overlapping and conflicting Commonwealth and state regulations.”

It adds that the code would be developed in line with ASIC’s outline for the establishment of Codes of Conduct.

The report concludes: “In doing so, the Code of Conduct will provide greater customer assurance and, most importantly, grow trust in this emerging industry so as to ensure that it will remain viable and sustainable in the long term.”

Speaking after the release of the report, Australian Small Business and Family Enterprise Ombudsman Kate Carnell said: “I commend the fintech industry for embracing the need to improve transparency and disclosure and its leadership in the financial services industry in addressing the needs of small business borrowers.

“This report informs both the fintech industry and small business borrowers of the steps being implemented to allow an easy comparison of products and to ensure loan agreement contracts comply with the unfair contract terms legislation.”

FinTech Australia CEO Danielle Szetho added: “Through the use of technology platforms which analyse rich, real-time business financial data and deliver easy-to-use and fast application processes, fintech business lenders are making a real difference to small businesses.

“However, like many financial services products, lending contracts are complex and have the potential to be complicated and confusing.

“It’s for this reason our lenders have decided to work together — in a historic move for Australia’s fintech industry — to help define best-practice transparency and disclosure.”

Independent SME finance expert Neil Slonim from theBankDoctor.org added that small business owners, who were time-poor and often financially unsophisticated, found it difficult to make fully informed decisions when borrowing from fintech lenders.

“We need a level playing field for both borrowers and lenders so business owners are able to make fully informed decisions and lenders can compete on an equal footing,” Mr Slonim said.

“Put simply, borrowers should be able to answer three simple questions: Is this the right product for my needs? Do I know exactly what it is going to cost? Do I know that I can’t get a better deal elsewhere?

“This report highlights where and how fintech lenders can implement consistent transparency practices that will create better outcomes for SMEs and help build further credibility and trust in the fintech lending sector.”

A series of recent reports have highlighted the increasing role of fintech lenders delivering an alternative source of funds to businesses, including research from the Organisation for Economic Co-operation and Development.

[Related: Small businesses increasingly accessing alternative finance: OECD]