A report outlining steps being taken by fintech lenders to increase transparency and disclosure has been released by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Kate Carnell, in partnership with FinTech Australia and theBankDoctor.org.
The report, Fintech lending to small and medium sized enterprises: Improving transparency and disclosure, looks at 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 to cover fintech balance sheet lenders offering unsecured business loans by June 2018. This is proposed Code 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 to the contents of an easy-to-understand contract summary page by June 2018. This summary page would include a common set of measures when making loan offers to customers.
- Collaboration between the ASBFEO and theBankDoctor.org to produce a guide to assist small business owners better understand the ‘ins and outs’ 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 toward driving a consistent industry-wide approach to the communication of these terms, which should ultimately make different contracts easier to understand and compare.
A genuine solution for SME borrowers
According to Carnell, the fintech industry represents “a genuine alternative finance solution” for small businesses in circumstances where traditional banks are limited in their capacity to serve the sector.
“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,” she said.
“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.”
Lenders working to tackle complexity
Danielle Szetho, CEO of fintech industry body FinTech Australia, said the report explains how fintech business lenders are able to help Australian small to medium businesses access the funds they need to grow.
“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,” she said.
“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.
“This report represents an important step in this initiative, by analysing the different approaches to disclosure across the industry and suggesting a way forward to drive results which are in the best interests of the customer.”
A level playing field for borrowers and lenders
Independent SME finance expert, Neil Slonim from theBankDoctor.org said 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,” he 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.”
The importance of trust in a new industry
As a co-lead for the Business Lenders Group within Fintech Australia, SME lender Prospa will help develop the industry code of conduct described in the report. Beau Bertoli, joint CEO of Prospa said the code would provide a framework to help standardise disclosure, and increase awareness of fintech lenders as an alternative to traditional banks.
“In the same way fintech has disrupted the finance industry with better borrowing experiences, we’re looking to do the same when it comes to standardising disclosure,” he said.
“As a relatively new industry, fintechs have always been acutely aware of how important it is to build trust through transparency and disclosure. Prospa, and others, have been ahead of the curve when it comes to self-regulation.”