Fintech goes mainstream and transparent
By Chris Sheedy, CA Today
29 April 2019
A $135 million investment by Goldman Sachs in non-bank lender Capify has confirmed that fintech businesses are no longer just ‘startups’. They now represent a real alternative to traditional banks, and those traditional banks are now buying themselves a slice of the fintech pie.
“The world moves so much faster than it ever has,” said David Goldin, founder and CEO of Capify, which has operated in the Australian and British market for over a decade.
“If you had a business several years ago, you likely had a five-year business cycle. Now, if you’re not reinventing yourself every 12 months, you could be in trouble. You could be disrupted by your competition or by entirely new types of companies.”
I think the concept of walking into a bank to get a business loan is now quite old-fashioned. What business owner has the time?
That fast pace of change has also affected the expectations of customers, who are regularly reminded by technology-based businesses that there is an easier way of doing things.
“I think the concept of walking into a bank to get a business loan is now quite old-fashioned,” he told ICAS. “What business owner has the time? Along the same lines, when is the last time you picked up your telephone to call a taxi? Instead you open an app and order an Uber. This is no different.
“What has changed is that the banks are starting to get into it. There are now digital wallets and online loan applications, etc. Why would anybody want to sit in front of a bank employee for an hour or two in the middle of a working day, to get $30,000 for their business? It just doesn’t make sense.”
What’s in it for Capify?
What does the recent deal with Goldman Sachs mean for Capify? There are several things, explained David.
First up, Capify has growth plans. As capital markets are going through a period of rapid change, it is smart to lock in financing as early as possible on the growth journey.
“We wanted to find a credit facility provider that could be a partner; one we know will be with us for the long term. It was also important that they didn’t have any loan size limitations,” he said. “Because we have a sister company in the UK, we were also looking for a global partner that could lend in the local currency.
“Finally, Goldman Sachs is one of the premier financial service providers in the world. It adds further validity to our business and to our business model.”
Why don’t banks enter the market?
If the writing is on the wall that the future of lending is digital, why don’t banks enter the fray and compete with businesses such as Capify, rather than invest in them?
Smaller loans are simply not profitable for the banks, David said. There is too much overhead for too little return. Big banks do “big banking” very well, but their infrastructure overhead is a lot higher than that of a fintech. As a result, their structures will always lean toward the conservative end of the lending scale.
Capify has also taken a lead from certain best practices of the banking industry. In order to “fly at a certain level”, for instance, Capify voluntarily signed up to a lending code of practice, which helps to ensure a high level of integrity and legitimacy.
Transparency is important for comparative shopping between fintech players and for business legitimacy.
Capify joins GetCapital, Moula, OnDeck, Prospa and Spotcap in complying with best practice principles when dealing with SME customers, with features such as simple loan summaries and price comparisons, promoting greater transparency.
While this higher level of governance also brings higher costs, the plan is for these costs to be covered as the business grows, rather than passed on to customers, David noted.
“We’ve always been transparent,” he said. “Now we’re just formalising the process so it’s more similar to a bank. Transparency is important for comparative shopping between fintech players and for business legitimacy. It shows we are stepping up and maturing as an industry.”
What do accountants need to know?
If he found himself in front of a room full of ICAS members, what advice would David offer in terms of Capify and the broader fintech market?
“It would simply be to embrace technology,” he said. “It’s no different to ordering an Uber versus ringing a cab or a taxi.
“We provide a quick, seamless process that means the bank is not the only option when a small business requires capital. Our technology allows clients to preserve one of their most valuable assets – their time.”
About the author
Chris Sheedy is one of Australia’s busiest and most successful freelance writers. He has been published regularly in the Sydney Morning Herald, Virgin Australia Voyeur, The Australian Magazine, GQ, In The Black, Cadillac, Management Today, Men’s Fitness and countless other big-brand publications. He is frequently commissioned to carry out copywriting and corporate writing projects for organisations, including banks, universities, television networks, restaurant chains and major charities, through his business The Hard Word.