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Disruption in small business lending

The Disruption Index tracks change in the small business lending sector, and more generally, across financial services.


Previous 40.16
Change 4.41%


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Main Components

Financial Services are undergoing disruptive change, thanks to customers moving to digital channels, the emergence of new business models, and changing competitive landscapes.

Product Awareness

1 Knowledge of Non-bank Financial Providers

Further to the Business Data observation, we are seeing actual evidence of SME awareness of alternate financial offerings through data (eg. evidence of payments received from and made to alternative lenders; credit enquiries at the credit bureaus). At 11% of all data sets reviewed this quarter (above 10% for the first time), this appears to be forming a continuing, upwards trend.

Non-bank SME lenders are becoming more mainstream, with 14.1% of the surveyed population now familiar with the options available from this segment of lenders. Compare this 4.2% at the same time last year, we see a significant 230%+ increase. However, in number terms, we are talking about roughly 300,000 businesses now aware (up from less than 100,000), so there is a sizeable upside for those willing to shake the market up and be relevant for the ‘engine room’ of the Australian economy.

Awareness of non-bank funding options continues to grow among SMEs, thanks partly to greater coverage in the media of “Fintech”. There is more to be done to link Fintech more directly with unsecured lending.

Surveyed small businesses are becoming increasingly aware of funding alternatives away from the traditional banks, with a rise of 14% quarter on quarter.

While knowledge of non-bank lenders is starting to increase, we are still seeing low usage of such credit options by small businesses (at less than 10% of all businesses in the sample); with increasing awareness, and increasing focus on the fintech sector by media commentators, we expect that non-bank lending to small businesses will become mainstream in time.

Service Expectation

2 Service Expectation

SMEs are becoming more demanding of their financial service providers, as we continue to see a collapse in their expectation of how long it should take for a loan application through to a decision. The latest data shows this number is below 5 days for the first time… at 4.8 days.

The gulf between SME loan assessment expectations and banks’ loan assessment execution is growing, with continued downward pressure on expected turnaround times. The latest survey indicates 5.4 days expected assessment turnaround… requiring significant bank process replumbing to meet those types of targets.

SME expectation of the time it should take to access unsecured finance has continued to collapse, with the most recent observation at 6.5 days.  This is reducing quickly, and highlights the small businesses sector’s increasing awareness of alternatives in the market, coupled with the expectation that lending decisions should be fast in an era of data availability

The average expectation duration was down from 7.5 days in Q3 2015 to 7 days this quarter.

As they continue to migrate to digital channels SMEs expect higher levels and more convenient delivery of services. So, for example, we are seeing their expectation rising in terms of an acceptable turnaround time for the approval and funding of an unsecured facility – many lenders are unable to meet these expectations. Many are underinvesting in small business platforms and solutions.

The average expectation duration was down from 9.2 days in Q2 2015 to 7.5 days this quarter.

SMEs continue to expect better service standards when applying for credit. Whilst they accept it may take a few days for an application to be processes, the survey data shows that many think a week should be enough to complete an unsecured loan and get money into their account, and they expect to receive regular progress reports and updates on the way though.

Business data in the cloud

3 Business Data

SME’s continue to show a willingness to provide electronic data access in return for access to credit, with this quarter’s % of SME’s increasing to 16.2% from last quarter. It feels we are almost now at a tipping point, where businesses are moving into the ‘comfortable’ range in permissioning data, especially if there is economic and ease-of-process upside from doing so.

Businesses data provisioning is now commonplace and the early fears around security of login credentials and ‘what will they do with my data’ appear to be receding.

Ease of process (loan applications completed in a few clicks) and speed of assessment appear to be the catalysts here. In the last quarter, 80%+ of all businesses starting a loan application moved on to provision some form of electronic data.

Coupled with the increasing adoption of smart devices in SMEs, we are also seeing increasing use of cloud accounting data, not only in running a SME but also to obtain a loan (through data provisioning). In the latest results, over half of all businesses provisioned Moula into cloud accounting data.

We are witnessing a significant trend in terms of borrower’s preparedness to provide electronic access to private information, mainly in the form of bank and accounting data feeds.  This trend has been evolving quarter on quarter, with the most recent quarter showing an 11% increase in loan applicants that permission data, and a doubling since the Disruption Index began a year ago.

The key interpretation here, we believe, is that consumers and small businesses have accepted that data permissioning and data transfer are:

  1. necessary to access new financial service offerings, and
  2. data transfer is generally accepted as being secure.

More business owners recognise that their data is tradable in return for credit, and as information is more likely to be held in digital form (perhaps in the cloud), it is becoming easier to activate the trade. However, others remain concerned about privacy and confidentiality. Nevertheless, the proportion who will consider a trade is higher this time from 14.2% to 14.7%.

Loan Processing Speed

4 Loan Processing Speed

Time taken to execute loans was impacted by April’s 3 x 4 day weeks (school and public holidays), which slowed down the pace at which SMEs completed their loan applications and pushed out average total loan time elapsed to 36 hours… still well inside the Service Expectation measure observed (ie. fintech is doing its bit to meet and drive service expectation).

We continue to execute loans in, on average, 29 hours.  Loans to more complex business structures, such as trusts, impact on the average loan processing speed due to additional compliance-related processes.  Loans to more simple structures such as sole traders and companies are typically executed within 12 hours of the initial application.

The availability of data, and the non-reliance of traditional business plans, has meant that Moula is capable of processing SME loans within a 24 hour period – evidenced by an average approval time of 20 hrs in the most recent quarter.

Smart Devices

6 Use of Smart Devices

The proportion of SMEs with smart devices has risen – now well over half of all SMEs at 54%

We have now reached the point where SMEs using smart phones, tablets and laptops within their businesses are in the majority for the first time, with nearly 52% of businesses indicating these important tools in a small business.  This trend is only likely to accelerate.

The average SME expectation for the approval of an unsecured loan was down from 7.5 days in Q3 2015 to 7 days this quarter.

As they continue to migrate to digital channels SMEs expect higher levels and more convenient delivery of services. So, for example, we are seeing their expectation rising in terms of an acceptable turnaround time for the approval and funding of an unsecured facility – many lenders are unable to meet these expectations. Many are under-investing in small business platforms and solutions.


SME Lending

The Disruption Index traded up in 7 of the 10 disruption indicators, showing gains in consumer service expectation, and smart device penetration continues its march to ubiquity. Against this, a varied mix of influences (school and public holidays, a wider interest in non-bank lending product ‘window shopping’) resulted in 3 indicators retreating modestly, impacting the overall direction of the Index for the most recent quarter.

The Disruption Index returned to its upward trend, registering increases in 9 of the 10 disruption indicators in the latest quarter. This broad-based uptick is significant and highlighting that small businesses are harnessing technology in their day-to-day business, and expecting more from their financiers.  

We continue to see a rise in penetration and use of mobile devices, greater awareness of non-bank funding options (but more to do to get awareness up), and stronger business confidence from borrowing SME’s in most states, WA apart where it has gone backwards. Strongest confidence indicators in NSW, ACT and VIC.

The Disruption Index took a breather this quarter, showing the first small decline in the index in the 6 quarters since the index began, but should be read in the context of a significant increase in the previous quarter.

The reasons are mixed, however, we still see the trend moving strongly upward over the long term as all the catalysts of disruption are building : use of electronic devices, use of electronic data and a continuing trend away from bank brand loyalty to those providers who deliver the best products and service.

In light of the vacuum of information in respect of the size of SME borrowing, DFA have used their survey to provide an estimate of this market segment.

DFA defines SME borrowing as any debt related to small business that is less than $500,000. The total stock debt is considered to be in the order of $107 billion of loans (including unsecured overdrafts, structured loans, personal loans for business purposes) and $36 billion of credit cards debt, or $143 billion in total.

Of surveyed respondents, approximately 13% of businesses are just aware of fintech offerings, whilst 2% considered applying for funding but did not follow though. In addition, a further 5% have visited a fintech lender web site and 10% may apply within the next 12 months.  So, the opportunity for fintech lending is significant…

SME service expectations continue to rise with the continued deployment of online applications and tools, in concert with the ongoing rise in mobile, always on smart devices. There has been a significant rise in awareness of non-traditional funding alternatives this quarter, following recent publicity and government innovation statements on fintech. As a result, a slightly higher proportion of SMEs are willing to trade their data.

Finally, business confidence amongst borrowing SMEs has risen, as a result of the announced budget tax changes, and more favourable business conditions, especially in the east coast states. This was offset by a fall in confidence in WA and SA.

“The Disruption Index is an important tool which will highlight the changing face of financial services in Australia. There is no doubt that new business models are emerging in the context of the digital transformation of the sector, and bank customers are way ahead of where many incumbents are playing. The SME sector in particular is underserviced, and it offers significant opportunity for differentiation and innovation.”

In the last three months we have seen a significant shift in attitudes amongst SMEs as they become more familiar with alternative credit options and migrate to digital channels. The attraction of online application, swift assessment and credit availability for suitable businesses highlights the disruption which is underway. There is demand for new services, and supply from new and emerging players to the SME sector.

Martin North, founder of DFA

Impact & Implications

For the community

Financial Services are undergoing disruptive change, thanks to customers moving to digital channels, the emergence of new business models, and changing competitive landscapes.

Business expectations are shifting

Small businesses no longer accept poor customer experience, drawn out and inefficient lending processes, and want to do something about it.

Disruption will force traditional players to change

Small businesses no longer accept poor customer experience, drawn out and inefficient lending processes, and want to do something about it.

New entrants are challenging the traditional providers of bank finance

New entrants have entered the market providing business customers with more options to satisfy their funding needs; fast decisioning; using unconventional data to provide cost effective finance.

Data is power

Internet portals are providing easy-to-understand business loan applications processes, removing the need for reams of paper work and face-to-face meetings with bankers; Small businesses are more readily providing access to their business data to access these new lines of financing.

What is the Disruption Index?

Data chart illustration

Financial Services are undergoing disruptive change, thanks to customers moving to digital channels, the emergence of new business models, and changing competitive landscapes.

The Financial Services Disruption Index, which has been jointly developed by Moula, the lender to the small business sector; and research and consulting firm Digital Finance Analytics (DFA).

Combing data from both organisations, we are able to track the waves of disruption, initially in the small business lending sector, and more widely across financial services later.

The index tracks a number of dimensions. From the DFA Small business surveys (26,000 each year), we measure SME service expectations for unsecured lending, their awareness of non-traditional funding options, their use of smart devices, their willingness to share electronic data in return for credit, and overall business confidence of those who are borrowing relative to those who are not.

Moula data includes SME conversion data, the type of data SME’s share, the average loan amount approved, application credit enquiries, and speed of application processing.

Brought to you by DFA & Moula

Moula logo

About Moula

Moula is Australia’s leading data driven alternative lending platform for small and medium sized businesses.

It was founded by an experienced team from the world of finance and technology. They recognised the difficulty being faced by businesses accessing funding and set about building Moula to solve those problems.

The Moula platform provides real time funding based on a business’ accounting data and company profile.

Moula lends to businesses in every state of Australia, including retailers, wholesalers, professional services, beauty services, hospitality and much more.

Moula loans are used for a number of business purposes such as purchasing inventory, managing working capital, purchasing equipment, paying for marketing and refinancing.

Digital Finance Analytics logo

About Digital Finance Analytics

Digital Finance Analytics (DFA) is a boutique research, analysis and consulting firm providing advisory services to clients in Australia and beyond. Services are delivered virtually using the web, blogs, social media, online conferencing and other digital means.

DFA combines primary consumer research, industry modelling, economic analysis and segmentation analytics to offer insight into the dynamics of the mortgage, lending, savings, payments and superannuation sectors. Using experience derived from more than 25 years of analysis, DFA is able to pinpoint opportunities created by changing customer needs in the evolving market.

A specific focus is the changing channel preferences being exhibited by “Digital Natives” and how products, services and customer experience will need to be tailored to this new environment. DFA provides custom research and advice to a number of clients, maintains several industry models, authors various industry reports and collaborates on mortgage, SME and housing sector publications.

Martin North, its founding Principal, data scientist and banking sector analyst is often quoted in the media. He also writes the DFA Blog which provides commentary on our research programme and broader industry issues.

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