The sky is the limit

by Melanie Mingas23 Apr 2019

A decade after its Australian debut, Capify founder and CEO David Goldin says the fintech is poised to double the size of its business over the coming 12 months

Alternative finance has undergone rapid development in the last 24 months, with new codes of practice, new levels of transparency and new players driving momentum.

As the first alternative SME lender to enter the Australian market, Capify has been waiting for this moment for more than a decade.

“We were the first lender here, so in a way there was no competition, but we actually had one really big competitor – awareness,” says founder and CEO David Goldin.

“Back then it was a long education process just to explain to SMEs that there is an alternative to the established lenders at the $20,000 to $50,000 mark where there is no real estate involved and it’s not a credit card.”

Following its US debut in 2002, Capify launched in Australia six years later and has since shed its American business to concentrate on other markets. While awareness among SMEs was a priority in the early days, the focus has now shifted to targeting brokers, who currently drive 20% of all loans.

“I think there is a huge shift coming. Many of our competitors were focused on market share over profitability” David Goldin, founder and CEO, Capify

Between now and March 2020, Goldin aims to “double the company in all aspects”, including broker originations, which he wants to grow to 40–50%. New capacity will be met with the same head count – 125 staff across Australia and the UK – meaning more automation and digital solutions to keep the cost of lending down.

Despite recent improvements, profitability is an issue that plagues the fintech sector. According to the EY Fintech Australia Census 2018, one in five Australian fintechs are now profitable, up from one in seven the previous year.

“I think there is a huge shift coming. Many of our competitors were focused on market share over profitability, and at some point any company will have their day of reckoning where they have to show their investors and the public that they have made a profit,” says Goldin.

“Anyone can lend money. The hard part is getting is back.”

New money

Supporting its growth targets, in January Capify secured a $135m credit facility from Goldman Sachs Private Capital. It’s a development that Goldin attributes not only to the strength of the brand and business model but to the increased legitimacy online lenders have generated through such self-regulation as the Code of Lending Practice.

“We have pretty much outgrown every one of our previous credit facility providers. Now, with this facility, the sky is the limit,” he says.

The next step is to onboard more brokers by offering education, new products and new tech-based marketing solutions.

On the product front, facilities combining the benefits of traditional and alternative lending will be announced soon, as well as the ability for brokers to offer multiple products as part of Capify’s vision to become a one-stop shop for SMEs. Revenues will be reinvested in third party activities, but quality over quantity will remain key.

“There are plenty of capital providers who like to say they have thousands of brokers across the country. From our perspective, it doesn’t matter how big an organisation you are; you won’t have 500 BDMs to manage all those brokers.

“We like to be a lot more selective so we can offer a white-glove service.”

That service will be delivered to brokers who Goldin says are “committed and want to work with us”. He adds that brokers will also benefit from access to a suite of new marketing tools.

“Technology moves very quickly and there may be certain pieces of marketing software that certain brokerages can’t afford on their own, that we can either co-invest with them or show them how effectively to get out there,” he says.

Acquisitions also feature in Capify’s plans. Goldin predicts a US-style correction is on the horizon, driven by lenders favouring underwriting over speed, and profit over market share, meaning that the “slightest uptick in default rates” will leave them highly exposed.

“They will either lose their credit facilities or they will look for ways to monetise their company because it won’t be a sustainable business model,” he says.

Suggesting the timeline could be as short as six months, Goldin says Capify is ready to “offer a lifeline” to those likely to fall.

“In the past it had always been organic growth. Because we are profitable and we now have the backing of Goldman Sachs, we are actively looking for strategic acquisitions and distressed assets,” Goldin says.

The official outlook for Australia’s fintech sector is distinctly brighter. Across digital payments, personal and business finance, FinTech Australia says the industry could drive $10bn in revenue away from existing financial institutions and create a further $3bn in revenue over the coming years. Whatever happens, Goldin and the Capify team are poised to lead the pack.