A group of six fintech lenders have joined together to sign a code, outlining best practice principles that will standardise transparency and disclosure in relation to unsecured small business loans.
The Code of Lending Practice will ensure small business owners can clearly identify if a small business online loan from a lender compliant with the new code, is right for their needs, exactly how much it is going to cost, and if it is the best solution available to them.
Key elements agreed in the code included the introduction of a pricing comparison tool allow customers to compare the cost of unsecured loans from the signatories, an easy-to-understand loan summary, and a glossary of terms in simple language.
With lenders already having to answer to the Australian Securities and Investments Commission (ASIC), the Australian Competition and Consumer Competition (ACCC), the Australian Prudential Regulation Authority (APRA), the courts, and the new Australian Financial Complaints Authority (AFCA), the code was designed as a proactive move to pull the obligations into one document.
It is hoped this will make it easier for current market participants and help new entrants understand their obligations.
Signatories to the code were Capify, GetCapital, Moula, OnDeck, Prospa and Spotcap, all of whom helped create it.
It was developed alongside the Australian Finance Industry Association (AFIA), the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), SME advocate theBankDoctor.org and industry association FinTech Australia.
Prospa joint CEO Beau Bertoli said, “Prospa has worked closely with its industry peers to establish a practical code that outlines best practice principles of online lending to small businesses.
"The code is customer-centric, outlines what customers can expect from their loans, and their lenders, and prescribes the use of consistent and comparative measures such as APRs and total loan costs across the industry.
“The code will also be supported with an online tool facilitating apples-with-apples comparisons across products and lenders.
“Prospa is proud to be a signatory to the code and we look forward to working with our peers to implement the initiatives identified."
Ombudsman Kate Carnell said, “This is certainly a great starting point. I look forward to hearing from members of the roundtable held late last year and discussing how the broader fintech industry can move to adopt the Code.”
AFIA CEO Helen Gordon said, “Our Online Small Business Lender Group members have embraced the sentiment of improving transparency and disclosure and took proactive action to come together quickly and collegiately to develop a code.
“Delivering the code within four months was an ambitious commitment and I am proud to say using this group’s fintech agility, flexibility and technology we have delivered, with members committed to
code compliance by 31 December 2018. This is at a time of rapid change as regulators and legislators struggle to keep pace with technology and innovation.”
Brad Kitschke CEO FinTech Australia applauded the leadership of the fintech balance sheet lenders who worked to develop the code.
He said, “The balance sheet lenders deserve high praise for working collaboratively with ASBFEO, and theBankDoctor.org to ensure accountability and transparency are touchstones of this industry.
“The recent Productivity Commission report highlighted the serious problems encountered in our economy because small businesses cannot access credit, often without risking assets like the family home.
“Online lending to SMEs is increasingly playing a key role in filling this gap. We have countless stories of small businesses growing, hiring more staff, giving opportunities to young job seekers because the online fintech industry has allowed small business to access credit.
“This is a story about how the incumbent market failed and where fintech delivered.”
SME advocate, Neil Slonim, from thebankdoctor.org labelled the launch of the code a significant step forward, but said, “Further work needs to be done in areas like implementation of the pricing comparison tool.
“An independent and suitably qualified Code Compliance Committee will be appointed to determine whether a lender is compliant. The CCC will also be tasked with the responsibility of ensuring ongoing compliance with and enforcement of the code.”
The code, charter and the disclosure tool will be fully functional by no later than 31 December 2018.
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