The brief history of non-bank lending

According to the Scottish Pacific SME Growth Index which polls around 1200 owners, CEOs or CFOs of SME’s across Australia, SME’s choosing to borrow money from the non-bank sector has doubled (to 21.7%) over the past three years.

Having worked on digital strategy with several companies in the non-bank category since early 2015, Showtime Digital has seen the influx of the Peer-to-Peer (P2P) lenders and the industry’s progression to mainstream acceptability.

There’s been some interesting power plays over the last few years and once again in early 2018, we’ll see another step forward in marketing the industry to consumers. The difference is this marketing shift has the potential to set the front runners apart from the also-rans.

It’s a reality some expressed at the first AltFi Australasia in February 2016. If the main players succeed in their endeavours within 2 years the industry will be pared back by 25%. But let’s find out how we got here.

2015 - Ye olde days of alternative funding

Going back to the early days of 2015 (early for P2P, not debtor finance) non-bank lending was a largely unknown and unloved corner of the finance sector, it was awkwardly known as 'alternative funding' and laughed at by the blue suit brigade at the banks.

During this time and unbeknownst to business owners the Big 4 banks were giving SME’s the cold shoulder and, in desperation, business owners more often stumbled across alternative funding rather than actively seeking out the category.

By June-Sept 2015 many of the new breed of P2P lenders had come into the market and every other day the Financial Review had an article with T-Shirt clad ex-bankers receiving another round of funding.

From a marketing perspective, our consumer research had concluded consumers were looking for ‘fast and flexible’ loans. Heck, we could even weight the value of each word. In hindsight, it seems trite to say but back in early 2015 we were breaking new ground and forging the pathway for a new industry; it was exciting work.

As an alternative lender, there was a real and growing need in the market. SME’s hadn’t cottoned on the Big 4 banks didn’t want their unsecured business. The lending process (read: stalling tactic) extended to two months and beyond. Business owners were in panic but they still needed cash.

In those days the highest online convertibility (as high as 90%) came from the 2am-7am time slot (as seen on the 24 hour graph below). This was the time stressed out business owners (after drinking too much the night before) awoke in the early hours, flush with anxiety and elevated cortisol levels and needing to find answers.

Remember there were only a handful of alternative lenders back then and the quality of the client, if they knew to search for you, was generally good. Today those companies using this same tactic may find business which isn’t bankable. 

2016 - The middle ages

Once people heard about the gold rush the brooding hoard stormed the castle

As the 2016 New Year rolled around those companies who had received larger funding dollars had become more aggressive online. Companies were now using Trust Pilot, most were using landing pages to gather data and some were starting to use marketing automation platforms.

Back then it was called Disruption...the word was done to death. Like the words Synergy and Entrepreneur they go into the 'Never say these words again' box.

While the media was talking up the industry consumers were seeing slightly different shades of vanilla. It's hard to differentiate when everyone's saying the same thing...or what we term as The F Words -

We're different. We offer ‘Fast Flexible Funding in 24 hours’.

Like a pair of hand-me-down shoes the F words filtered on down through the industry. To achieve online success complete the following

1. Copy the competition
2. Create a look-alike landing page
3. Include The F Words
4. Use fake testimonials

Congratulations you now look like a payday lender...a peer 2 peer lender.

For fun, we took 5 of the biggest and 5 of the smaller P2P and debtor finance companies to see what word counts they had for the more commonly used terms. We threw in the image of a bearded hipster for irony.

2017 - The rise of Prospa’s pawns

One of the more interesting strategies over the last 12 months has come from Prospa. In expanding its broker channel, they have allowed small resellers the opportunity to advertise online. It’s a brilliant tactic which has allowed Prospa a greater online presence without the cost of advertising.

For competitors, Prospa’s pawns are like annoying mosquitos.

But respect where it’s due, as a chess move it was a good piece of game strategy.

This may have given Prospa the luxury of lifting off the gas pedal to focus on their offline marketing pursuits. It’s certainly enabled them to build their brand awareness, but you’d expect this from one of the largest marketing teams in the industry.

Recently, we’ve seen Prospa change the look and feel of their landing page environment. Prospa’s new story focuses on the individual and how circumstances changed when business owners received funding.

It’s a ‘Me To’ strategy which will relate to potential buyers but aren’t they simply saying, ‘we give good service’?

2018 - Infinity and beyond

Now that Prospa has shown its hand we feel it may be a short-term play. It does break away from the standard F Words but it’s not groundbreaking and, more importantly, it’s a strategy which can be too easily adopted by many smaller players. So we ask ourselves - is Prospa playing a trick by diverting attention here to only reappear over there?

By virtue of their bank balance Prospa has awarded themselves the 'first movers' right. When they look in the rear mirror they see the copycats tailing them. If they turn down the alleyway they'll lose the tail and they can reappear later with an entirely new look. The copycats won't be able to keep up.

While Prospa's attention is being occupied the other front-runners are also making their play...2018 is going to be fun.

The importance of data

In 2018 those companies still relying on a last click mentality will continue to be challenged and fall behind the pack. This saddens me greatly because, as an agency, we were so comfortable there a few years ago, but in a multi-device world where a consumer may switch between as many as 10-14 devices, we’ve all had to move on.

To help us attribute each consumer touch point to our acquisition models Google is bringing Google Attribution (free version) and Google Attribution 360 (paid version) to the market in 2018. As a paid model it’s expensive but it has the power to bind each link in the chain to gain greater visibility of the consumer and their journey. The downside is if you don’t have enough search volumes (and I dare say only a few will qualify) you won’t be able to complete the picture.

Companies will collect vast amounts of data and analyse it to better anticipate consumers and win their trust.

By contrast, the copycats will be left behind, fighting for scraps of bad credit thrown to them in the alleyway.

What if the economy slows?

Post-Brexit, the UK preference has seen SME's shift attention from P2P funders to debtor finance to avoid paying interest.

RBA governor Philip Lowe hinted in Perth recently that global interest rates may rise. If they do so in Australia, challenging financial times could be ahead.

The graph above identifies which age groups prefer which category to search for funding. Which category wins their business can be seen in the downloaded document. Note: The 18-24 age group are over-represented by Startups. The 65+ age group is statistically inconclusive.

If the younger SME, who currently prefers P2P lending, shifts focus to debtor finance, some of the smaller P2P players may find online origination difficult. Some may even drop out of the race.

It’s a potential reality discussed by some at the first AltFi Australasia in February 2016. If it does happen there will be a P2P scramble to diversify their offerings. Those who come out on top will do so by standing for something no one else can claim and by understanding what their consumer wants and how to better meet that need.

Who is Showtime Digital

We're excited about why people do what they do online. We create users journey so simple and compelling and that's why we convert more consumers online.