Individuals and small businesses seeking a loan these days have a plethora of options to choose from. The rise of online lending means customers can raise finance at the click of a button. We take a look at 3 ASX-listed lenders that are changing the lending landscape.
The rise of online lenders
Not so long ago, taking out a personal or business loan involved attending the branch of a bank or mutual society in person. As technology has advanced, much of the loan application process has become automated. This means that customers can apply for a loan and supply the relevant data without needing to attend in person.
Customers can enter the relevant application details and upload required supporting documents online. Once received, large components of credit assessment can be conducted via artificial intelligence. This allows for a preliminary response to the application to be provided within minutes.
Online lenders have utilised these advances in technology to carve out niches in the lending marketplace. They do not attempt to be banks, and avoid competing head to head with Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd (ASX: NAB) and Commonwealth Bank of Australia (ASX: CBA). Instead, they seek market share in areas where they have a perceived competitive advantage.
Money3 Corporation Limited (ASX: MNY)
Money3 provides personal loans up to $12,000 and car loans up to $50,000. The company originates over $1 million in loans every business day; currently 1 in 500 registered vehicles in Australia have a loan with Money3. Shares are currently trading at $2.20, up 40% from $1.57 at the start of the year.
Revenue grew 24.6% to $91.7 million in FY19. Earnings before interest, tax, depreciation and amortisation (EBITDA) increased 17.3% to $47.5 million and net profits after tax increased 14.2% to $24.2 million. Earnings per share were 13.48 cents and a dividend of 10 cents per share fully franked was paid.
Money3 acquired Go Car Finance in New Zealand in 2H19, expanding the company's geographic footprint. Currently 1 in 800 registered vehicles in New Zealand have a loan with Go Car Finance. New Zealand has the fourth highest rate of vehicle ownership globally.
In 1Q20 Money3 delivered unaudited revenue of $30.5 million, up 48.8% on the prior corresponding period. EBITDA was up 41% to $14.8 million and net profit after tax (NPAT) was up 53.1% to $7.5 million.
In FY20, NPAT growth is forecast to exceed 25% from continuing operations. Money3 also plans to expand its addressable market by geography and product. Credit decisioning is to be streamlined and the application process simplified to reduce loan turnaround times. Money3 forecasts it will originate 26,000 loans in Australia and 5,000 loans in New Zealand in FY20.
Prospa Group Ltd (ASX: PGL)
Prospa offers small business loans of $5,000 to $300,000 with terms between 3 and 24 months.
Prospa IPO'd in June at an offer price of $3.78 and immediately lifted 19% to $4.50. Prospa shares reached highs of $4.96 in September, before dropping off a cliff in November. Shares in the company fell 27.4% in a day, from $3.86 to $2.80, on an update to prospectus forecasts.
CY19 revenue is anticipated to be $143.8 million, $12.6 million or 8% below the prospectus forecast. CY19 originations are actually expected to be 2.7% higher than the prospectus forecast. The variation is due to increased use of Prospa's service by higher credit grade customers. These customers pay lower rates over longer loan terms.
In 1H20 Prospa is forecasting revenue of $75 million, down from the $88 million prospectus forecast. Increased use of products by premium customers mean revenue is recognised over a longer time horizon. EBITDA is predicted to be $4 million in 1H20, down from $11.3 million in the prospectus forecast.
In the first four months of FY20, Prospa originated $181.2 million in loans, a 40% increase on the same period in 2018. Total originations for FY20 are expected to be in the range of $626 million to $640 million, an increase of 25% to 28% on FY19, with revenue of at least $150 million. Prospa is currently trading at $2.01.
Wisr Ltd (ASX: WZR)
Wisr offers personal loans of $5000 to $60,000 on 3, 5, and 7 year loan terms and advertises itself as Australia's first neo-lender. Wisr's average loan size is $25,000 with a loan term of 4 years. Shares in Wisr are currently trading at 16 cents per share, up from 4 cents at the start of the year.
Wisr originated $3.6 million in loans in FY17, $18.1 million in FY18, and $68.9 million in FY19. Revenue is predominantly derived from loan establishment fees and management fees from servicing loans sold to third parties.
Operating revenue increased 91% in FY19 to $3.04 million, up from $1.6 million in FY18. A net loss after tax of $7.7 million was reported in FY19, attributed to forward investing in the Wisr ecosystem to position the company for long-term growth.
FY19 was focused on creating the neo-lender model and building a strong brand that resonates in the market. In FY20, the company is looking to diversify funding structures to increase margins, launch a secured vehicle finance product to expand its addressable market, and open B2B2C channels to reach additional customers.
Wisr reports that there has never been a better time to be a fintech operating in the consumer lending market. Fintech online lending launched in 2014 in Australia and held 0.5% of the market share in 2017, doubling to 1% in 2018. In the US and UK, fintech online lending launched earlier, in 2006. By 2018 fintech online lending held 38% of market share in the US and 25% in the U.K. There is potentially scope for a similar take up rate in Australia.
Local influences such as the Royal Commission, positive credit reporting, and Open Banking may facilitate the flow of customers to alternative lenders such as Wisr. These influences could also improve the ease with which alternative lenders are able to access relevant customer information and process loan applications.
Foolish takeaway
Australia's loan market is fragmenting as new players enter the field. Consumers are demanding increased choice and ease of access. Fintechs and neo-lenders are heeding the call and coming to market with alternative offerings. The only question is to what extent consumers will embrace these new players.
