5 ASX shares better than banks

These 5 ASX shares have embedded themselves into niche business markets where the banks have been too slow to respond to customer needs.

| More on:
pieces of paper representing asx shares pegged to a line stating good, better, best

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Today, there are a raft of ASX shares that are carving out a niche in business lending where Australian banks have failed to provide adequate services. This is despite the protected status of the big four banks under the government's 'four pillars' policy. For example, with the exception of Commonwealth Bank of Australia (ASX: CBA), the rest of the major banks are mainly mortgage businesses. These include mid-sized banks such as  Bendigo and Adelaide Bank Ltd (ASX: BEN) and Bank of Queensland Limited (ASX: BOQ). 

And I believe this is only the beginning. Here are a range of ASX shares that have been so successful, the banks may have already lost the argument. 

Alternative finance

According to the University of Cambridge in the United Kingdom, alternative financing was worth $1.127 billion in Australia during 2018. This is the second largest market after China in the Asia Pacific region. However, I believe that if alternative financing was more available, it would be more widely used. One of my own frustrations when I owned a consultancy firm, was securing finance. Alternative financing can take a number of forms including invoice financing, equipment finance, and trade finance, for example.

Xero Limited (ASX: XRO) is a pioneering online accounting software platform. This market leading ASX share recently announced its acquisition of a business called Waddle, a software-as-a-service (SaaS) platform that provides invoice finance to small to medium enterprises. Specifically, it allows companies to borrow up to 80% of outstanding invoices. Then, on payment of the invoice, they receive the last 20% minus the loan fees and interest. This product looks pretty slick and is integrated with Xero.

Zip Co Ltd (ASX: Z1P) also purchased a small business finance company called Spotcap in 2019. This is yet another point of difference from its main competitor Afterpay Ltd (ASX: APT). It allows the ASX share to provide invoice finance and small business loans. The company's share price rocketed on Wednesday last week after Zip announced a deal with the Australian arm of eBay Inc (NASDAQ: EBAY). Consequently, Zip Co will provide cash flow and trade financing for small to medium businesses on eBay via its Zip Business arm. 

Down the shallower end of the pond is CML Group Ltd (ASX: CGR), a pure play alternative financing company. It provides invoice finance, equipment finance and trade finance. CML Group recently purchased the platform now called earlypay.com. This is also integrated with Xero and other platforms. Furthermore, it provides the company with an engagement tool for repeat customers and automating work processes. 

ASX shares for business loans

Tyro Payments Ltd (ASX: TYR) is predominantly a payments processing company. However this ASX share also provides small business loans under the government guarantee. This is part of coronavirus assistance whereby the government guarantees up to 50% of the loan. Tyro is the largest authorised deposit taking institute to process payments after the big four banks. The company's network of customers is a powerful asset. It means Tyro could easily offer additional services such as buy now, pay later (BNPL) at the point of sale for B2C businesses, or invoice financing for B2B companies. 

Prospa Group Ltd (ASX: PGL) is a company you don't hear much about. It has, however, been diligently working away in the background as a lender to small businesses. In its recent results, Prospa showed a continued growth in sales which is very promising for a small company. It managed to increase its top line revenue by 4.2%, and has $55 million in unrestricted cash on hand.

Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Tyro Payments, Xero, and ZIPCOLTD FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends eBay and recommends the following options: long January 2021 $18 calls on eBay and short January 2021 $37 calls on eBay. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Market up or down
Share Gainers

Here are the top 10 ASX 200 shares today

ASX investors had a rough end to the week...

Read more »

Man in an office celebrates at he crosses a finish line before his colleagues.
Share Gainers

4 ASX 200 shares racing ahead of the benchmark this week

ASX investors sent these four stocks soaring 12% to 18% this week. But why?

Read more »

A young man sits at his desk working on his laptop with a big smile on his face.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Dateline, DroneShield, Ora Banda, and Pilbara Minerals shares are dropping today

These shares are ending the week in the red. But why?

Read more »

Man pointing an upward line on a bar graph symbolising a rising share price.
Share Gainers

Why BHP, Coronado Global, EBR Systems, and Whitehaven Coal shares are pushing higher today

These shares are ending the week on a positive note. Let's find out why.

Read more »

man thinking about whether to invest in bitcoin
Broker Notes

Why Macquarie expects this ASX 200 dividend stock to keep outperforming

Macquarie has tipped this ASX 200 dividend stock to outperform. Let’s find out why.

Read more »

a young woman looks happily at her phone in one hand with a selection of shopping bags in her other hand.
BNPL shares

Up 87% since April, why the Zip share price can keep flying higher into 2026

A leading fund manager expects more outsized gains from Zip shares ahead.

Read more »

Man in mining hat with fists raised and eyes closed looking happy and excited about the Newcrest share price
Share Market News

Why BHP and these ASX dividend stocks are buys

The mining giant and these shares have been named as buys by brokers.

Read more »