Show me the Moula

Moula CEO Aris Allegos, tells the story behind the fintech’s multi-million dollar securitisation

In early March, online business lender Moula secured an additional $250m in funding to lend to Australian businesses, which was raised through the latest round of a securitisation program launched in 2015.

To enhance the impact of the funds on the business sector, Moula also adjusted its terms and conditions, extending repayments from 24 to 36 months and doubling the maximum loan amount to $500,000. In a move it says is “unprecedented” in the online lending space, pricing starts at 15.95%, with no establishment or direct debit fees and no early repayment penalties.

So high is the demand for flexible finance that CEO Aris Allegos predicts the entire pot will be loaned within 12 months.

“Ultimately, the $250m is a number that has been sized very much on the basis of our forecast. The appetite is there from SMEs, and it really speaks to the environment right now,” Allegos says.

A number of major online business lenders have landed new funding lines over recent months. In part the trend is a testament to the strength of the Australia fintech sector. Given that the small business unsecured lending space was virtually non-existent five years ago, it’s impressive progress.

In part this is due to the Code of Lending Practice signed last year by Moula, OnDeck, Prospa, GetCapital, Lumi, Spotcap and Capify. Pioneered by the Australian Finance Industry Association, the code was designed to bring transparency to the sector and standardise loan terms.

Supporting this, the SMART Box – a one-page document that displays four key loan details as well as seven pricing metrics – was rolled out in February of this year.

“Our core philosophies are transparency and responsible lending, providing a solution that is easy to use and ultimately motivated by customer outcomes,” Allegos says.

However, there is another trend driving demand. Despite the emergence of this somewhat niche lending market, the banks haven’t diversified to offer the same funds under the same terms and conditions as the fintechs.

“It has become really challenging for the big four to underwrite small business loans, particularly those sub-$250,000, without effectively requesting security. Our ability to access data and use that data to make informed decisions is the differentiator. The established banks use legacy systems and processes that are obviously quite dated,” says Allegos.

Data – specifically data that is overlayed from bank transactions and accounting APIs in order to measure serviceability – is one of the brand propositions Allegos attributes Moula’s success to. The other is a fresh take on underwriting.

According to Allegos, the development of Moula’s underwriting models is the key reason the lender is now operating in a market segment that is much more closely aligned with the territory banks play in – that is north of $250,000.

It’s a strategy Allegos gleaned from his previous experience working in credit analysis and accounting, not to mention the lessons he learned from his entrepreneurial parents while growing up. According to Allegos, it’s the foundation of Moula’s success to date.

“We now have significant capability so far as understanding how to underwrite, how to price and ultimately how to execute” - Aris Allegos, CEO, Moula

“In any underwriting model in any lending business, it’s about learning and experience. Because the small business unsecured sector didn’t exist until recently, there were no established models that anyone could have utilised to assess the target loss rate, or where the most appropriate pricing benchmarks were,” he says.

“With the benefit of experience and having seen more volume than most in the category, we now have significant capability so far as understanding how to underwrite, how to price and ultimately how to execute.”

In short, Allegos says the approach allows Moula to assess borrowers in more depth than the majors can.

Growth trajectory

As with any fintech, the finance aspect is only one side of the equation. What needs to be equally robust is the technology, at both the front and back end.

Moula says it has ploughed “significant” investment into its tech platforms, building the entire business to service “Australian businesses and Australian brokers”.

Third party originations have been core to the business since the first loan was written in 2014, and have taken on a life of their own since 2016, when compound growth rates for the channel hit 100% per annum for the first time.

As Moula’s SME borrowers work to escape the restrictions of mainstream finance, Allegos predicts the broker channel will gain even further significance. In response, Moula is boosting its BDM head count across the country hand in hand with its suite of broker-focused educational tools.

These include case studies to enhance understanding of where a loan might be relevant, pricing calculators, and the “partner portal”. However, Allegos says the real point of difference is the elimination of manual processes.

“It’s obviously common these days but we ensure that we have a seamless process right the way from referral all the way through to the underwrite and the execution,” he says.

“A broker who hasn’t engaged a fintech previously and is interested to understand the Moula process and the nature of the Moula product would be very pleasantly surprised when they write one of our loans.”

The proposition is well timed. Scottish Pacific’s SME Growth Index for September 2018 showed that, while SMEs were experiencing the strongest growth outlook in almost three years, cash flow remained a top concern for 79% of business owners.

According to the report, these SMEs were operating in an environment in which they could have generated 17% more revenue if cash flow had been better. According to calculations quoted in the report, this equates to an annual $234.6bn hit to the national economy.

“The royal commission ultimately demonstrated that the larger banks were motivated by profit and greed. Here at Moula and within the fintech community more broadly, we are motivated by customer outcomes. If a broker is going to call up with a problem, our focus is on the solution, and therefore it’s a refreshing experience,” Allegos says.

His observations are reflected in the SME Growth Index, which found that 96% of SME owners would consider an alternative lender when seeking finance.

Their reasons include the rapid approval process, unsecured options and, unsurprisingly, the revelations that came out during the royal commission. In future, based on the rapid development of products in the fintech space, they are also likely to cite price and transparency.

“The royal commission really highlighted a lot of concerns people have within financial services, particularly as they apply to the majors,” Allegos says.

“Obviously brokers must be very much aware of the pricing construct and continue to focus on customer outcomes. That is paramount in terms of meeting or fulfilling the opportunity that is in the market today. Those customer outcomes should be about providing a responsible solution, and that again comes back to transparency.”

The outlook for the Australian fintech sector remains strong. The EY Fintech Census for 2018 counted almost 700 fintechs in operation – although not all are lenders – and 43% of these have been operating for three years or more.

Further, APRA’s recent legislative amendments have paved the way for a new wave of lenders and neobanks, building on the legitimacy that the Code of Lending Practice underpins. With its loans now larger and longer, Moula is well placed to compete.