Quest, a new non-bank lender backed by Resimac which launched last week, says its new technology can make an instant decision on whether to approve a loan for a small business that wants to buy a new vehicle or equipment.
It’s a claim that suggests the quickest advancements in lending technology are occurring outside the major banks, as more small businesses explore funding secured with the asset bought with the loan, rather than the founder’s residential real estate.
Quest co-founders Walta Kazzi, Kurni Wijaya and Nathan Jarasius, in Sydney last week. Louise KennerleyMacquarie and Westpac Banking Corp have been the leading mainstream players in commercial asset financing for many years, but a swelling group of challenges is preparing to fight them for share in a market worth $40 billion a year. Quest will join the likes of Angle Finance, part of Cerberus Capital Management which bought Westpac’s asset finance business last year, Grow Finance, and Plenti, the former Ratesetter that has also developed technology to make fast decisions on car loans. Other non-bank lenders including ScotPac, Liberty and Pepper Money are also becoming more active in asset finance, while Judo Bank is also making a push into the sector.
“It is a fragmented market and that is where we see the opportunity,” said Quest co-founder and CEO Walta Kazzi, who was formerly a senior executive at Stratton Finance before Carsales took a majority shareholding in 2014.
Quest, which plans to distribute loans up to $250,000 via mortgage brokers, has secured a debt funding facility from Resimac Asset Finance, a division of ASX-listed non-bank lender Resimac Group. Resimac’s major shareholder, Somers Limited, has also led Quest’s $3 million seed equity raising.
Somers is an investment company managed by ICM Limited, which is run by fund manager Duncan Saville. Somers has invested in other non-bank lending fintechs, including Waddle, which was acquired by Xero last year and is working with Commonwealth Bank to develop a product that lends against unpaid invoices.
Funds controlled by Mr Saville were also very early investors in Afterpay. The ability to offer instant financing decisions to buy an asset is a function of high-quality data feeds, accessed by application programming interfaces (APIs). For example, to assess a car loan, the vehicle’s value can be determined from a database run by Glass’s – customer credit files are tapped through Equifax, and customer bank account details are scanned to check for any spending red flags, all in real-time. Quest says it will take the next year to check its machine learning-powered system with human credit assessments and tweak the credit algorithms where necessary, before moving to automated approvals later next year.
Alex Molloy, CEO of Valiant Finance, a broker of small business loans, says more than half of its loans are for asset finance, and half of these are being placed with non-bank lenders. The sub-sector is different to fintech lenders like Prospa, Moula, Spotcap, Thincats and OnDeck who typically lend without security and hence charge higher annual interest rates.
“Interest rates on assets are very reasonable because there is such strong data on the value of the underlying asset,” Mr Molloy said.
“Asset-based finance has been strong for several years, and we will continue to see new players enter this space. It is a very competitive market and established lenders have progressively improved the ease of submitting loans, so new entrants still need a competitive product and price to win volume.
“But there is still scope for new attackers, and it will be interesting to watch this whole space over the next few years as lenders compete on getting access to customers through innovative, new channel tools for customers, brokers and asset vendors.”
When Quest was established last year, the initial plan was for it to provide a comparison website like Valiant but Mr Kazzi said he soon realised “there is an opportunity here to become the lender ourselves”.
It will develop tools for brokers to reduce the time taken to prepare manual loan applications.
The other co-founders of Quest are Kurni Wijaya, an early employee at new energy non-bank lender Brighte; and Nathan Jarasius, formerly head of funding at Macquarie Leasing.