ASX-listed lenders are shaking up the lending market

Individuals and small businesses looking for a loan today have a plethora of options to choose from. The boom in online lending means that customers can raise funds with 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 professional loan involved going in person to a bank or mutual insurance agency. As technology has advanced, much of the loan application process has become automated. This means that clients can apply for a loan and provide the relevant data without needing to show up in person.

Customers can enter the details of the request and upload the required supporting documents online. Once received, large components of credit reporting can be performed via artificial intelligence. This allows a preliminary response to the request to be provided within minutes.

Online lenders have used these technological advancements to carve out niches in the loan market. They don’t try to be banks and avoid competing Westpac banking company (ASX: WBC), Australia and New Zealand banking group (ASX: ANZ), National Australia Bank Ltd (ASX: NAB) and Commonwealth of Australia Bank (ASX: ABC). Instead, they seek market share in areas where they have a perceived competitive advantage.

Money3 Corporation Limited (ASX: MNY)

Money3 offers personal loans up to $ 12,000 and auto loans up to $ 50,000. The company grants more than $ 1 million in loans every working day; currently 1 in 500 vehicles registered in Australia have a loan with Money3. The shares are currently trading at $ 2.20, up 40% from $ 1.57 at the start of the year.

Revenue increased 24.6% to $ 91.7 million in FY19. Earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 17.3% to $ 47.5 million and net profit after tax increased 14.2% to $ 24.2 million. Earnings per share were 13.48 cents and a fully franked 10 cents per share dividend was paid.

Money3 acquired Go Car Finance in New Zealand in 2H19, expanding the company’s geographic footprint. Currently, 1 in 800 vehicles registered in New Zealand have a loan with Go Car Finance. New Zealand has the fourth highest vehicle ownership rate in the world.

In 1Q20, Money3 generated unaudited revenue of $ 30.5 million, up 48.8% from the prior corresponding period. EBITDA increased 41% to $ 14.8 million and net income after tax (NPAT) increased 53.1% to $ 7.5 million.

In FY20, NPAT growth is expected to exceed 25% from continuing operations. Money3 also plans to expand its addressable market by geographic area and by product. The credit decision needs to be streamlined and the application process simplified to reduce loan turnaround times. Money3 expects it to launch 26,000 loans in Australia and 5,000 loans in New Zealand in FY20.

Prospa offers small business loans of $ 5,000 to $ 300,000 with terms of between 3 and 24 months.

Prospa’s IPO took place in June at an offer price of $ 3.78 and immediately rose 19% to $ 4.50. Prospa shares hit highs of $ 4.96 in September, before falling in November. The company’s shares fell 27.4% in one day, from $ 3.86 to $ 2.80, following an updated prospectus forecast.

CY19 revenue is expected to be $ 143.8 million, $ 12.6 million or 8% below prospectus forecast. CY19 creations are actually expected to be 2.7% higher than forecast in the prospectus. The variation is due to the increased use of the Prospa service by customers with a higher credit rating. These customers pay lower rates on longer loan terms.

In 1H20, Prospa forecasts sales of $ 75 million, down from the $ 88 million forecast in the prospectus. The increased use of products by premium customers means that revenues are recognized over a longer time horizon. EBITDA is expected to be $ 4 million in 1H20, compared to $ 11.3 million forecast in the prospectus.

In the first four months of FY20, Prospa issued $ 181.2 million in loans, an increase of 40% over the same period in 2018. Total originations for FY20 are expected to be between $ 626 and $ 640 million, an increase of 25-28% over FY19, with revenue of at least $ 150 million. Prospa is currently trading at $ 2.01.

Wisr offers personal loans of $ 5,000 to $ 60,000 with terms of 3, 5 and 7 years and is promoting itself as Australia’s leading neo-lender. Wisr’s average loan size is $ 25,000 with a loan term of 4 years. Wisr shares are currently trading at 16 cents per share, down from 4 cents at the start of the year.

Wisr made $ 3.6 million in loans in FY17, $ 18.1 million in FY18 and $ 68.9 million in FY19. mainly loan establishment costs and management costs related to the management of loans sold to third parties.

Operating revenues increased 91% in FY19 to $ 3.04 million from $ 1.6 million in FY18. A net after-tax loss of $ 7.7 million was reported in FY19, attributed to term investments in the Wisr ecosystem to position the company for long-term growth.

Exercise 19 focused on creating the neo-lender model and building a strong brand that resonates in the market. In fiscal 2020, the company seeks to diversify its financing structures to increase its margins, launch a secure vehicle financing product to expand its target 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 loan market. Online fintech loans were launched in 2014 in Australia and held 0.5% market share in 2017, doubling to 1% in 2018. In the US and UK, online fintech loans were launched earlier, in 2006. In 2018, online fintech loans held 38% of the market share in the United States and 25% in the United Kingdom. There is potentially a margin for a similar turnout in Australia.

Local influences such as the Royal Commission, positive credit reports and Open Banking can facilitate the flow of clients to alternative lenders such as Wisr. These influences could also improve the ease with which alternative lenders can access relevant customer information and process loan applications.

Take away food

The Australian loan market is fragmenting as new players enter the field. Consumers demand greater choice and ease of access. Fintechs and neo-lenders are answering the call and entering the market with alternative offers. The only question is to what extent consumers will adopt these new players.

Priscilla C. Carnegie