Fair go establishing itself in Aussie fintech

Historians have long argued that egalitarianism is a part of Australian life.

In his seminal book, The Age of Capital, the historian Eric Hobsbawm described Australia as a “paradise of labour”.

His view was echoed closer to home by the Australian historian Donald Horne, who described the country as “the most egalitarian of countries”.

This spirit—known colloquially as the “fair go”—has laid nest, it would appear, in the Australian fintech community.

“Our vision is to democratize access to finance for borrowers and generate fair returns for investors,” says Boyd Pederson (pictured above), Bigstone CEO.

“To do this we need to build trust. To earn this trust, we have to do the right thing by investors and borrowers.

“It is easy to lend money at an expensive price and generate pooled returns. To do the right thing, you have to charge a fair price and make sure investors get their money back.”

Bigstone, a Sydney-based fintech startup, was founded by four former banking executives in 2014.

Its website provides a two-way online marketplace, connecting SMEs needing short-term working capital with lenders seeking fixed income returns.

When applying to big banks for loans, SMEs are often met with a steep climb. Approvals are slow, conditional on property collateral and interest rates are high—usually over 18 per cent. 

Viewing these conditions as unfair and bad business, Bigstone’s founders went for a fairness-first approach with an eye also to plugging a gap in the market.

“Bigstone was created with the idea that there were two very large problems that we could solve.”

“The first and most important is that the vast majority of wealth creators, small business owners, are unable to access capital without giving up real estate.”

“The second is to ensure that investors get fair returns, so that we can all have our money last as long as we do. Given the global financial conditions with low interest rates (60% of bonds trade at less than 1% return), yield bearing assets are bid up to high prices relative to their yield, exposing investors to new capital risks.

“By matching the borrower and lender, we can solve both problems — the two big stones.”

For borrowers, interest rates on Bigstone are typically 8 - 24 per cent—depending on risk and the quality of security. For lenders, returns are usually 7 - 23 per cent.

Bigstone profits by taking a 100 basis points spread from investors and charging borrowers a market access fee.

In addition to its cultured focus, Bigstone, like other P2P lenders, has also benefited from a rising tide.

A study by University of Sydney and KPMG released earlier this year found that the Australian alternative finance market grew by 320 per cent in 2015 to $460 million, making it the third largest market in the Asia Pacific, after Japan and China.

“Australia is a very entrepreneurial place but its also a strongly regulated place and I think what’s happening now is that Australia is picking up the best from overseas.”

“Alternative lending has taken off here in the last two years but still has a long way to run to see the volumes and growth in market share that the UK saw in 2015-2016.”

“Australia is playing catch up but with strong growth rates here, the pace to market share will be much faster than most places of the world.”