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2024 Fintech Predictions.

December 15, 2023 · Hosted by Dexter Cousins

Fintech predictions for 2024! From Fintech leaders Greg Moshal of Prospa, Sebastian Watkins of Lendi and Patrick Coghlan of CreditorWatch.

Join us for this live recording of Fintech Chatter recorded at the CreditorWatch offices in Sydney.

In part one Dexter Cousins is joined by guests from the podcast to review 2023 as we look back at the key events and share the amazing stories of fintech founders.

Hear from Constantinople, Parpera, LoanOptions, Primer and Prospend.

Part Two – Fintech Predictions

CreditorWatch CEO, Patrick Coghlan unveils the latest Business Risk Index report and gets expert commentary from Prospa CEO, Greg Moshal and Lendi Group COO, Sebastian Watkins.

Each guest shares their expert insights on consumer and business trends across trade finance, small business and the home loan market providing. Using the latest data they share accurate insights with predictions on what we can expect in 2024.

Will there be a rebound or is Fintech in for another tough year? What will happen to interest rates? And will the job market bounce back or are more redundancies in store?

Tune in as we celebrate the year that was 2023 and get set for another rollercoaster ride in 2024!

Check out the CreditorWatch BRI report

Thanks to CreditorWatch for making this live recording possible and a special thanks to the audience for making this such a great event.

What happened next.

This episode was published in December 2023, when Patrick Coghlan of CreditorWatch, Greg Moshal of Prospa and Sebastian Watkins of Lendi Group gave their predictions for 2024 at a live recording in Sydney.

For 2025, Dexter handed the predictions to Danny Levy, Managing Director for Asia and ANZ at Money20/20, whose team had just interviewed about 50 banks, fintechs and regulators across Asia Pacific. The focus had moved from Australian lending and business risk to the region’s payments boom: non-cash payments grew about 20% in 2024, only 5% of digital banks are profitable worldwide, and AI adoption is concentrated on fraud detection, personalisation and customer service.

Links from this episode.

This panel on Fintech Chatter.

More fintech reviews and predictions.

Full transcript.

Lightly edited for readability — filler words removed, wording otherwise unchanged.

Dexter Cousins
Fintech Chatter podcast, brought to you by Tier One People, the leaders in executive search for fintech ventures.

Hello and welcome to Fintech Chatter, the show where I connect with fintech leaders for a bit of a chat. But tonight I’m not connecting with one fintech leader, but I got a room full of them, as we have a review of 2023. And I’m also joined by three special guests: Patrick Coghlan, the CEO of CreditorWatch, Greg Moshal, CEO of Prospa, and Sebastian Watkins, the COO of Lendi Group.

But first of all, thanks everybody for turning up tonight. It’s a time of the year where we’re literally limping to the finish line. I’ve been saying this now for the last four years, but it seems every year is a challenge, and 2023 is perhaps in fintech being the most challenging year yet. Certainly when I look at the guests that we’ve had on the show this year, there’s been some amazing stories of resilience, amazing stories of capital raise, amazing stories of product innovation and amazing stories of people just really overcoming so many challenges, and what feel like insurmountable challenges, and still being here. So look, I just want to honour everybody in this room tonight, that we’re still standing, we’re still turning up and we’re still giving it our best.

So 2023 was also, I guess, the unofficial 10th birthday of fintech in Oz, and I thought it was really appropriate to invite some of the early innovators, Prospa, Lendi and CreditorWatch, to come along and share their insights for the year ahead. Normally what I do at this time of year is I invite Ben Ford and plus one of and we, I would say, Ben talk out our … and make wild predictions and get all hyped up about Web3 or AI. So this year it’s going to be something very different, a lot more qualitative and quantitative than we’ve offered up previously.

I was going to start where you should start, which was the first episode of 2023, but unfortunately the guest has been unable to make it. But I want to give a quick shout out anyway, because I think that the episode with Damir Cuca from Basiq really set the tone for what 2023 has been, and I ter a year of the haves and have nots, almost a tale of two fintechs. And so for those businesses that were able to raise capital, it’s been, I think, a tough year but still a good year. For those that haven’t, it’s been a real slog. And I think that really was one of the key themes that we’ve seen throughout the podcast in 2023.

Damir was, I felt at the time, a little bit unreasonably upbeat, and it turns out there was a good reason why, because about three weeks later they announced that they’d been acquired by Cuscal. And so it was then that I kind of took Damir’s upbeatness with a little bit of a pinch of salt. But the year actually got off to a really good start. We had actually a Series A capital raise at Datamesh of around about 30 million. Hnry, the Kiwi accounting software, they announced the Series B, again of around about 30 million. And so it looked like it was a really, really great, getting off to what would be a really great year.

I remember this day vividly. I was recording a podcast and it was the day that Silicon Valley Bank crashed in early March, and I was getting serious PTSD from the GFC, and I was getting some serious Lehman vibes with the Silicon Valley Bank crash. I had a weekend where I was getting frantic calls from clients, frantic calls from talent, and people really, really concerned about what happened. And that really was a catalyst for, I think, what turned out to be a pretty tough six months.

One of the themes that I wanted to talk about was really that six months and the resilience that we got to see through the industry. And nobody to me really epitomised that resilience than Dan Cannizzaro from Parpera. Dan, can you come up, because I really want to share your story. So first of all, do you want to tell us a little bit about Parpera?

Daniel Cannizzaro
Sure, and thank you very much, I didn’t expect this. Yes, so I’m Dan Cannizzaro, I’m the founder and COO of Parpera. We exist to make business easier for people. We do that by providing them access to a business bank account, a debit card, invoicing, and since we started, now tax solutions as well, and a savings account and a whole bunch of other stuff.

What Dex is referring to is, I guess, last year we launched Australia’s first banking-as-a-service enabled fintech in October ’21, and just as we were in full launch and growing last year, Volt Bank failed and we needed to recover. We had awesome support from the fintech community, so thank you, and thank you Dexter for being a huge supporter along the way. And we spent the last, well, 18 months I guess, but from mid-year last year to mid-year this year, rebuilding on Wise as our platform partner, and relaunched in July this year, and now have a couple hundred businesses back on the platform and doing really well.

Dexter Cousins
Now first of all, awesome, Dan. You’ve also done that on the sniff of an oily rag, and I don’t think I’ve ever seen a founder make cents and dollars stretch out as far and as long as you have. How on earth have you done it and kept going?

Daniel Cannizzaro
So we’ve raised $3.7 million in about that many years, and the last million of that was in June this year. We spent a million dollars building the first iteration of the platform, another million dollars building the second iteration, and we’ve got just about that much left at the moment. So we just have a really small team, we lean, we have really good solution partners, and we try to do as much as possible with as little as we have.

Dexter Cousins
Wise came to the rescue with their platform. Do you want to tell us a little bit about that partnership and how it’s going?

Daniel Cannizzaro
That partnership came about through long working relationship we had with them from the start, and when Volt collapsed and we were looking for a new partner, they actually sat down the corridor from us in we working mar place, and it was a logical partnership, which we extended to then build out to… We’ll soon have multi-currency accounts and international payments as well, and we can use them for multiple markets.

Dexter Cousins
Awesome. And what you got planned for next year?

Daniel Cannizzaro
So if all goes to plan, next year would be another big year for Parpera. You’ll see that we’ll do more beyond the banking layer. So we already do a lot there, but what we’re seeing from our members is that they find a lot of value in solving their pain points across the value chain of building a business. So can’t share too much, but there’ll be a lot more around serving businesses with more than just the banking.

Dexter Cousins
Final question from me: what’s your big prediction for 2024?

Daniel Cannizzaro
I’ve got three. So one is that I believe 2024 is the year we’ll see, on all bases, the next wave of fintech in Australia, so I think we will see a recovery. I think it will be the year of B2B still. I think business-to-consumer is still going to be challenging for the unit economics to work, I think it’s still going to be business-led, the recovery. And AI is a feature, not a solution.

Dexter Cousins
Brilliant. And look, congrats again on an amazing job, and look, I think everybody in the room and everybody in the industry has a lot of respect for how you’ve just stuck in and dug in and made it work.

Now, hot on the heels of the Wise Platform, I was also introduced to a person who I call Australia’s best kept fintech secret. And on the show, and I think this was maybe a few months back, I met Sharon Nouh of Prospend, and I was totally blown away by the business that she’s built and her story. Sharon, do you want to come up and tell people a little bit about who Prospend are and a little bit about your journey?

Sharon Nouh
So I’m Sharon from Prospend. We’re a business spend management platform, yes, probably the best kept secret in the fintech industry. Been doing it since 2016. Started off as a product called Expense Manager. So my vision was to make it easier for companies to solve that pain point of employee credit card reconciliation and employee reimbursements. And then not long after that I thought we could automate invoices, another really nasty pain point the businesses had. So we now bring in invoices and we automate that and digitise it and set up workflows, and then we pushed that into the ERP.

And then I thought, you know what, there’s no really easy purchase order system out there for companies. Again, purchase orders, if you’re in spend management, purchase order’s kind of a Holy Grail, asked to spend the money before it happens. There wasn’t anything out there, so we built a purchase order module, which allowed people to go out and issue purchase orders on their mobile.

And then I thought, you know what, what about budgets? Budgets are a, often, Excel spreadsheet that’s sitting on somebody’s desktop and nobody knows what that budget is. So we now display budgets at the user point, so anybody that wants to spend money or commit to it or approve it actually sees the budgets swiping across in front of them in real time. Then we decide to do travel reconciliation. That’s another big pain point, travel spend. It’s huge, it’s millions of dollars that companies spend on travel.

And the latest pain point that we decided to solve was payments. So issuing virtual cards, it’s a big issue for me, because I think in 2023 we shouldn’t be asking for people to be spending their own money and then asking for the money to be repaid. And if you can get them virtual cards, they’ve got that money in their fingertips. And we are next to launch payments, so allowing our customers to be able to literally pay their invoices out of the platform. So it’s been a journey, it’s been an evolving platform of really solving all the pain points that CFOs have with their spend management. So I like to say we’re the CFO’s best friend.

Dexter Cousins
I also, I think the headline that I had in the podcast was you breaking stereotypes. No CTO co-founder, and you’re not from a tech background. I think I’m right in remembering your very first customer was a little company called KFC, and you basically just pounded the pavements and went and got clients and bootstrap the business.

Sharon Nouh
Yeah, we did. We’re a bootstrap company, and we did do that. We just went out to the market and very fortunate that we got an introduction to KFC, and all power to them, they literally took a leap of faith on me, and it was just me. But honestly, the product was game-changing, so it just sold itself, to be honest with you. And then yeah, we just pounded the pavements and got more customers to come on, and then the traction followed after that. So if there’s one message I can give you, right, product–market fit is, and then execution is probably the two key points.

Dexter Cousins
Yeah. When you kind of look back over the years, what would you say is being the biggest challenge for you, and how has it set you up to get through this period that we’ve gone through?

Sharon Nouh
So I guess as a bootstrap company, it’s always challenging with cash flow. Cash flow is top of mind, absolutely, all the time, all the time. But I’m happy that we took that path. I did go out to the VC market. I went out to the VC market in 2019. Nobody wanted to lend this money. They literally could not see how a local company could compete against a global competitor, which is actually very lame, to be honest with you, of the VC market. I hope there’s VCs in the room, but I still feel a bit cranky about that, because I think the VC market have a responsibility to invest in the local market. So we had no choice but to bootstrap.

So now when I look back, I think, you know what, if I had got all that VC money, I don’t know what I would have done, I probably would have gone mad with it. So the biggest challenge was really cash flow, cash flow, keeping lean, keeping mean. And I think that’s, albeit it’s hard at the moment for anybody that’s out there that is reliant on VC money, it’s maybe a good direction, if I can be really politically incorrect about that, that we need to get back to profitability and making sure we’re growing, growing well.

Dexter Cousins
Final question from me: what’s your big prediction for 2024?

Sharon Nouh
And unlike Daniel, I don’t want three. It’s a good opportunity to have a really good reset of basic principles of how to do business. I think that that’s where we should try and think about 2024. There’s lots of opportunities, so many opportunities in the fintech industry, but let’s get back to some basics.

Dexter Cousins
Sharon, congrats on a great year and thanks for your time.

I’m a sucker for a bootstrap story. The other thing that I’m really passionate about is talent, and the next generation of talent and the next generation of founders. And our next guest, I think, epitomised everything that I love about this industry, and that’s Julian Fayad from LoanOptions. Julian, so we got to meet, I think, October this year. Simon Lee from Patona introduced us, because he knows I’m a sucker for a good bootstrap story. Look, do you want to tell people a little bit about LoanOptions, how you got the business off the ground, and also you’ve got some great news to share?

Julian Fayad
Thank you very much. Yeah, so launched the business on August 1st 2020, so a bit over three years going on now, but I’d really been working on the proof of concept since 2017. When I left school I studied web and app development, and then I landed in finance totally accidentally, and then I spent the last 12 years in asset finance. I’m 31 now. And so when I launched LoanOptions, we really trying to solve a lot of problems with the way that finance was being accessed, specifically on non-property lending, so cars, equipment, boats, business loans, leisure, personal loans.

And in order to get a quote, you would actually have to give all your information and then they’ll come back to you. And it seemed like if you were engaging a plumber or an electrician, they would give you a quote first and then you would decide if you wanted to proceed. This seemed very backwards, so we wanted to change that. And the industry is not necessarily the fastest to adopt technologies. Lenders and banks have a lot of legacy tech of their own. So really we leaned into a lot of the great fintechs that were coming out, some of them in the room, Prospa, and great technology services like CreditorWatch to connect to third-party bureaus.

And yeah, so essentially LoanOptions.ai is an AI-powered loan marketplace. We connect to 75 banks’ and lenders’ credit policies. We’ve reverse engineered them, because they don’t give you their credit policies. And so in real time, as the client’s applying for a loan, they’re putting in their information, the results that they are seeing are results they actually qualify for and are eligible for. So that’s kind of the short story.

But we just launched LoanOptions 3.0, our latest version of the technology, and the vision for the business was always to make applying for a loan as easy and transparent as checking out on an e-commerce store. So if you think about the few clicks that you have to do on a Shopify store, for example, we wanted to make applying for a loan that easy, and give people who maybe don’t necessarily have a finance degree access to the most competitive offers.

So what we did was we connected to a bunch of third-party services. We also built a whole bunch of technology that hadn’t been done before, industry-first stuff. So now when a client wants to apply for, let’s say, a personal loan, they go onto our site, they tell us how much they want to borrow, they upload their driver’s licence, they consent, they connect their bank account, and 80 to 90% of the information is pre-filled, because we use the driver’s licence and we built OCR technology to read and pre-fill that data. Then we use the credit file information, we extract that and pre-fill their data, liabilities, previous address history, previous employment history, all that kind of stuff, and of course the income and expenses from their bank statements. So the way that we designed the technology was to be white-label friendly, so we could have made this on any partner site, and we’ve created hundreds and hundreds of partnerships with our technology embedded. So yeah.

Dexter Cousins
When it comes to, I guess, funding, what has been the approach to help you in this next phase of the business?

Julian Fayad
Yeah, look, it’s a bootstrap business, and we were revenue positive, because I’ve been doing it for a while. I already had a network, I already had been building the proof of concept. So pretty much first month we made profit. Now, we haven’t made profit every month, but the business overall is growing really fast. Last financial year we grew 300% year on year. But yeah, the origin story of the business is a good one. It hasn’t been all sunshines and rainbows, for sure. Really high levels of anxiety. Bootstrapping and fintech, it’s certainly not easy, and a lot of people that you’re responsible for. So it was about making really responsible decisions, not trying to grow too fast, not trying to bite off more than we could chew, and focusing on technology. Really, the way that we prioritised what we built was: what’s going to make us money, and what’s going to save us money by giving us efficiency. Who knows, maybe in the next 12 months we’ll raise some capital and really go to the next level, so.

Dexter Cousins
Awesome. And finally, what’s your big prediction for 2024?

Julian Fayad
Yeah, it’s a hard one. I tend to agree, I think there’s going to be a little bit more pain, businesses recovering. If I had to just say one thing, though, I would say that next year is going to be the year where businesses should leverage partnerships within the same ecosystem. So find businesses that maybe don’t have a direct… maybe they’re not a direct competitor, but have similar sort of verticals, and find businesses that have similar values to you, and find ways to partner and grow each other’s businesses.

Dexter Cousins
Awesome, thanks Julian, congrats.

Somebody commented on the kind of eclectic nature of the crowd that we’ve got tonight and the, I guess, different streams of fintech that are here in the room, and that’s intentional, very much for the reasons that Julian said. I also agree with him that is an ecosystem. Perhaps we’ve been so fixated on our solution being the only solution, and we’ve gone off onto these tangents like re tech, insurtech, fintech, and everybody’s working in isolation. And I agree that I think actually the future of this industry is everybody working together. I’ve got Sam here, who said, “Why you got me on the show? I’m not a fintech.” But the stuff that Sam does in AI, all of this stuff is just highly relevant. And I think we’re going to see, I’d agree with Julian on that, I think next year we’re going to see some coming together, and brilliant minds coming together. And I hope tonight there’s maybe some introductions that happen where we see some fruitful things happen in 2024.

One of the identities that Australia has clung to has been this notion that for international businesses Australia is the launch pad into Asia. We’ve done a fantastic job in the last four or five years of attracting some high-profile fintech brands into the market. Unfortunately this year we’ve seen a number of high-profile brands leave, and approximately 30 to 40% of my business is actually helping international businesses launch in Australia. It was a huge concern for me, but it seems that the concern was a little bit unfounded, and we’ve seen a bit of an emergence in businesses looking again at Australia.

And my next guest is from a business called Primer, who launched in the region, I think, just earlier this year or mid this year, just recently announced something pretty huge. Kevin Lee, he’s the Head of Partnerships for APAC. Can you tell us a little bit about Primer, Kevin?

Kevin Lee
Yeah, thanks, thank you very much for having me, Dexter. So Primer is a global payment infrastructure. As Dexter mentioned, we’ve very recently entered into the Australian market. We’re working with tier one fintechs in this market, such as your Zips and your Maneuvers, and we provide them a payment infrastructure to connect into best-in-class payment technology. So maybe a new PSP or acquirer, or maybe it’s a fraud provider, or anything else within their e-commerce ecosystem.

Dexter Cousins
Awesome. You had some big news, a huge announcement recently that came as a bit of a shock, I think, even to you.

Kevin Lee
Yeah, we had some pretty exciting news. And I know you’re mentioning earlier that this year’s been tough for a lot of fintechs in the room. We’re feeling very fortunate that, I think literally a month ago, we announced a funding round from Tencent. It’s undisclosed, but I can guarantee you it’s more than their name suggests. So this is to fuel our growth into not only Australia but Asia more broadly. So we’re backed by tier one venture capitalists globally, but what we realise we’re missing is a cornerstone investor in Asia. So we’re really hoping that this, the investment from Tencent, we can double down into Asia more broadly.

Dexter Cousins
That notion of Australia being the launch pad into Asia, is that something that Primer believes?

Kevin Lee
Yeah. Primer has been a global company from day one. Our founders founded Primer at the start of the pandemic and recognised that to attract the best talent they needed a fully remote organisation. So we’ve been, as I said, global from day one. We’ve got customers globally, and I think we do need to service them, we need to have boots on the ground. And as we can see in the room, Australia has a very vibrant fintech ecosystem, and it’s the perfect launch pad to double down our growth into APAC more broadly.

Dexter Cousins
Fantastic. And 2024 prediction?

Kevin Lee
Yeah, 2024 prediction. Just to riff off what Julian said earlier, I think 2024, a lot of people, or at least as we see it, it will be the year of efficiency, and the fintechs that succeed are going to leverage their most efficient growth channels. And for us at Primer, that is 100% our partnership channel. So doubling down on partnerships, not only within the payment ecosystem, but the broader commerce ecosystem globally as well.

Dexter Cousins
Things really started to, I think, pick up and look a lot brighter around about September of this year. Some of the recent guests that we’ve had on the podcast: Rich Data Company recently just announced, I think, a 28 million Series B raise. Last week we had Honey Insurance on the show, they’re going to make a huge announcement early next year.

But perhaps the biggest piece of news was a record seed round. Kind of a little bit of a cheat, because I think it actually happened 2022, but the announcement was made in 2023. This was actually also almost downloaded and listened to episode of the year, by three times more than any other podcast. So it’s huge, the interest in this business has been huge as well. Unfortunately Mac and Di, the co-founders of Constantinople, can’t be with us tonight, but Ned’s here to have a few words. Ned, do you want to introduce yourself and Constantinople?

Ned Lonergan
Absolutely. I’m Ned, notably not Mac. It’s a test to see who’s listened to the podcast. Slightly more hair but less wisdom, unfortunately. So I work at Constantinople, work in corporate development, look after fundraising. But the core of the business is a software and operating platform for banks. What we aim to do is provide the ENT infrastructure that you need to run a bank in its entirety, as well as a layer of automation software on top. Basically we’re hoping to abstract the back-end, commoditised complexities of banking and let banks do what they’re really good at and what they really want to do, which is managing treasury, risk, and then also helping their customers.

Dexter Cousins
I think when I recorded the podcast you were 40 people. How many are you now?

Ned Lonergan
We are, I’d say, judging by the intros this week, at about 75, 76, and hoping to be at probably, I don’t know, 120 by first half next year.

Dexter Cousins
And big 2024 prediction from you?

Ned Lonergan
Oh, it’s got to be the year of the mutual bank, I think. Pushing the bounds of technology and delivering a world-class customer experience and looking after their members in what could be a tough year, I think.

Dexter Cousins
Well, we’re coming to a wrap of my part before I hand you over to Pat. My highlight of the year, look, for me it always comes back to the people, and I consider myself to be very, very privileged to be able to share these stories, these people, their achievements. And I regularly say, within this space we’ve got ordinary people doing some extraordinary things. And one of the great things that I take from this is just the inspiration that I get from every podcast, the learning that I get from every discussion, and most importantly it’s the friendships that I’ve made through this.

No more so than this year, where I think everybody’s found some time, it’s been tough going, and to be that person that people reach out to, or on the other side have people reach out to me and ask, “Hey, am I okay?”, it’s probably one of the most gratifying things I’ve ever had in my life. I think there’s two things that have set my family and my wife, that have really made a massive impact on my life. One was moving to Australia, and then the second is being part of this community. So I just want to say to you all, I couldn’t think of a better way and a better time of year to spend with family and friends and just awesome people like yourself. So look, thanks very much for your support this year.

I’m going to pass you on now to Pat, who’s going to give you a bit of a rundown with Greg Moshal from Prospa and Sebastian Watkins from Lendi Group.

Patrick Coghlan
All right, we’re going to keep this fairly high level and fun, I think. Look, it’s definitely been a tough year. CreditorWatch is certainly at the forefront of capturing a huge amount of commercial data to understand how businesses are faring at the moment and what we expect to see in the next 12 months. We put out a monthly Business Risk Index. I’ve spoken about it at large, particularly since COVID first hit, about coming insolvency Armageddon, and I missed it by about two and a half years, but fortunately journalists don’t often go back in history and have a look at who got it wrong, and they still ask for our opinion every month, which is great.

But we certainly know that 2023 has been tough, but I think it’s always important to look for the green shoots and not just be too negative. It’s something that Greg on my right here always gives me a hard time about, because otherwise it can be a little bit depressing. So we’re going to be a little bit upbeat and happy about it.

Despite that, what we are seeing is a significant increase in insolvencies, and we expect that to continue. We’re probably 15, 20% above pre-COVID norm. So while there has been a big jump more recently, in the last 12 months, don’t just compare it, or don’t just read articles that say, “Oh, it’s up 50% on last year.” You have to go back to 2018, 2019, even the long-term run pre-COVID. So 20 to 30% is where we probably see it peaking.

Of course the big caveat, asterisk, there will be whether there’s another rate rise. And I think everyone, even the best economists in Australia, wouldn’t bet on no more rate rises. We’ve seen widespread belief that we were at the top of the cash rate, and then two weeks later we saw another increase in November. So it is bloody tough out there.

There’s a lot of data that’s coming in, both from a macroeconomic perspective and more granular in the data that we’re seeing. We’re plugged into the payment system, or the receivable systems, so we can see the turnover of thousands and thousands of businesses around Australia. We can then see all the invoices and effectively how their debtors are paying them, and that turns into obviously hundreds of thousands of businesses that we get a really good understanding of. Are they paying their bills on time? Has that changed over the last 12 months? Et cetera, et cetera.

So my sort of, or our prediction, based on the data that we’ve got coming in, and that’s everything you can see on that fabulous banner to my right, your left, is that it’s certainly going to be a tough 2024. But there’s a firm belief that by the time we get to the middle of the year, come June, July, we’ll have really good clarity as to when that pain will end and when it will start to get easier. And I think that’s a really key horizon.

We look at it in two key horizons. The first one being certainty that rate rises have stopped, and I don’t think RBA will ever provide any sort of certainty ever again, as we know that they made that misstep once. So we’ll get that obviously through the trusted media. And then what we’ll see as a second horizon is when that rate cut will come. And I think that will give businesses the confidence to start hiring again, it will give businesses the confidence to start investing in technology, it will give businesses the confidence to start taking on or increasing any debt that they have as well, which, all of those three key things affect, I would suggest, every single person within this room.

So I think, yeah, my prediction at this stage is come June, July, end of financial year, we’ll have a little bit more certainty as to when we’ll start to see the green shoots coming through, and that will provide a huge amount of confidence. Similar to what we saw back in 2021, when most of the East Coast was all in extended lockdown and businesses tread water. Small businesses especially are in a super position to be somewhat of a hedgehog, right? They’ve wrapped themselves up, there’s a lot of pain around them, but they’re not feeling it on the inside, because they’ve got protections, they’ve invested in technology and efficiency, and they’re able to perform, or tread water, or survive is probably the better word, for a better day. And I think Aussie businesses are extremely resilient, and a downturn is far better than a shutdown, and I think those days are, confidently we’ll say, behind us, which is great.

So we should all take that confidence from those wise words and the data that we’re seeing. And now we’re going to get some actual experts to talk about what they’re seeing as well in the industry. So I won’t go on any more. I’m going to pass to Greg, and I’m going to get some insights from him first, just to stay on the business side of things, no disrespect, and then of course we’ll get Sebastian to come in as well. So Greg, obviously in the small business space, really keen to see and understand what you guys are feeling out there and what small businesses are feeling.

Greg Moshal
Pat, this is a bit strange for me, because we’ve worked with CreditorWatch for seven years now. Longer? Longer, yeah, it’s longer. I reckon 10 years. Yeah, probably. So I guess we had a fintech before fintech was a word, Dexter, 10 years in, so remember trying to explain to people. And CreditorWatch is a great source of insights for us, so it’s funny trying to give insights to Pat. But that’s the plug, ladies and gentlemen.

No, I think what we’re seeing is, I think there’s just been a significant amount of change the world in general, and we’ve seen that, it started in 2020, when we went through a health crisis that turned into an economic challenge, which turned into a whole different way of working, where people were working from home, and just that disruption has made things really interesting. So for us at Prospa, for instance, we actually use a lot of data to understand what a good small business looks like. We understand their transactional history there. We rely on using the past in order to predict the future, and when you’re in very uncertain times I think that gets really, really challenging, and you’ve got to start using more kind of macro view. So we have to have significantly more of a view of the economy than we’ve had historically.

In the sense that when we started 12 years ago, that was kind of the start of cheap money, and every year we used to get into work and RBA would keep dropping rates, and I thought that was normal for about nine years. And then you start realising, after there was that very large injection around COVID, what we actually saw was significant inflation, and that becomes very real. And what that meant was we saw an absolute boom for our customers in 2021, which was very exciting. But what that can also mean is, if that boom isn’t coming with profitability, your revenue’s grown really quickly but often your costs were growing with it.

So what we’ve seen in 2023 is, we saw, I think it was 11 rate rises in 12 months. We’re definitely starting to see that become real for the small businesses and the small business economy, and people are starting to rationalise their business off the back of that. So when we do our research, we work with a group called ugab. When we look at what are the main concerns that small business have, around 58% of them say rising costs in goods and services, around 36% of them are saying customers are spending a little bit less. So it still is that higher cost and that inflationary pressure that’s causing more pressure on our small businesses.

I want to reiterate what Pat said. It’s amazing how resilient small businesses are, and if you ask me, I think the economy’s held up better than I certainly would have expected. We’re also seeing unemployment at record lows. So innovation that’s coming out is still amazing. We’re still seeing people are still looking for growth, and investment, that is still a mentality. There definitely is a focus on profitability, and some of the access to options has reduced, which again can also be an opportunity for us when we serve our customers in the right way. So I think 2023 has been a continued year of change, and I think it’s been three years of a lot of change. So I think as we get to the end of the year, probably a few tired faces around, because it’s not just, this has been a long year, it’s been kind of a pretty wild three years, in my opinion.

Patrick Coghlan
And are there any specific industries that you see opportunity in? So we’re obviously looking at industry risk information on a regular basis. Retail, hospitality, obviously discretionary, linked to discretionary spend, naturally hurting more. I think construction’s been through its pain. We get the sense that they’re probably at or close to their peak. We’ve seen supply chains get softened, we’ve seen still challenges with labour shortages, but price is starting to normalise. Yes, any specific industry commentary?

Greg Moshal
Yeah, so definitely, we talk about building and trade, but particularly construction. There was two challenges in that area. One was contagion risk, where you had larger groups that fell over and then just not being able to pay subbies and things like that, and that absolutely had an effect on just the general cash flow. I think the bigger challenge was just very high levels of growth, and people were doing fixed cost contracts in the beginning, and no one could have predicted how quickly their cost of goods, things like timber, other materials, were going to grow. And so what we did see was, unfortunately, a lot of companies that felt they were doing really well, that were going through an absolute boom, and when things have turned around, their ability to cut costs as quickly as they could, had revenue drop, just wasn’t there. So we definitely saw that, building trade.

Surprisingly, I think retail, from what we’ve seen, has held up far better than I would have thought. Consumer spending still actually seems reasonably good, considering how much we’ve seen mortgages increase. And we talked about that, Sebastian actually was the expert on that, but there was talk in the mortgage cliff. He’d have a lot more experience on that, so I won’t go too deeply into that. But that has been an effect on consumer spend, but certainly from what we’re seeing it hasn’t been an absolute cliff. It has been a weakening, and it feels greater when you actually realise it’s coming off what were 2021 highs. Whereas if you go back to kind of what people are doing versus years like 2019, I think that you’ll see it’s probably, they’re now at kind of more normal levels compared to where they were at before the very large boom.

So from an industry point of view, absolutely, we’ve seen, even from things like hospitality, but again, we’ve had just changing demographics. So for instance, if you’re a cafe that’s in the city versus a cafe that’s in the suburb, you’ve watched people return back into the suburbs, that’s been a great boom for you. Now you’re watching people return back to work to some extent. So there are actually quite a few different factors, not just economic. But again, overall, we are seeing that people are fairly resilient. They are still looking for money for growth. People are still saying that next year they’re thinking about ways to invest and still grow their business. So overall I would say it’s actually more positive than I would expect, but certainly on the side people are feeling that challenge. And I think you’ve seen the better businesses, or the businesses that moved quicker, particularly around cutting costs, are the ones that are doing better and kind of be well placed for next year.

Patrick Coghlan
That’s a good point, and one that I’ll sort of segue to you. What we’ve also seen is this return to a normal sort of operating environment. We obviously existed in this synthetic environment of insolvency protections, JobKeeper, JobSeeker, and it was totally different to anything we’ve experienced before. So we’ve returned to this more normal environment, less so for the consumer, which no doubt you’ll touch on. But I think also we’ve seen a concentration of resources and good quality people into good quality businesses as well. There were a lot of businesses out there that probably shouldn’t have been able to access capital in the way that they did, and were therefore able to then hire really good people, and that diluted the ranks, particularly in fintech, particularly in technology. So we’ve seen a significant stabilisation in that space. But really keen to hear what we’re seeing in the mortgage world.

Sebastian Watkins
Yeah, thank you. So for us, we’ve had a really interesting two years. We saw obviously record low money, which drove a refinance and a purchase boom. And then when we saw the rate rises up to 4.35, what we were seeing is a huge amount of natural consumer activity around the rate rise events. What we’ve seen, though, as the rates have continued to rise up to 4.35, is that as the rates rise, the ability to service existing debt becomes harder. Lenders, as you probably know, will put a serviceability buffer on a mortgage. And so if you’re trying to refinance your home loan today at, say, 65%, you’re actually having to prove serviceability at 95%. And when you took out that loan you were probably assessed with the buffer at five and a half or 6%.

And so what we’re seeing is that for new home buyers in that period, as many as 40% should technically not be able to afford their mortgage now, based on their declared income and expenses at the time. Now, what do we do? We change our expense behaviour. We’re seeing a lot of people go and take second jobs, or family units where there was one income earner now maybe have two. And we’re starting to see some concerning behaviours around credit card debt as well. We’re seeing credit card balances that we refund financing into mortgages, which is probably the most accurate data point that we can measure, increase.

So what does that mean? It’s harder to refinance. As a result, mortgage volumes have dropped off about 9%. We are seeing an interesting return to purchase recently. And I suspect what we’re starting to see now at a lender level is that lenders are starting to work out, well, if the credit’s already in the system, is it really appropriate to apply a 3% buffer to the current interest rate environment? And there’s some lenders are starting to get creative around that. So for us, we’re starting to see themes of, perhaps if it’s a dollar-for-dollar refinancing, not extending more credit, that lenders are starting to think about that differently, and that’s obviously good for consumer outcomes.

But look, it’s been a really interesting 2023. It’s been a game of obviously pain for a lot of people, but at the same time, I think, as we just touched on before, Australians are fiercely loyal to their mortgage. So we haven’t seen huge tick-ups in things like 90-day arrears yet.

Patrick Coghlan
And would you say that there’s a big amount of support from APRA and lenders, particularly the bigger lenders, to help mortgage holders get through this downturn?

Sebastian Watkins
It’s probably off the record.

Patrick Coghlan
I think even some of the APRA commissioners would, yes, grudgingly agree to it.

Sebastian Watkins
Yes, I think some would. I think their public-facing statement is that they’re in feier support of the 3% buffer. Yeah, I think you’re seeing some lenders that are getting a little more creative around that. I think what I would say is that we’re not trying to solve this problem together. If you look at the space that we play in, sorry, which is mortgage broking, about seven out of 10 mortgages that originated in Australia every month go through a mortgage broker. So they’re the predominant choice for consumers when it comes to mortgage origination. You’ve then obviously got banks and APRA. And what I would say is that I don’t feel like we’re talking about it enough at the moment, and that we’re not collaborating on how we may be able to solve it.

But I think it’s a real problem. What you’ve got is people stuck in credit contracts, as I said before, that technically can’t afford them. So I worry about what that does for things like mental health and stress, and certainly for first home buyers, singles or couples. You took out a home and you did all of your budgeting based on two and a half percent, and you probably did it on five and a half, which was your serviceability buffer. And if you listen to the RBA, you were probably pretty comfortable in that assessment. And you’re now paying six and a half percent in as much as 18 months. So I worry about the mental health impacts on that, and what amplifies that issue is when you’re stuck in that credit contract, so you actually can’t do anything about it outside of trying to renegotiate your existing bank. I think that’s a real problem.

Patrick Coghlan
Yeah. Greg, do you see the impact of mortgages in commercial loans?

Greg Moshal
Well, for us we see it in two ways, because we’re dealing with what we call the S of so, it’s, you might even call it a micro business. And we have small business owners that have mortgages, and they pay for their mortgages out of the earnings in their business. So of course, if you’ve got more pressure paying your mortgage off, and as Sebastian pointed out, Australians do put their mortgage ahead almost anything else, so that is going to actually put more pressure on your business, because it’s actually almost increasing your business expenses for a micro business. So we’re definitely seeing that pressure there.

I guess the second output is, as it affects consumer spend, that’s going to affect every single small business. So Australia is a consumer economy. Most people have variable mortgages, are moving on to a variable mortgage. So it’s not like the US, where we saw fixed rates and you’ve got 25 years and everyone just said, “That’s fine, I just W some my house.” And that works pretty well for America. It’s harder for them to reduce inflation that way, but it’s great if you’re a consumer who locked in 0% for 25 years, which is not the case here. So absolutely, we see it on both ends, both the pressure it’s putting on the business owner themselves, as well as actually the pressure that’s coming from reduced consumer spend into the business.

Patrick Coghlan
So I guess the big prediction: what are we going to see, rates come down?

Sebastian Watkins
Yeah, we try not to crystal ball too much. I personally think we’ll see some reprieve in the back end of next year. I think that we haven’t seen the full effects of the fixed rate cliff yet. We’re obviously seeing significant reductions in savings balances, but we still have 20-odd, 25% even, of consumers on fixed rates. So plenty of people at our office are still paying 2.19%, which would be nice. I’m not, certainly not. Yeah, and we’ll do so up until sort of halfway through this year. So I don’t think we’ve, we certainly haven’t seen the full effects of that yet. But the bulk of that rolled off sort of in the last six months of this year, so I suspect it’ll take a few months for that to wash through, and then I’m hoping that we see some reprieve in the back end of next year.

Patrick Coghlan
Person, yeah. And I think APRA and the banks’ approach to supporting mortgage holders through this challenging period suggests that it’s going to be shorter rather than longer. All right, Greg, anything else to add there? If not, we might to Dexter to ask a few challenging questions.

Dexter Cousins
Yeah, first challenge is to put the mic on. Yeah, I guess, look, first one from me, Bas, is, you mentioned there about the interest rate rises. What kind of impact has that had on the broker network? And what I’m asking here is specifically around, you guys have got a technology platform, it’s best in breed. I’ve been through a broker experience myself. While it was fantastic, it wasn’t the greatest digital experience. The personal experience was… Given there’s obviously, this is top of mind for people and there’s more work now to do, what have you seen feedback-wise from the broker network around technology, and how that’s, what we can be doing to actually fix this or help this problem?

Sebastian Watkins
Yeah, it’s a good question. So mortgages become very complex very quickly. They’re always quite complex. And I think when you play in the broker space, you have 28 lenders. We have 28 lenders, 28 credit policies, and within that the bulk of those are still assessed by a human today. And so what you see is really high what we call missing information requests, which is where a human assessor has looked for something and asked a bit more information. And then when you double click on that, what you see is that a large percentage, 25, 30% of those missing information requests, are actually requests that aren’t on any form of policy document. So it becomes a bit of a guessing game.

And we’ve spent a fair bit of time building a rules engine around ingesting declines and MIRs, and trying to understand, when loans that fit a similar shape and feel surface through our system, that it would look at where perhaps they’ve failed in the past, why they failed, and how we could surface that insight to the broker. But it is a really rapidly changing environment at the moment.

So what I would say is that brokers generally, look, the Lendi business is probably different to our Aussie business in terms of mindset. I’d say that our Aussie business has probably a 50/50 split of people that are sceptical that it may replace them one day, and people that are embracing technology for what it is, which is ideally making them more efficient, automating away the repetitive administrative tasks, and trying to surface the right information at the right time to the right person. It’s a bit of a challenge at the moment. I think there’s some logical applications to some of the AI commentary. That’s something that we’re staring at at the moment.

But what I would say is that I think there’s a realisation now by brokers, certainly in our business, and perhaps generally speaking, more than ever, that technology will be the only way that we can continue to maintain our industry. Consumer expectations are changing significantly, and I think that the day of a traditional experience, which is largely face to face, offline, off platform, is probably short-lived. And certainly as we see the younger generation, the 35 to 45, starting to come into the market, I think that that problem statement becomes amplified.

Dexter Cousins
Awesome. Greg, rather selfishly, this question’s coming directly from me. You said something before that really resonated, around small business owners having mortgages. I’m in that bracket. One of the biggest frustrations that I’ve got as a small business owner is that my life is so unnecessarily hard because of trying to integrate my personal finance with my business finance and tax and all the other stuff that goes with it. CDR has kind of promised to be this thing, and I always feel that the better use case maybe is to start off with business rather than consumer. Do you ever see a day where Prospa and Lendi are combining forces to make my life a lot easier?

Greg Moshal
Well, thanks for the pitch. Yeah, and we’ve not the L guys for ages. So I think we’re, firstly, we love dealing with small business customers, partly because it is such an exciting, challenging space to solve. And I’m sure there’s some other people in the room who deal in kind of B2B as well, and we kind of say we’re as close to B2C as a B2B business can be, because we’re dealing with micro businesses or small business owners. And that blurring of the line, Dexter, is enormous. You’re absolutely right, your personal and your business are so closely related. So I mean, we actually think it’s one of the reasons we have a business in itself.

So banks have always really struggled with this. If you go into a bank, they’ll either say, look, too hard basket, we’ll push you down the consumer path. So we started with small business lending, and what people used to have before Prospa came along was you’d got a bank, they’d say, “Here, we’re going to push you into a credit card,” and that wasn’t actually the thing that suited your needs. Or they would put you into the commercial team that said, “Look, if you need less than a million dollar loan, there’s no reason to come speak to us.” So I think banks are the ones that have attempted to bring those things close together, but unfortunately I think the is the group that’s kind of fallen through the cracks.

What is super exciting, though, is expectations, I think, have started to merge with the consumer expectations, and I think the solutions that are meeting that are solutions that are close to at least trying to emulate those beautiful stick experiences. And I think Apple was a big part of where that happened, where the iPhone became the business phone and the consumer phone, and people said, “Well, why can’t we have these experiences across the board?” So as you said, as data becomes more accessible, as we are able to kind of see a fuller picture of the customer, I absolutely think there’s an opportunity to bring those things together.

I think right now there is still a push to keep them somewhat separate, partly also because there is also an incentive to keep these things separate, just for simplicity when you’re doing taxes and things like that, as well as, if you’re using a business loan for consumer purposes, again that can be challenging. So I think there are things in the system that actually encourage it to be separated. But if you look at any small business owner, yourself included, it’s a pain in the ass that’s not required. So we want to just make what we can control as simple as possible.

Dexter Cousins
We’re coming to a wrap. I wanted to end things by actually honouring the three businesses that we’ve got up on stage right now. Three very enduring businesses. As I mentioned at the beginning, oh geez, Prospa was a fintech before the word was being used. First of all, what do you put that endurance down to, each of you? And then second of all, what’s got you excited about next year? And I’ll start with you, Greg.

Greg Moshal
Look, for me personally, I love what I do. So I’ve always been a small business owner. Prior to Prospa, this was my fourth business. So I’m really passionate, and the purpose side of helping a small business owner. I know I’ve received debt in my past and it’s changed my life, so having that ability to do that for others, and even someone I was speaking to earlier that we’ve lent to in this room, and that’s kind of really exciting, that’s inspiring. And I think that can get you through a lot of the challenges that might prop up and happen in every single business. So for me, having that purpose, having that kind of meaning in what we do, is really, really inspirational. And we also get to work with really, really good people. So we’ve got a great team. We were able to build a really special culture, and I think that also just helps you endure. I think those two things would be my call-out. Predictions for 2024?

Dexter Cousins
No, not a prediction. What can we expect from Prospa in ’24?

Greg Moshal
From Prospa in 2024. Y greatens information, that’s much easier than try to predict. Look, we’re fortunately coming to the end of what was a very large re-platform. So I don’t know if anyone else in the room’s been through that, but that was two years of really hard work and significant cost. So next year we can actually focus more on getting back to doing what we love, which is building great propositions and meeting customer and partner needs. So just continually building out more and better experiences, both in our origination flow and application flow for our customers and partners. We’re looking at features and enhancements that we can keep adding.

As well as, we’ve moved into an area of cash flow management. So we are starting to look at the transactional needs as well as the payment needs of our customers. So we’ve already launched a business transactional account. We’re not a bank, but we do have a transactional account, we work with a third party on that, and we’ve got around 1,500 customers. We’re looking to bring that into an overdraft, and bring financial management software as a layer on top of that. So that’s bringing capital, transactions and financial management software together, is a big focus going into next year.

Dexter Cousins
Brilliant. And Patrick, what can we expect from CreditorWatch next year?

Patrick Coghlan
So we actually went through our first formal long-term strategic planning session at the beginning, or sort of May, June this year, which, we’re 13…

Dexter Cousins
I don’t think there are any consultants here, so you can be honest.

Patrick Coghlan
Yeah, I can tell you that I got one quote from a big-name consultant and it was, you could probably buy a house with it. And then we got a much more affordable quote. It was actually a really painless process to go through, and it’s produced what I would say is a really easy to understand, follow, and now the challenge of course is execution. So I’m happy to say five months in, we’re ahead of target. We’re bringing forward our FY2 sort of headcount, or half of it, into sort of early calendar year ’25.

So yeah, I’m really excited to continue to execute on the longer term vision that we’ve put forward, because historically CreditorWatch has been a very sales-focused organisation, sales-led. We often would have blinkers on and you would say yes to every opportunity, even though you’re probably losing money on it. Anyone in technology’s done that, where you’ve said yes, and really in hindsight you probably should have done a business case. But yeah, we’re doing a fantastic job of remaining focused on that and sticking core to what we currently do. So yeah, I’m looking forward to just continuing to execute. We’ve got an amazing team.

Dexter Cousins
Awesome. And Bas, I’m not going to ask the endurance question, because I’m going to direct people to the awesome interview that I did with you and David just, I think, about eight weeks back. Which is, if you haven’t listened to it, the origin story of Lendi with David Hyman and the CEO, and Sebastian. And while I’ve got you, Greg, I really want to do one with you and Beau as well, which I think would be an awesome story. But what can we expect from Lendi in 2024?

Sebastian Watkins
So we also have just come off the back of a major re-platform. We acquired the Aussie business. We knew that that came with a couple of years of, I wouldn’t say distraction, but we had one core focus, one uncompromising outcome, and that was to re-platform the, what was the Lendi platform, for the Aussie business. So that’s taken two-ish years. Well, it didn’t take two years, but from getting the keys to rolling the last broker on was about two years. So we’re now quite excited about being able to repurpose all of that bandwidth into helping us realise our sort of five-year vision.

What I would say is we’re starting to turn our minds to not just the financial component of home ownership, or home buying, but more the broader ecosystem. There’s a number of components that sit within buying a house and owning a house that feel quite naturally should be owned through the one experience.

Dexter Cousins
Would that include spending every single weekend doing DIY?

Sebastian Watkins
Yes. So look, we think that that’s an interesting opportunity for us at the moment. As far as mortgage broking goes, we obviously, we’re different to a traditional broker in that we’re technology, obviously technology-first, but human-superpowered business. We’re branded proposition. But we think that at the moment, as I said, we play the thin slice of the wedge, and there’s a lot more the funnel that we should own or could own.

Dexter Cousins
Awesome. Well, we’ve ran a little bit over time. Thank you, everybody. It’s been fantastic to just share a podcast experience with you all live. Thanks very much for your insights, it’s been awesome to have you all, and sharing this, I guess, what is fairly unique data that you don’t usually get. Thanks very much, guys, for coming along this evening, and thank you all for attending.

As always, you can connect with me on LinkedIn. If you haven’t subscribed to the show, make sure you give us a follow, and if you’re coming back, thanks so much for your support, it really does mean a lot. Until the next Fintech Chatter, we’ll see you in 2024.

Fintech Chatter is produced by Tier One People, leaders in fintech executive search. We’ll find world-class leadership talent to build world-class fintech ventures, and you can find us at tieronepeople.com.

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