Australia’s neobanks prepare for battle as big investors pile in
Private-i
Australia’s banking sector is facing a serious shake-up from new digital entrants.
Neo-lenders have been busy raising capital, as they look to capitalise on regulatory changes in 2017 aimed at improving domestic competition.
The key focus for a number of new competitors is the market for small-business loans — an area that, in the eyes of many, has been neglected by the big banks.
But in order to lend money, you need a strong capital base. And on that front, new entrant Judo Bank caught the market’s eye with a big new raise to start the week.
The SME lender has finalised a second-round equity raising of $400m — double the $200m it was initially aiming for.
It follows a $140m round last year after Judo first raised $17m of seed capital in 2017.
To reach $400m, Judo got some extra cash from some big names on the existing register, including the Abu Dhabi Capital Group and Ironbridge. Melbourne’s Myer family are also a backer, while Bain Capital came on board for the latest round.
Judo Bank’s co-CEO David Hornery said the raise was proof that investors believe in Judo’s model, which he described as a “relationship-focused offering” to SMEs — “a proposition that has been materially lacking in the market for many years”.
As it prepares to boost its loan book, Judo has also secured debt facilities with Credit Suisse and Goldman Sachs, and recently launched a deposit business.
It all makes for a solid base, but Judo isn’t the only new player looking to rewrite the rules of business lending in Australia.
Prospa Group (ASX: PGL) was an early leader in the space and subsequently listed in June this year. After initially struggling for traction, the share price found momentum last week when it rose by almost 18 per cent.
And Sydney-based Lumi is also building market share, with a simplified service offering business loans between $5-$100,000. The company completed a $31.5m raise last November, which included a $25 line of debt funding.
It followed that up with another $8m round in May, and CEO Yanir Yakutiel says Lumi will almost definitely go back to the capital markets as it looks to double its staff count to 40 over the next 12 months.
Speaking with Stockhead, Yakutiel said Judo’s latest capital round is evidence of the SME lending market’s “increasing popularity”.
“Judo’s raise really shows that there’s support among the investor community for this kind of industry and it’s impressive that they’ve been able to raise such a large amount from strong institutional investors,” he said.
“It also goes to show that private equity markets are being very supportive of this type of lending.”
Yakutiel said like all digital lenders in the space, Judo and Lumi aren’t hamstrung by the legacy issues facing big banks such as cumbersome branch networks.
“With this post-Hayne Royal Commission climate proving beneficial for growth of alternative lenders, we’re on track for this to soon become the norm,” he said.