While BNPL may hog most of the ASX fintech headlines, a cohort of listed consumer finance companies have been tracking a steady growth path of their own in recent years.

With FY21 now complete, Q4 updates saw companies across the sector flag another round of strong growth in new loan originations.

To get some perspective on the sector outlook, Stockhead spoke this week with two fintech lenders along with Adam Dawes, senior investment adviser at Shaw & Partners.

‘Structural shift’

In terms of macro drivers for ASX fintech lenders, Plenti (ASX:PLT) CEO Daniel Foggo described what he called a “structural shift” taking place in the Australian market.

Traditional lenders like the big banks are “less focused on providing finance to the end-customer, but increasingly focused on providing the wholesale funding for businesses like ours”, Foggo said.

It’s been “six or seven” years in the making but has “really started to accelerate in the last 12-18 months”, he added.

The shift has created an opportunity for fintech companies to execute with digital lending offers to tech-savvy consumers, with a capital-light business model where major banks provide the wholesale funding.

For Anthony Nantes, CEO and fintech lender Wisr (ASX:WZR), it’s still fairly early days in that transition.

“The US is a market we often look to because it’s more advanced in this space,” Nantes said.

“What we’re seeing there is that digital lenders are taking up market share of around 35-40% for these types of products.”

“Whereas in Australia today we’re still in the single digits, so I do think it’s early days here and there’s still a huge runway there.”

But he believes the sector is close to a “tipping point” now that companies have established their business models.

“I think what we’ve seen in other markets is you get that slow build over a period of 5-7 years where companies are getting the tech right, getting their funding right, then you see this rapid acceleration.”

And if Australia does follow the path of other developed markets, he envisages a “pretty rapid jump” from single-digit market share to “20-30%”.

Investor view

From an advisory standpoint, Dawes said Shaw & Partners envisions further growth ahead for the fintech lenders that have established their business models.

“Where these companies can do well is, they’ve got that online model that doesn’t need as much human intervention,” he said.

“If you look at who’s going to get a personal loan, they’re probably in that millennial age bracket that’s comfortable being online. So in that sense it’s not a hinderance (to lending), it’s a positive. Companies are coming in with new solutions and that’s where they’re finding that growth.”

From his vantage point in corporate advisory, Dawes also flagged a steady pipeline of other fintechs that are now eyeing a run at the ASX boards.

“Those loan origination numbers are strong and there are more lenders lining up to do IPOs because they’ve seen the success and they’re looking to public markets for that next round of capital,” he said.

ASX fintech lenders

Click headings to sort.

WZR Wisr Ltd 0.28 9.8% 9.8% 55.6% 27.3% $355,436,625
PLT Plenti Group Limited 1.6 6.0% 33.3% 44.1% N/A $265,209,944
MME Moneyme Limited 1.9 -15.9% -2.3% 36.7% 65.2% $334,308,002
HMY Harmoney Corp Ltd 2.2 7.8% 71.9% -21.1% N/A $222,007,993
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Risk management

With ASX fintech lenders, an obvious risk for investors to assess concerns credit quality and how they manage bad debts, particularly in the event of an economic downturn.

“Anyone investing in a credit business should look carefully at credit performance,” Foggo said.

“What’s happened now is that really for the first time, we’re seeing consumer finance classified as a Prime lending market.”

“It’s not just for non-performing markets where banks choose not to play.”

In its latest quarterly update, Plenti said new borrowers recorded an average Equifax credit score of 835, which is “higher than the reported numbers for the banks”.

To Foggo, bad debt risk should be assessed within the broader structural changes taking place in consumer lending.

“In Australia, the biggest lending market is prime lending market and that’s what’s starting to be cracked open,” he said.

Addressing the debt-risk query, Nantes highlighted Wisr’s market update in May where the company priced a $225m securitisation deal, backed by a pool of unsecured consumer loans.

The tranche was given an AAA rating by Moody’s credit agency, which allowed Wisr to attract investors where its overall cost of funds on the deal was around 1.5%.

“The cost of funds on that stack was 75 basis points above the bank bill swap rate (BBSW). That’s comparable to an RMBS (residential mortgage-backed securities) deal, and we write unsecured consumer debt,” he said.

“In that sense the work’s kind of been done. I think you can only get that rating if you’re writing really strong credit.”

“So from the investor point of view you don’t need to be an expert because we’ve engaged really sophisticated credit investors to look at that data and reach their conclusion.”

Rising tide

Looking ahead, Nantes compared the recent traction of capital-light ASX fintech lenders to the early days of BNPL before the sector took off.

“I think it’s not just the metrics of Wisr, right across sector there’s just real growth. And that should give investors confidence the whole space is on the verge of a step-change and becoming investible very quickly.”

“If you look at the early days of BNPL, obviously you had Afterpay (ASX:APT) take the lead but then other companies followed with very strong growth numbers.

“Investors then saw APT wasn’t just a one-trick pony, and I think that’s what we’re starting to see in consumer finance now.”

Foggo added that there’s more room for growth as companies capitalise on new revenue channels, particularly in vehicle finance.

“For fintech lenders in general, whilst they might in aggregate have relatively modest market share at the moment, I don’t think it will climb to a 10-20% share and then stop,” he said.

“I think it will continue because as these businesses get larger and more efficient it makes it harder and harder for incumbents to compete.”

At Stockhead, we tell it like it is. While Plenti is a Stockhead advertiser, it did not sponsor this article.