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Tradeplus24 is calling for better invoice lending regulation or a self-regulated code of conduct after suggesting “predatory practices” are rampant in Australia.
The SME lending fintech is calling for stronger regulations to address the country’s “entrenched lack of competition” and “predatory lending industry practices”.
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The call comes after new data released by Tradeplus24 estimated that small and medium-sized enterprises (SMEs) across Australia are being underfinanced by $291 billion comparative to SMEs based in the UK in invoice financing. This could be due to the belief that invoice financing is not widely accepted in Australia as it is in the UK, potentially due to a poorer reputation.
According to Tradeplus24’s calculations Australia reached a figure of $74 billion, or 3.9 per cent of its GDP, this month.
The UK’s invoice finance volumes, however, accounted for 19 per cent of its GDP – a value that equated to $366 billion.
As for the root causes of this $291 billion distinction, the fintech has pointed its finger at a range of predatory practices “rampant in the Australian market”.
These include:
- price discrimination against SMEs that are outside the bank’s lending criteria;
- controlling an SME’s bank account;
- preventing an SME from taking on other sources of debt;
- enforcing purposefully complex fee structures; and
- locking SMEs into contracts of up to two years “despite the invoices being funded having an average term of around 40 days”.
Tradeplus24 has also stated that, despite an increasing number of Australian SMEs transacting globally, many SME lenders based in Australia can only support domestic invoices, “rendering their offering unusable for an increasing number of SMEs”.
Speaking of these findings, Tradeplus24 managing director Adam Lane questioned why the Australian market is so far behind UK and Europe in terms of SME lending, despite the similarities between SMEs based in these regions.
“We’ve noticed that SMEs are far less likely to understand the benefits of leveraging receivables, when compared to those we work with in Europe,” Mr Lane continued.
“This creates low demand for the products, which are perceived as expensive and not user-friendly. It also becomes a self-perpetuating cycle.”
Mr Lane added that this low demand contributes to “poor supply of quality SME lending products”, as well as the entrenched lack of competition.
“Lenders can therefore set their own terms, including forcing SMEs to relinquish control of their bank account and collateral like personal property, charging opaque and expensive fees, and enforcing restrictive lock-in contracts,” Mr Lane said.
As for a solution, Mr Lane posited that better regulations, or industry self-regulation with a code of conduct, would be the best approaches to address this divide.
Mr Lane concluded: “If we want Australian SMEs to scale up, and compete with global markets, we must urgently enact stronger regulation or a code of conduct based on superior European practices.
“This could help to end predatory, unfair, and anti-competitive behaviour.”
Founder and global chief executive Ben James echoed Mr Lane’s position: “In doing our research on which countries would be priority markets for Tradeplus24’s global business, Australia stood out due to the size of the SME sector, and the astronomical opportunity to disrupt an incumbent-dominated oligopoly.
“We believed we could gain significant market share, simply by implementing an invisible, simple, fair, and more competitive invoice finance product, underpinned by sophisticated technology, and informed by our extensive global experience.”
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