The Australian Small Business and Family Enterprise Ombudsman has released a report Fintech lending to small and medium sized enterprises: Improving transparency and disclosure, which analyses the different approaches to disclosure across the fintech industry and makes recommendations on best practice and future action.
The report includes a Glossary of Common Lending Terms as a first step toward establishing a consistent industry-wide approach to the communication of these terms, which should ultimately make different contracts easier to understand and compare.
The word ‘fintech’ is used to collectively refer to both startups and more mature businesses that are harnessing advancements in technology to improve delivery and/or reduce the cost of financial services and products.
The report discusses both balance sheet lenders and P2P (marketplace) lenders. Some fintech business lenders have also developed specialisation in invoice and supply chain finance
Fintech brokers have also emerged, who provide a free service to SMEs by matching them with a loan option based on their requirements, often from a set of competing fintech business lenders through an online platform. These brokers generate revenue through commissions and fees paid by lenders.
The report recommends the following:
- the development of an industry Code of Conduct to cover fintech balance sheet lenders offering unsecured business loans;
- fintech business lenders would work with the ASBFEO to ensure they comply with the Unfair Contract Terms legislation;
- fintech lenders to agree to the contents of an easy-to-understand contract summary page by June 2018. This summary page would include a common set of measures when making loan offers to customers.
The ASBFEO will produce a guide to assist small business owners better understand the ‘ins and outs’ of borrowing from a fintech lender.