alt data tranforming sme finance · 6/19/2017 · which data sets are predictive for sme finance?...
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© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
Alternative Data
Transforming SME Finance
John Owens & Lisa Wilhelm
SME Finance Forum Webinar
June 12, 2017 (updated June 19, 2017)
Washington DC
© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
SMEs: big market, big gaps, big opportunity
High growth, margins
• +/- 20%/year market revenue growth
• ROEs 20-33%
• ROAs 3X bank overall
• Lending profits 1.35X overall bank lending
• 27% of Retail Banking avg. net revenue; up to 50% when owner’s HH included
Global SME banking market sizing (developing economies only)
Sources: IFC Enterprise Finance Gap Database (2011); McKinsey & Co.: “Assessing and Mapping the Gap in Micro, Very Small, Small, and Medium Enterprise (MSME) Finance (August 2010);” “Two trillion and counting (2010); and “Micro-, small, and medium enterprises in emerging markets: how banks can grasp a $350 billion opportunity (March 2012);”Visa “Commercial Consumption Expenditure Index” (2011); Global Payments Experts llc. analysis
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© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
The credit gap challenges Credit executives worry about adverse selection; top executives worry they won’t earn sufficient returns above their 10-15% cost of capital
1. IFC (October 2013). “Closing the Credit Gap for Formal and Informal Micro, Small, and Medium Enterprises.”
SME DEMAND-SIDE ISSUES
High risk
BANK SUPPLY-SIDE ISSUES
High cost
Informality
Difficult to reach, dispersed
Difficult requirements
High costs/interest
Cumbersome, slow applications
Low revenue/account
Low business, financial literacy
INFORMATION OPACITY
DEVELOPING MARKET SME CREDIT GAP
200-245 million MSMEs1 $2.1-2.6 trillion1
Fear of decline
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© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
Big data + fintech evolution
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Bank profit/revenue erosion coming
Fintech banks
30 percent of U.S. Uber drivers never had a bank account
Uber drivers need a debit card to get paid
Uber solved this problem by allowing drivers to sign up for a bank account as part of the Uber driver application, in real time
Uber is now the largest acquirer of small business bank accounts in the U.S. today
The next obvious move: design day-to-day banking (e.g. financing cars, leasing, insurance) into Uber’s app
Fintechs: Lower lending costs
Fintechs: big data-improved risk models
© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
Global shifts: how much data and where? The digital universe is more than doubling every two years; importantly, digital
data will switch from 60% in mature markets to 60% in emerging markets by 2020.
Source: “The Digital Universe of Opportunities: Rich Data and the Increasing Value of the Internet of Things” (April 2014). IDC.
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© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
Which data sets are predictive for SME finance?
28 data sets across 6 different alternative data categories that are being analyzed to support SME finance
Online B2B &
Commerce Data
Banking, Finance & Industry
Data
Credit Reference
Sharing Data
Online Ranking &
Social Media Data
Mobile Data
Individual/ Psycho-
metric Data
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© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
Fintech transforming the SME lending status quo A rapidly growing crop of technology-focused SME lenders are putting customer needs, big data, and advanced analytics at the center of their business models.
P2P SME lenders Supply/trade financing Online balance
sheet SME lenders
Online invoice financing
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© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
Global SME ‘operating systems’ moving online Every time SMEs use cloud-based services, make digital payments, browse the internet, use their mobile phones, engage in social media, buy or sell electronically, ship packages, and manage their receivables, payables, and recordkeeping online, they create and deepen the digital footprints they leave behind.
Payment acceptance + much more
Making payments Cloud accounting + much more
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© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
Emerging digital SME lending ecosystem New analytic firms help lenders analyze big data; telco, bank, and technology firm
convergence is fueling new mobile data-lending and financial services; and new loan broker marketplaces help SMEs make sense of their growing lending options.
Big data analytics Mobile data lending graduating to SMEs
SME loan broker marketplaces
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© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
Alternative SME lending: rapid growth everywhere Global SME lending reached US$49.4bn in 2015, a 3-year CAGR of 156%. China
dominates in volume, followed by the US and UK; the rest of the world is catching up.
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1. Excludes P2P SME real estate lending and digital SME lending by banks and tech, e-commerce, payments, and supply chain financing giants
2. CAGR = compounded annual growth rate 3. Africa/Middle East includes SME micro finance stats
Sources: Cambridge Center for Alternative Finance benchmarking report series (2016-2017) covering Asia-Pacific, the UK, The Americas, and Africa and the Middle East; Global Payments Experts llc. analysis
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015
P2P SME Lending SME Balance Sheet Lending Invoice Financing
6.915.1
42.6
127.7
52.4
376.8USD millions
83%
CAGR 2013-20152
Canada LAC Region Australia Asia Pacific Region(Excl China/Aus)
Europe (Excl. U.K.)
11.839.9 55.7
68%
9.9
39.6
232.7
186%
80.0
116.6
360.4
65%
93%
42.558.3
75.0
21%
Africa/Middle East3
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
2013 2014 U.K.
2015 2013 2014 U.S.
2015 2013 2014 China
2015
P2P SME Lending SME Balance Sheet Lending Invoice Financing
$0.44 $1.59 $1.78 $0.83 $2.09$4.83
$1.47
$8.44
$41.66USD billions
60%
80%
205%
CAGR 2013-20152
Lending volumes/growth:1 other global regions what they lack in volume they make for in growth velocity
Lending volumes/growth:1 top three countries Not so “alternative” anymore
© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
Big tech: picking up SME lending steam
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> 2mn third party global sellers (as of 2017-6)
• Launched the Invite-only SME working capital loans 2015-6
• Live in U.S., U.K., Japan • US$3bn in loans to-date • > 20,000 sellers served
16 mn active merchants (as of 2017-5)
• Launched 2013-9 • Live in U.S., U.K., Australia • US$3bn in loans to-date • 115,000 merchants served
10mn active sellers, 547mn global active users (as of 2017-03)
• Launched unsecured SME loans 2010
• US$96bn in SME loans to-date (as of 2016-6)
• 5.2mn SME loan clients served (as of 2017-3)
• Partnered with Lending Club (US), Capify/Get Capital (Australia), iwoca/ezbob (UK), iwoca (Spain) and ICICI/Kotak Mahindra/Capital Float (India) to finance domestic SME buyers
© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
India case: e-commerce data/India Stack fuel SME lending
Other banks/non-bank lending partners
DIGITAL SME LENDERS
Online SBI e-Smart SME e-Commerce
Online vehicle loans for Uber drivers
B2C COMMERCE B2B COMMERCE BANK SME LENDERS
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© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
09.09.15
• New digital data platforms allow for expanded supply/trade and invoice finance to smaller firms on a more cost-effective basis.
• This is happening more and more in countries and markets where SMEs are able to move their accounting and B2B relationships online and to digital platforms.
Digital data & supply chain financing
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© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
09.09.15
Mobile data-based lending models:
• instant small mobile loans
• credit scores based on mobile transactions, mobile e-money usage, mobile e-money linked savings history
• third-party mobile-based lenders are using data from apps running on smartphones
Mobile data-based lending models
© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
How banks are collaborating/competing with fintechs
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© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
Fintech and banks 2017: more friend than foe
Advantage: banks • Captive, large customer base/positive
selection in applicant mix
• Brand
• Distribution coverage
• Valuable, “free” internal data (but underutilized)
• Low cost, stable source of funds
• Regulatory certainty (mostly)
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Advantage: fintechs • Customer service oriented
• Simple and often friction-free applications
• More credit data sources
• Enhanced risk models
• Underwriting costs
• Pricing for risk
• Less regulation in many markets (but the future is uncertain)
© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
Scaling up: partnership business models
17
Banks
SME Solutions
Online Lending
Government/Associations
Investing FCIF FUNDING CIRCLE SME INCOME FUND
OnDeck: Lending as a service (LaaS)
• Focus on technology/embedded analytics a game changer
• Can scale very, very quickly
• Enables partners to expand core solutions /value added services
• U.S., Australia, Canada
Acquisitions + referral partners
• Acquired Lending Endurance Network to expand to U.S.
• Acquired rival Zencap to expand into Europe (Germany, Netherlands, Spain)
• Multiple referral partnerships
Banks
SME Solutions
Online Lending
Payment/Processors
© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
Licensing the platform to scale globally
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Licensing technology to lenders globally
• Turnkey platform, fully configurable
• Rapid global deployment 2015-2017
• Rapid, fully automated loan decisions
• Works across all channels
• Short online applications; automatically, painlessly link data sources
• Uses power of SMEs’ own real-time, verified business data to get working capital
SME Solutions
Non-Bank Platform LendingPartners
Network Acquirers
Institutional Partners
Bank Platform LendingPartners
© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
The Rise of the Digital SME Bank/Lender
Banking as a
Platform
Third Party Fintechs
Online Accounting
Data
Bank Transaction
Data
Open APIs
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© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
Alternative Data: Policy Issues and Challenges
• Data privacy and consumer protection issues
• Opt-in vs opt-out models
• Credit reporting sharing and access
• Cyber security
• Transparency & disclosure
• Balancing integrity, innovation and marketplace competition
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© Global Payments Experts llc. and John Owens 2017. All Rights Reserved.
Thanks
johnvowens@me.com
@jvowens
lisa@globalpayexperts.com
@wilhelminc
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