The Rise of Fintech, P2P, and Non-Bank Mortgage Lending in Australia

Fintech, P2P (peer-to-peer) and non-bank commercial mortgage lending in Australia is on the rise. Here's what you need to know about the impact on loans.

Nathan Daly
May 21, 2020

The Rise of Fintech, P2P, and Non-Bank Mortgage Lending in Australia

Worldwide, the traditional model for banking is shifting away from brick-and-mortar. As Australian banks choose a risk-averse model for lending, Australians are looking elsewhere for funding. The system is changing, and Fintech (financial technology), P2P (peer-to-peer), and non-bank lending means a variety of options for borrowers.

Fintech, P2P, and Non-Bank Mortgage Lending in Australia

Welcome to an age where the disruptors are making waves, and that’s a good thing. Today, Fintech, P2P, and non-bank mortgage lending are driving innovation and lending options when traditional banks and Australian Prudential Regulation Authority (APRA) entities are unable to provide for a company’s lending needs.

Fintech

Fintech is a broad term describing any technology used in financial services. These companies have innovative technology as their core business function. Fintechs can be a bank, and in that case, they’re responsible for following all banking regulations. Australian Securities and Investments Commission (ASIC) and the government are working together to create an environment that is ripe for Fintech startups in Australia.

Non-Bank

A non-bank doesn’t have a full banking license, and therefore, are not governed by APRA. These non-banks can still provide some traditional banking functionality, such as credit card operations and lending. These non-bank lending options are usually a better option than conventional banks for borrowers with a less-than-perfect credit history.  

P2P

P2P lending utilises a debt model of financing, bringing in lenders who become creditors on a loan. These lenders are often ultra-high net worth individuals, private companies, distressed debt trading funds, or special situations debt funds. P2P lenders take riskier investments with the promise of principal repayment with interest.

Fintech, P2P and non-banks can stand alone or together. For example, Fintech often powers non-banks or P2P lending solutions. Fintech can also power a non-bank that offers P2P lending services.

While the Big Four banks in Australia (Commonwealth Bank, Australia and New Zealand Banking Group (ANZ), National Australian Bank (NAB), and Westpac Bank) are restricted by APRA regulations and are often risk-averse, Fintech, non-bank, and P2P lending offer alternative commercial mortgage lending solutions for investments with a higher risk profile.

The Rise of Fintech, P2P, and Non-Bank Lending in Australia

In 2015, the global P2P lending market was worth $26.16 billion USD. That figure is expected to rise to $897.85 billion USD by the end of 2024. Australia is becoming a major player in alternative financing, with an alternative finance market worth over $1 billion USD in 2017.

Basel IV

International recommendations and regulations for the banking industry, Basel IV, is due to be implemented in January 2022. The Basel Committee on Banking Supervision finalised this agreement in December 2017 with significant changes to credit and operational risk, resulting in banks tightening down even more on commercial lending.

APRA Restrictions

A report by APRA on commercial real estate lending states that “Poorly underwritten, monitored, and controlled credit exposures to commercial real estate (CRE) borrowers have historically proven to be a key source of credit loss for banks.” Because of this statistic, APRA took a thematic review of CRE, and as a result, most Authorised Deposit-taking Institutions (ADI) have made steps to tighten CRE underwriting criteria in their credit policies.

Royal Commission

In February 2019, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was submitted to the Governor-General. Included in this report are 24 referrals to ASIC and APRA for further action against misconduct. The risk of prosecution is leading to tighter restrictions as banks aim to get in good standing.

These global and local contributing factors have created an environment that’s ready for new lending options. Fintech, P2P, and non-bank lending offer solutions to clients who lack trust in or are unable to get funding through traditional banks.

The first era of Fintech linked the world’s financial systems through transatlantic cables and later through online banking at traditional banks. The Global Financial Crisis (GFC) of 2008 prompted significant changes in the financial industry worldwide, leading to the beginning of Fintech as we know it today. The GFC prompted startups to enter the financial space alongside key players in the banking industry, aided by the introduction of the iPhone the year before. Today, Fintech, P2P, and non-bank solutions are used worldwide for day-to-day money transfers and large scale commercial mortgage lending.  

What this means for Commercial Mortgage Lending in Australia

Gone are the days when your local bank manager held the keys to approval on your loan. Today, Australians have a choice in their loans, and a “no” from a bank or APRA entity no longer means the end to a project. There are three tiers of lending. Tier one includes banks and APRA for loans with a low-risk profile, and tier two involves ASIC regulated entities and FinTech backed property lenders. Tier three brings P2P lending to the table with sophisticated investors, ultra-high net worth individuals and private companies to fund higher-risk investments. Fintech, P2P, and non-bank lending means more stamps of approval and more opportunity for growth.

If you’re ready to step away from the strict rules and requirements of a traditional bank in favour of a non-bank commercial lender and aggregator that’s on your side, give Acumen Finance a call. Our  specialists offer fast turnarounds, competitive interest rates, and our extensive industry experience enables us to provide you with direct access to a private investor best suited to your needs.