Ex-bankers establish Bigstone to bring transparency to SME lending market
Bigstone will be offering small business loans through an innovative marketplace lending model from today.
A team of finance industry heavyweights, the majority of whom are fresh from the Big Four, are leading a new fintech SME lending venture. Bigstone is a unique marketplace lending model whereby businesses can apply for risk-based finance and investors can choose loans, or parts of loans, that match their preferences. Speaking to finder.com.au, CEO and founder Boyd Pederson explained how the venture came about.
"Through the experiences that I had coming up with the idea, and my partners had in their various functions and experiences in the banks and other parts of their careers, we found that there were two fundamental problems that financial institutions had not fully addressed, and we called those the two big stones. Bigstone focused on solving them."
We think savers deserve to generate a better rate of return by enabling them to be the bank.
One of the most significant problems Pederson identified was the number of small businesses that find it difficult to access finance. According to Bigstone, research shows that 83% of small businesses have difficulty accessing credit, while as many as 70% of SMEs report that this affected their cash flow.
The second problem identified by Pederson and the other founding Bigstone members was the savers who are faced with a low-interest rate environment.
"We think savers deserve to generate a better rate of return by enabling them to be the bank," he said.
The experience Pederson and the Bigstone management team had in banks gave them insight into the limitations of the banking market, he said.
"Banks are constrained both now by increased capital requirements, the complexity of servicing small businesses, their own complex business processes, the legacy systems and the simple challenge of getting things done in a large organisation which makes the pace of change slow. The difficulty for banks is that they really have a problem pursuing that marketplace (SME lending) profitably."
The platform that has been designed by Pederson and the Bigstone founding members is innovative and unlike many of the peer-to-peer models that exist in Australia. Rather than Bigstone as lender matching investors with businesses as per the investor's preferences and the businesses' determined risk, investors are notified of available loans in the open marketplace.
"What we're offering is as pure a marketplace as you can get without the auction pricing model," Pederson explains. "We take the work away from both sides of the party. We make it really easy for a small business to get a loan, as in they can get a risk-based price for themselves within three minutes of coming on the website...What we do as the purest value-add for that process is price risk. In order to make a marketplace work really well, you need to have a trusted way to do price discovery."
Bigstone determines the risk of the business that's applying on behalf of the investor and is transparent about how this is done.
"We synthesise the risk of a business by understanding the performance of that business. Once we do this we present the synthesised credit analysis to the investors in a really easy-to-understand manner that lets the investors filter the markets according to what's important to them and navigate down to the right level of detail they need to be able to make a decision."
Bigstone relies on data to accurately measure a business' credit risk profile, as is the case with most fintech companies. The difference with Bigstone is that it looks to actively reward the applicant for sharing information.
"The way the user experience is designed is we try to give something back to the borrower before they give something to us," says Pederson.
Businesses can apply anonymously and then receive a risk-based price within three minutes of coming onto the website. If they want to move forward with that price that's when they need to supply their identity, in the form of an email address and supplying the company name and loan purpose details. The platform also allows to businesses to signing in using social media. Following the identification and loan request stage, businesses need to supply financial documents or refer Bigstone to their accountant.
The more information businesses share, the better their rate can be.
"We think that there should be a price that lenders pay to borrowers for them effectively giving them more information. So, we reward them for giving more information to us."