Is face-to-face the new “face” of online lending?

As online business lending continues to grow in Australia, industry heavyweight Prospa brings it back to the customer.

The online loans market in Australia is maturing. More customers are demanding the convenience and flexibility offered by it and there's an increasing amount of online lenders available to meet that demand. But what makes a lender stand out in this market? For online business lender Prospa, it's a continued focus on the people taking out its loans.

Starting in the market four years ago, Prospa's CEO Beau Bertoli saw a gap in the market after spending three months speaking to a range of different businesses.

"We went out and identified the problem. We used to go out and have face-to-faces with customers and ask them what they were using for current finance products and what they needed, and it became clear that what the market was offering, which was the banks, and what the customers were looking for, was poles apart," he told finder.com.au.

The focus for the next three months was on developing a product that was fast, simple and flexible. While the initial research phase was short, Bertoli explains that it's an ongoing process for Prospa.

"Customer needs change over time...we're constantly creating a dynamic product that solves their future problems as well as their current opportunities and challenges."

Today, Prospa has gone from zero in loan originations to $140 million, and a small team of two up to 85, and as the business has grown, the industry has grown with it.

"When we started the business there were two of us in the market, now there's probably twenty," said Bertoli.

It became clear that what the market was offering, which was the banks, and what the customers were looking for, was poles apart.

The Asia Pacific Alternative Finance Benchmarking Report released in March 2016 by the University of Sydney Business School and the Cambridge Centre for Alternative Finance also found online alternative finance to have grown rapidly in Australia. According to the report, balance sheet business lending, which is where a platform entity provides a loan directly to a business borrower, accounted for over $120 million in market volume in 2015.

While the market is getting traction, Bertoli admits there has been some hesitation from borrowers.

"There is certainly this thing in Australia where if it's not an Australian bank then there's this big question mark around it," he said. "We've put a lot of effort and energy into building our credibility as a brand and building the credibility of the industry as well."

Prospa is building its credibility in various ways, but one way is with the technology it uses. The focus of many online lenders is using data to analyse borrowers, but Bertoli says Prospa's use of data goes beyond this.

"Data is really interesting because the amount of data that's created in any business everyday is phenomenal. We're very focused on making sure we have the ability to capture all the right data, store it in the right type of database and then have smart people who know how to interpret that data."

Data is used to analyse the business' marketing and campaign activities, both online and offline, for business development insights and analytics, and with the ProspaScore, an internally developed application score.

"We look at over 400 different data points, and those data points can be anything from bank statement information through to financial reporting, so tying up the story between the number and what our customers tell us – social media information, accounting platform information...for the customer it has to come back to those two things, it has to be simple and it has to be fast."

The ProspaScore is updated almost weekly and informed by an ongoing review process of current loans.

Prospa's use of intelligent data has allowed its to develop a flexible product that suits small businesses in a range of industries. It currently lends to 95% of industries across Australia, and those industries are as diverse as you might expect.

"We've had some very interesting businesses from different industries. We had one, he was a coral farmer from north-western Australia, he used to grow coral – I never realised how much money was in coral and fish. We've had wheat farmers getting ready to do their crops and we provide finance for their diesel. For example, it takes $60,000 worth of diesel to run your machinery during that period, and then you get your money back two or three months later from the crops."

For Bertoli, Prospa is still in the fledgling stages of where it can go, but it will always come back to its borrowers.

"We haven't scratched the surface of reaching Australia's small business owners...At the end of the day we always come back to our customer. Our customer is a small business owner, that’s a person at the end of every loan. If we can provide finance that can help them run and grow their business and have a better performing business, then that only improves their lifestyle, and that’s really important to us."

Businesses can currently apply for a loan between $5,000 and $250,000, but the average loan amount is around $25,000.