Demand for new alternative finance increased 130 per cent in H2 2017, compared with the same period the previous year, according to newly released data from Equifax, the global information solutions company and the leading provider of credit information and analysis in Australia and New Zealand.
Released recently, Equifax’s inaugural state of the nation report looks at Alternative Finance Lenders, a newer lending category for consumers and businesses that may use a variety of funding sources and leverages online technology and a range of data sources to make risk-based pricing decisions. This category excludes payday lenders, debtor finance and factoring businesses.
The demand for alternative finance is being led by consumers, with enquiries in this sector increasing 139 per cent year-on-year. Businesses are also increasingly seeing alternative lenders as a viable financial option, with commercial demand growing 69 per cent in H2 2017 vs H2 2016.
Looking at consumer behaviour, millennials (18-38 years) make up the largest proportion of alternative finance enquiries, with 62 per cent of enquiries in 2017 being made by this group. This was followed by enquiries by Gen X consumers (12%).
“Most millennials are digital natives and have been using digital-first financial services, like banking apps and tap-and-go payment technology, since they first arrived on the market. This could go some way to explaining why they are the age group most comfortable with alternative finance providers.
“In addition to this, young people in their twenties and early thirties may be moving into a phase of their lives when they need to raise more capital to make and follow through on big life decisions, like moving cities, or starting a family or a new business,” Mr Samaha said.
Of the larger states, WA experienced the strongest growth rate in consumer demand year-on-year, with an increase in demand of 150 per cent. This was followed by Victoria (143%), Queensland (139%) and NSW (128%).
New South Wales saw an equal spread of enquiries between metro and regional areas, while enquiries in the remainder of states were mostly concentrated in metro areas.
Business demand for alternative finance grew strongly in Victoria and WA, with both states seeing a rise in demand of 70 per cent year-on-year. NSW (67%) and Queensland (66%) also experienced solid business demand growth.
In terms of industry sectors, retail trade entities accounted for 21 per cent of alternative finance enquiries by industry – almost double the volume of retail trade enquiries to traditional lenders (12%). The accommodation and food services industry also saw strong demand for alternative finance (12%).
Unsurprisingly, given the volume of small businesses operating in Australia, 98.8 per cent of alternative finance enquiries in 2017 came from Small and Medium Entities (SMEs). By comparison, 89.4 per cent of demand for traditional finance comes from SMEs, suggesting these alternative finance options are filling a funding gap for the SME sector.
“Many retail and accommodation and food businesses are SMEs, which may explain why these industries dominated the demand for alternative finance,” Mr Samaha said.
Businesses that have been established for more than 20 years showed significantly lower demand for alternative finance (7.1%) compared to those that had been in business for between 1-19 years (92.5%). Typically, businesses that have been trading for more than 20 years make up 24.3 per cent of the traditional lending market.
“Established businesses that have been trading for a significant time period often have long-term relationships with traditional lenders, which may explain why they are less likely to approach new alternative lenders,” Mr Samaha said.
The information contained in this release is general in nature and does not take into account your organisation’s objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your organisation’s circumstance before acting on it, and where appropriate, seek professional advice where appropriate.
 All statistics quoted are based on Equifax data analysis completed in March 2018
Source: Equifax Australia