The next frontier

Australia’s open banking environment and an SME community hungry for new funding options has led Edo Omoniyi, Co-Founder of Cape to head Down Under

By almost any metric, buy now, pay later (BNPL) has found a natural home in Australia.

So-called ‘soft credit’ providers such as Klarna, Afterpay, Humm, Zip, LimePay and LatitudePay have already staked their flag in the territory, allowing consumers to defer payments for purchases. AfterPay alone saw the value of its transactions double last year, from A$5.2billion to A$11.1billion. During the 2020 online holiday shopping season, it is believed one in three Australians made a BNPL transaction.

In March, Australia’s biggest lender, Commonwealth Bank, revealed that it’s throwing its hat into the ring with its own offering, while PayPal announced that it would launch a BNPL option in Australia this June. From clothing to conveyancing services, consumers are falling over offers banking, it’s due to launch first in Australia where SMEs find traditional credit models unfit for purpose, says Omoniyi; they are too rigid and data-poor, especially in a COVID-impacted world.

“Look at the current route that lenders or banks use to try to assess the picture of an SME, or assess risk – it is pretty rigid and wooden,” he says. “They wouldn’t seek the information you need to have an up-to-date accurate picture of a business. That’s the space we can occupy.

“We’re simply trying to solve the issue of access to working capital for SMEs. For example, if you are a relatively new business, you don’t typically have the track record that a traditional lender will require. They might instead want a personal guarantor or secure a line of credit against your home.

“What we want to do is knock down some of those barriers to credit for SMEs, remove all that unnecessary complexity and provide a flexible solution.”

Cape is one of a growing number of fintechs that are chipping away at the old ‘one-size-fits-all’ approach to business banking, which never really suited the SME multiverse.

to ‘spread the cost’, often for zero fees. But what about businesses?

Various studies put the funding gap for Australian SMEs at between A$70billion and A$103billion. While that is partly being addressed by the federal government’s Small Business Stimulus/ Relief Package, announced in January in response to the pandemic, it’s been estimated that as many as 160,000 of Australia's two million small businesses won’t survive having their cash flow choked off by the crisis.

That’s where small business financial provider Cape, which offers a ‘recession fighting’ business credit card and expense management capability for SMEs, has spotted an opportunity to step in.

“There hasn’t been a massive focus on BNPL for SMEs so there is a huge opportunity there. We can understand businesses, provide them with more choice and deliver a brilliant way of lowering borrowing costs,” says co-founder and COO, Edo Omoniyi.

Developed in the UK, Cape is the brainchild of former 11:FS staffer Omoniyi and ex-Funding Options MD Ryan Edwards-Pritchard. Powered by open

“They’re all unique, they have different looking at their invoices, to understand Well, certainly the introduction of the characteristics, depending on the their unrealised revenue. Maybe they’ve Consumer Data Right (CDR) in 2020 paved industry, and all of these need to be sold a contract to another business, or the way, giving individuals and small catered for,” says Omoniyi. some licencing to another business, for businesses control over their banking

“Business banking always seems to be a year; they’re six months in, so there’s data and how it is used. the last to have any product accessibility six months of unrealised revenue. We Another reason may lie in the fact or forward thinking, but you can create would try to pull that into our credit that Australians’ credit card debts fell lots of interesting propositions to help model, to understand, and underwrite to a 15-year low in July 2020, according serve different parts of the market and that company. The same goes for an to Reuters, the shift from credit to serve them well.” e-commerce company, looking at some debit, a result of people and businesses

Understanding the nuances of a of their trading data, or trading history prioritising repayments as the future particular SME requires data, and lots of it. that comes out of the e-commerce became more uncertain. The subsequent Cape seeks to look ‘under the hood’ of a platform. That’s where I think it gets pressure on credit growth and fee income business – providing insights into cash really interesting, where we can really for banks results in an opportunity for flow, spending decisions, and workable set ourselves apart and differentiate from providers like Cape to absorb these losses credit limit. An open banking native, it will a traditional lender or a bank. with alternative offerings. use Australia’s progressive “One of the key issues Meanwhile, the phased introduction of regulatory landscape to There’s been that we find with lots of data sharing mandated by the Australian create a tailor-made approach to credit. “The progress in open a real shift in how fintech SMEs, is around cashflow and access to capital. At the best of times, it can be government will see information on business overdrafts, finance agreements, investment loans, lines of credit, asset banking means we have is evolving in very difficult for a business finance, and cash management accounts, a rich seam of data to use,” says Omoniyi. “Even access to accounting data, from Australia. Open banking changed to understand what their position is, what their forecasted sales might fully exposed this year. Like many UK fintechs, which have been actively encouraged and welcomed accounting-as-a-service everything be, especially during a by the Australian government, Omoniyi platforms, like Xero or pandemic. We give them believes Australia is ripe for expansion QuickBooks, allows companies like the ability to try to surface some of this and it’s been busy beefing up its ourselves to ingest this data, and offer through our products, especially our leadership team in readiness for coming services or products off the back of that. cashflow forecasting and analytics tools. out of BETA in the first quarter of 2021.

“At Cape we are looking at data outside We’re trying to enrich the experience for Tanya Ward (chief financial officer), the traditional parameters. So we’re SMEs, around not just the line of credit, but Rahul Pakashi (chief risk officer) and pulling in all of the data from credit also to understand what they’re spending, Gerry Hoare (non-executive director) bureaus, all the data around the business, how they’re spending it, and improve their are now all part of the endeavour. to understand them, but also looking confidence around that.” “I think there’s been a real shift in how potentially at vertical or industry data, Australia has been something of a fintech is evolving now in Australia,” that’s specific to them. poster boy for BNPL. So what is so says Omoniyi. “Open banking has

“If they’re a software-as-a-service attractive to businesses looking to set up changed everything. And, for us, it’s (SaaS) business, for example, we’re in that country? going to be a busy, busy year!”

Taking its place:

Cape is among several UK fintechs welcomed by Australia