Press articles

Finance is the sector with the highest potential for disruption

unfair Interesting perspectives in The Australian this week:

Ever since Clayton Christensen wrote The Innovator’s Dilemma almost 20 years ago, institutions have been wrestling with the concept of sustaining technologies and disruptive technologies. Sustaining technologies enable existing companies to improve existing businesses. Disruptive technologies usually destroy existing businesses. For taxis, GPS was a sustaining technology and Uber is a disruptive technology.

All those who wore red t-shirts to the party are targets for disruption. A KPMG report on the Australian financial services industry released last year said that disruption threatens 25 to 30 per cent of existing banking revenue and, further ahead, it will endanger 50 per cent of bank revenue.

Rachel Botsman, who identified the new economy earlier than most, says finance is the sector that has the highest risk of disruption because it has so many retail outlets and middlemen, trust in the system is low, there are many restrictions on access to money and there are complex fees and processes around it.

Yet, she says, “banks still see this as fringe and they think many of their core businesses will remain intact. They’re not asking, what is going to be the role of the bank in five years time? They don’t see that they’re losing control of the distribution of value. They see it as digital or techie but not as a system change.”

Angela Mentis has tough assignment as NAB business boss


Michael Bennet

When National Australia Bank chief Andrew Thorburn this month formalised plans to sell the group’s British subsidiary Clydesdale, he ticked off one of the biggest problems on his lengthy to-do list.

But once the applause stopped, investors homed in on the need to fix the bank’s business-lending arm after NAB insisted allocating more capital and attention to Australia would drive stronger earnings and support its lofty dividend payout ratio.

On his first day in the top job on August 1, Thorburn gave the critical job of running the business bank to Angela Mentis, a long-time banker who was little known to the investment community.

With NAB the biggest player in the $800 billion business-lending market and Westpac boss Gail Kelly recently retiring, it made Mentis one of the nation’s most senior female bankers — with all the pressures that go with it.

“It’s a big call for Thorburn, as if she doesn’t work out it blows him up,” says one analyst, who declined to be named.

Mentis, whose Greek-born parents ran an array of small businesses including takeaway food outlets around Sydney, describes the appointment as a privilege that also comes with “great responsibility”.

“I have a strong sense of personal accountability and it is having the right team around me and an unwavering belief in what we are doing that helps in dealing with the pressure,” she tells The Weekend Australian.

After a good period following the global financial crisis when foreign banks departed and NAB’s margins expanded, the business bank has underperformed since 2011 and cost the group almost $500 million a year as market share slid, according to Macquarie.

But Mentis has time. Thorburn this month said it would take 18 months to get the business bank “completely match-fit” again. It won’t be cheap after the business unit’s cost to income ratio slid to unsustainably low levels in the wake of the GFC, according to analysts.

But Mentis says investments are being made in priority areas like small to medium business, agriculture and health, and has already hired 150 frontline business bankers as part of a $40m injection. “The key problem we had was under-investment in recent years in people, remuneration, training, products, policies and processes, so that resulted in a higher turnover of bankers,” says Mentis, who is hiring 70 more bankers.

“But we’re focused now and absolutely committed to investing and ensuring that we are an employer of choice ... making sure we can attract, retain and grow, and put the investment where it is needed.

“The return on equity in our priority segments is 10-15 per cent higher than in other segments — the top end of town — that we look after.

“So we are investing in the right segments … because we know that’s the core part of the franchise that will absolutely help us turn the business around.”

While NAB has been criticised for a culture of blaming others, several analysts have in recent years backed up Mentis’s claims.

According to Macquarie’s analysis in January, about 700 business bankers left NAB in 2012 and 2013 amid under-investment in its business bank, the group’s former “jewel in the crown”.

Mentis dismisses the suggestion the business bank was an unhappy place, but admits it was paying below market and has rectified that because “you can’t have the best people unless you are rewarding them accordingly”.

As ANZ and Westpac eagerly seek to add small business bankers, Mentis says NAB has been working on its overall “package” to staff, ensuring bankers have the “right” leadership, products and systems to perform.

“I am pleased we’ve been able to attract the amount of people we have,” says Mentis, who took the reins from Joseph Healy.

“We know when we talk to our clients there is a strong correlation between their engagement and advocacy for us and the tenure of our bankers.

“So we know we have to keep that relationship together for longer. There is more work to do on that. It’s a journey but it’s starting to show in the results.”

In the six months to March 31, business banking revenue rose 0.4 per cent to $3.9bn as it held market share in the key micro and SME markets.

While margins shrank six basis points to 2.11 per cent amid competition that Mentis describes as “absolutely intense”, business lending balances grew 4.5 per cent to $172bn.

Mentis says while there’s a “lag” between investment and returns, the results showed progress. She adds it takes time for new bankers to get comfortable in their roles and produce profits. Despite SMEs being small borrowers, they are lucrative for banks to cross-sell products. “Even though competition has been intense, we have been able through the investment and focus on discipline and relationship management to grow volumes, stabilise our revenue,” Mentis says. “We expect as people become more confident in their roles and the investment flows through, that should continue in the second half.”

A key problem for all banks is poor business customer satisfaction.

While NAB has the third worst net promoter score — customers’ likelihood to recommend institutions — of the big four in small and business banking, all the big four are in negative territory.

“None of us are where we should be but there is a big prize for the bank that absolutely understands that,” Mentis says.

“I have seen over 1000 customers face to face since I got into this job ... and it is about making sure we understand what is important to them.

“They want us to know them, they want us to bring them insights, they want us to help them grow, improve the service that lets them down and remove barriers that get in their way.”











InvoiceX Endorses Federal Budget Support For Small Business But Flags The Need To Solve The Cashflow Dilemma

InvoiceX (IX), Australia’s first provider of confidential marketplace invoice financing has today commended the government for a number of encouraging changes to help small businesses in the recent budget, however proactive action to address the cashflow dilemma was sadly missing. Getting customers to pay on time is a struggle for many small companies—one that can disrupt a company’s cash flow and even stunt its growth. IX is part of a new generation of peer-to-peer alternative finance firms offering small-medium sized businesses a sensible option to fund growth. The company is on track to process over $20m worth of invoices this year.

“Incentivising business owners to invest is very welcome but financing this is a major challenge. If you have no further real estate to offer a lender as collateral, like most owners of smaller businesses, how can you finance your growth? This applies especially to the build-up of working capital that is involved in growing, a critical hurdle when dealing with larger customers who take longer to pay,” said Steve Yannarakis, co-founder of IX.

According to Dun & Bradstreet, customers take an average of over 50 days to pay their bills in Australia. A typical business with revenues of $5m often has unpaid bills due from customers of over $750,000. To double in size, it would need to finance over $1.5m of unpaid bills. To make matters worse, business owners have to pay their tax in advance of collecting any profit earned.

The banking system is not increasing its cashflow lending to small businesses. According to the RBA, it has been flat-lining at $200bn since the GFC – that’s about $100,000 per business on average. Over the same period, mortgages, which represent over 95% of lending, have grown by over $400bn. Most small business owners are forced to use their credit card to bridge cashflow problems at crippling interest rates.

“What would have been helpful to small businesses are initiatives similar to those introduced recently by the UK government, where small businesses that have been rejected for loans must be referred to a panel of alternative finance providers. In addition, the British Business Bank was given £100m ($200m) to support alternative providers,” said Dermot Crean, co-founder of IX.

Using advanced computing power and a low cost structure, IX is bridging the financing gap and narrowing the spread on finance. The IX platform enables Australian businesses to raise short-term working capital by selling outstanding invoices direct to investors.

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Draft legislation released – unfair contract terms

In August 2013, the Abbott Government announced this important reform to give businesses a fair go. The protections will give businesses access to a level playing field to grow, invest and create jobs.

Consumers have been protected from unfair contract terms since 2010. It is time that small businesses, which often face the same vulnerabilities as consumers, receive strong protections when contending with “take it or leave it” contracts.

Under the new protections, a court will be able to strike out a term of a small business contract that is considered unfair. For example, a term that allows a big business to unilaterally change the price or key terms during the course of the contract could be considered unfair.

The protections will apply to businesses that employ less than 20 persons for transactions under $100,000, or $250,000 for contracts that last longer than 12 months.

These changes will support small businesses in their day to day transactions, but still encourage operators to conduct their own due diligence on large contracts fundamental to the success of their business.

Businesses that offer contracts in these circumstances will be required to comply with the new law.

The Government has provided $1.4 million to the Australian Competition and Consumer Commission (ACCC) to support implementation of the new law, including conducting an information campaign.

The draft legislation builds on extensive consultation undertaken in mid-2014, and follows confirmation that the Commonwealth has the necessary support from state and territory governments to implement this important policy reform.

The draft legislation and explanatory materials are available on the Treasury website for a consultation period ending 12 May 2015.

Treasury officials will also hold targeted consultations following the end of the public consultation process.

With this legislation, the Government is restoring time and resources back to small business to invest in their business success rather than navigating a costly and time consuming maze of red tape.

It is part of our strategy to ensure Australia is the best place to start and grow a business.

Dermot Crean

Director, InvoiceX


(03) 9020 4161

The drivers of SME confidence: availability of credit

Today we continue our analysis of the SME sector, using data from our recently completed SME survey. Yesterday we showed that overall SME’s are still in the doldrums, but the construction sector is definitely on the rebound, showing stronger confidence, and demand for finance, This is a direct consequence of the low rate environment, and increasing demand for housing. The rebound is strongest in NSW and VIC, which aligns with recent strong property prices. As we reported previously,we need 900,000 more dwellings to be built over the next three years to meet current and anticipated demand. Construction sector SME’s have an critical role to play, as they either provide sub-contracting services to larger building companies or fund their own speculative developments. We start our discussion looking at the drivers of SME confidence. Compared with last year, concerns about political instability have diminished, whereas availability of credit now has more weight.


If we look at the year on year changes in confidence, for the last two years, confidence does vary by industry. Specifically, we see a rise in confidence in the property and business services sector, and construction. In comparison, manufacturing confidence has dropped, as has confidence in the mining sector.


Next looking at what is driving funding needs, we find that the biggest, and growing need is for working capital.


We find that this need is driven by cash flow issues. Cash flow is being hit by long payment cycles, the need to pay taxes and GST, to pay wages and to buy materials. Business expansion was not identified by many SME’s as a reason to borrow more. This indicates that businesses are still operating in survival mode.


Looking specifically at debtor days we see a slight improvement this year, with the debts outstanding over 50 days falling for the first time in a couple of years.


Now we turn to the LVR (Loan to Value Ratio) for specific industries. The most significant observation is that SME’s in the construction sector have increased their borrowing, relative to their assets. This is a sign of increased momentum in the sector. Construction tends to have a higher LVR because of nature of their business, but we see a significant trend change this past year. This data relates only to those SME’s who borrow, not all do so.


Then if we look at losses, we see the banks are still experiencing elevated levels of loss, compared with the pre-GFC environment from the SME sector. There are some state variations, and we saw some divergence in 2011-2012. The latest data from our models indicates an adjustment towards more consistent state norms. These higher loss rates explain partly why the capital allocation and loan pricing for SME’s is higher than other classes of lending. We have highlighted the problem with these differences.


Finally, if we look at losses in the construction sector, they are still above the SME average, but are trending down, other than in WA which have been consistently lower than other states, but is now trending up now.


So putting all this together, the frail SME sector is patchy. Construction is waking up, with increased demand for finance, and bank losses falling. On the other hand, the resource sector is slipping off its highs. Other sectors, including retail and manufacturing are still languishing. The RBA’s wish to effect a transition from the resource sector to the construction sector is registering in the survey. Confidence in the construction sector is stronger, and momentum is picking up. The recovery is strongest in NSW and VIC, and slowing in WA. Fewer than 10% of all SME’s are linked with the construction sector, so others are not fairing as well, and continue to grind out a hand-to-mouth existence. We cannot put all our eggs in the construction basket!

Digital Finance Analytics, 29 April 2015

Banking disrupter Stephen Porges to lead P2P lender DirectMoney

Having spent five years running Aussie Home Loans, the original banking disrupter that brought cut-throat competition to home loans and forced big banks to slash mortgage rates, Stephen Porges has found a new target: the big profit margins banks earn on personal loans.

After his dramatic exit from SAI Global last year amid an internal battle for control as private equity lobbed bids for the standards setter, Mr Porges has re-emerged in the financial services sector as executive chairman of DirectMoney, another peer-to-peer lender allowing customers to borrow directly from investors via an online platform, bypassing the banks.

DirectMoney began organising loans through its internet platform last October and since then $6 million has been lent to borrowers by wholesale investors, at an average loan size of $15,000. DirectMoney will be able to accept loans from retail investors now, after the Australian Securities and Investments Commission granted it an Australian Financial Services Licence on Friday.

P2P lenders would "do to the personal loan market in Australia what Aussie did to the mortgage market", Mr Porges, who joined Aussie as chief executive in 2008 and worked alongside founder John Symond, said.

Since Aussie was founded in 1992, the average interest rate on a mortgage had fallen by 6 percentage points, as a result of competitive pressure applied by Aussie and other competitors, Mr Porges said.

"In mortgages, consumers now get a good deal. But the same disruption has not happened in the personal loan space," he said.

"The real challengers to the banks are specialist fintech players that don't have big infrastructure costs. The banks know many of these fintech start-ups are very interesting business models, and when a range of new technology is put together it will enable better banking."


DirectMoney, which was established in 2007 but put plans to launch the following year on ice as the global financial crisis struck, joins a swelling bunch of P2P lenders to hit the Australian market, including SocietyOne, RateSetter, ThinCats and Marketlend, which have all been licensed by ASIC, and MoneyPlace and Lend2Fund, which are waiting for ASIC to grant licences. Only DirectMoney and RateSetter have been allowed to establish a retail platform.

SocietyOne chief executive Matt Symons observed last year personal lending by the big banks made up only 3 per cent of bank assets but accounted for 16 per cent of retail banking profits. Volume across the nascent P2P industry are minuscule but the potential disrupters hope Australian borrowers will cotton on to their more attractive interest rates, while a sufficient number of yield-hungry investors will be attracted to fund the loans.

While banks might charge interest rates for personal loans of about 15 per cent and rates closer to 20 per cent on credit cards without generally adjusting pricing to reward lower-risk borrowers, DirectMoney says high-quality borrowers over its platform can get loans at 10.75 per cent, with the average rate about 14.75 per cent. Investors in the loans will receive interest of between 8 per cent and 10 per cent.

DirectMoney chief executive and founder David Doust, who spent five years working in Silicon Valley and before that was at Citibank and KPMG, said the company was able to attack part of the margin the bank would usually earn because its technology meant overheads were low. Only about 15 per cent of completed applications would be approved to go on to the platform, to keep credit quality high, as the company targeted borrowers younger than 45, who were less "sticky" banking customers, Mr Doust said.

DirectMoney has won financial backing from New York-based hedge fund Eaglewood Capital Management, which specialises in online lenders and also trades in P2P loans on secondary markets, and by the boutique investment bank Liberum, which is based in London. It raised $500,000 in seed funding in May 2014.

Adcock Group chief investment officer Campbell McComb and former Macquarie Group head of innovation Craig Swanger are on the DirectMoney board. It has 15 full-time staff, including former members of Westpac's credit assessment team and a technology team that worked at IRESS.


The loans made over its platform would ultimately be 70 per cent funded by retail investors and 30 per cent funded by institutions, Mr Doust said. DirectMoney also had plans to float on the Australian Securities Exchange, enabling it to fund with its own balance sheet.

Unlike its competitors, which directly match investors with particular loans or parts of loans, DirectMoney has created a warehouse structure, meaning borrowers, once approved, will be funded immediately out of a pool of funds committed to a particular risk. Unlike SocietyOne, lenders do not bid an interest rate. DirectMoney is also planning to provide lenders with liquidity.

The big banks have contrasting approaches towards P2P. Westpac Banking Corp took a stake last year in SocietyOne through its venture capital fund. But Commonwealth Bank of Australia's head of institutional banking and markets Kelly Bayer Rosmarin has questioned the P2P model, suggesting when interest rates rose P2P lenders might struggle.

Mr Porges said "if rates go up, banks still get the margin and it is the margin that is the problem". He described the key risk for P2P as being "customers' inertia to change from current providers. People have got to get away from that inertia, but it will happen. Australian consumers are financially smart."

Given Westpac's investment in P2P and with CBA buying into Aussie Home Loans the same year he joined as chief executive (it owns 80 per cent now), Mr Porges said DirectMoney did not want to partner too early with a bank, but he recognised that a future deal might be inevitable.

"When you put margin pressure on the banks they have to react, and the big banks reacted to Aussie and Mortgage Choice by buying stakes in them. They think that is how they play in the game."


View from the US: marketplace lending is transforming credit

US P2P market

The $2.4B in loans issued in 2013 by Lending Club and Prosper alone is a big number, but it’s only the first straw to be placed on the proverbial camel’s back. The top five banks have a market capitalization of a trillion dollars; the next 30 banks together are worth another trillion. How big can marketplace lending get? According to our estimates, banks, credit cards and other lending institutions generate $870B+ each year in fees and interest from over $3.2T in lending activity.

That’s bigger than the automobile industry. It’s bigger than the airline industry. And it’s bigger than both of those industries combined. That’s how big marketplace lending can get.

We’ve seen consumers and fast-growing upstarts challenge entrenched industries before, either out of frustration with incumbents, or the convenience of the disruptor. Consumers tired of exorbitant and inflexible cable bills, for instance, cut their cords and turned to over-the-top services such as Netflix. Yelp offered context and convenience that the Yellow Pages never could. And after the financial crisis, credit card users exasperated by 15%-plus interest rates, depositors tired of interest rates of 0.36% on savings accounts, and investors tired of 0.12% Treasury bills started looking for alternatives – and discovered marketplace lending.

The future belongs to online marketplace platforms like Lending Club, Sofi, OnDeck, RateSetter and others that aren’t yet on the scene that will remake the industry by developing more efficient lending practices, making those products more convenient for borrowers in all verticals – from merchant cash advance to consumer. We believe marketplaces will redirect the $870B+ that retail banks charge borrowers towards better rates for borrowers and lenders while still making tidy margins for themselves.

Marketplace lending is not a radical concept – it’s a more efficient one. As new companies and marketplaces form, we expect that options for marketplace lending will develop for all manner of consumer and business loans, including consumer unsecured, real estate, education, purchase finance, business loans, and business working capital.

And this transformation is only beginning. Currently, less than 2% of lending revenue is being captured by marketplace lenders in all verticals.

Marketplace Lending’s potential doesn’t mean that retail banks will be pushed out of business. Instead, retail banks that choose to participate in the marketplace revolution will use their capital to fund loans on marketplace platforms – as banks such as Titan Bank and Congressional Bank have begun to do with Lending Club. (In South Africa, we’ve seen Barclays take a position in RainFin, in Australia, Westpac has bought into Society One, and in the UK Santander has partnered with Funding Circle.)

Instead of playing the role of intermediary, retail banks can become borrower lead generation sources and institutional investors. Other banks are starting to bring their own borrowers and capital to Funding Circle’s and Lending Club’s marketplaces to more profitably facilitate loans to their own customers.


In addition to Lending Club and Prosper, other marketplace lenders have also sprung up. These include SoFi and Common Bond for student loans and Kabbage, OnDeck, and Funding Circle for SMB loans. Even companies like PayPal and Square have started to offer direct loans to their customers. We expect more loan providers will follow, in these and other categories.

Foundation Capital 

Real concerns about business lending

Real concerns about business lendingANDREW WHITE AND MICHAEL BENNET THE AUSTRALIAN APRIL 05, 2014 12:00AM

THE Murray inquiry is facing calls for regulatory changes to encourage more competition, investigations of bank capital rules that deter lending to small business and whether fees and interest spreads charged to small and medium enterprises are in line with overseas markets.

Both the NSW Business Chamber and the Export Finance and Insurance Commission said the structure of regulation encouraged risk aversion by the banks and discouraged lending to small and medium enterprises.

“Funding requirements of SMEs — particularly those which are innovative or growing rapidly — do not fit into the standard criteria, or the model-based lending approach adopted by banks, given the small amounts involved and the lack of security and readily available information on borrowers’ abilities to perform,’’ EFIC said.

“Australia’s regulatory settings also bias banks against providing credit to SMEs’’.

Australian regulations require lenders to hold significantly more capital against SME loans than more “capital-light products” like residential mortgages because of the higher risk of default.

“Australian banks have a bias towards residential mortgage lending relative to SME loans in terms of capital management, but also given the extra effort in managing the resultant risks,’’ the EFIC said.

The inquiry should also investigate the different pricing charged to a borrower for a personal loan and for a business loan secured by the same property.

Business NSW said the inquiry should investigate the use of a partial credit guarantee similar to that in Britain and other countries to encourage business lending.

The concerns about business lending echo concerns expressed by the Reserve Bank of Australia about a lack of competition for business credit in Australia.

But in a joint submission with the Australian Bankers Association, the Council of Small Business of Australia played down problems of access to credit. In a study published with its submission, 11 per cent of small businesses ranked access to finance as a major concern. It was the 15th out of 20 issues highlighted.

Innovation Australia said the Australian banking sector was configured similarly to the British banking sector but more concentrated. “In the IA board’s experience, it is likewise not performing well regarding the provision of development finance,” it said.

Australia Post called for a regulatory framework that encouraged greater competition.

“Despite having one of the soundest banking systems in the world, delays to the introduction of payments, identity and financial services innovation has denied Australia potential productivity benefits and has resulted in a failure to exploit opportunities to position Australia as a leading financial services provider in the broader region,” Australia Post said in its submission.

“A regulatory framework that enables greater competition will inevitably foster innovation and greater efficiency throughout the Australian financial system.”

Retailer Coles, which has pushed aggressively into selling insurance products, said a vibrant financial system required competition.

“This, in turn, requires that new entrants are able to compete in segments of the system without being subjected to regulatory burdens beyond those needed to establish fundamental safety and soundness as well as proper conduct.”

The federal Treasury said the system was working well with regulation forged from the previous inquiry headed by businessman Stan Wallis.

It said there was no need for fundamental reforms of the regulatory framework but improvements at the margin would foster competition across the system without endangering stability.

How bad are banks for SMEs?

Tony FeatherstoneSydney Morning Herald - The Venture Tony Featherstone is a specialist writer on small companies and entrepreneurs

Will the big banks follow the lead of the smaller lenders?

The National Australia Bank apparently “sees” small business, having broken away from the other big banks; the ANZ has pledged to lend $1 billion to start-ups; the Commonwealth has a “can do” approach to business; and Australia is proudly supported by Westpac.

What a crock. Not even Mad Men’s Don Draper could invent a flash TV ad to convince SMEs that Australia’s big banks want to finance more of them, genuinely understand small business, or be there at their time of need, when urgent refinancing is needed.

I recently interviewed a range of lending experts and SMEs on their bank experiences. There were recurring themes: bank debt was increasingly harder for SMEs to access; interest costs and fees had risen; banking relationships were less satisfactory; and banks were quick to pull the plug on struggling SMEs.

It’s always dangerous basing views only on anecdotes or relying on a small sample of views. I’m sure the top 20 per cent of SMEs (by performance) have banks eager to lend them more money and provide top-notch service via their best relationships managers. But what of the other 80 per cent?

As banks spend millions advertising their SME love, they have never been more unpopular with the sector, according to an East & Partners survey of more than 6,000 businesses reported this week. Satisfaction ratings for Westpac, CBA and ANZ have deteriorated significantly since the GFC.

As home owners benefit from lower interest rates, more than four out of 10 SMEs had interest-rate increases on their loans in the first half of 2013, according to an East & Partners survey in June.

About 44 per cent of SMEs that applied for new credit were unsuccessful, according to another East study earlier this year.

Ground-breaking PhD research by Dr Ian Freeman, of Nem Australasia, found an astonishing 71 per cent of SMEs (based on a survey of 500) had a negative or ambivalent response towards their big four bank when asked: “My business bankers understands and supports my business when help is required?” Only 29 per cent agreed with that statement.

Amazingly, two of the big four banks thought their satisfaction ratings in Dr Freeman’s survey would be well above 70 per cent before the question was asked. This suggests banks are completely out of touch with how SMEs rate their service, and badly over-rate their service.

Dr Freeman’s research, which should be mandatory reading for banks, also found only 8.9 per cent of female owners felt their banker understands and supports the business when help is required. So much for banks trying to appear gender friendly.

I could go on with other statistics showing the deterioration in SME satisfaction with banks. Clearly, the evidence shows big banks are pushing SMEs harder than ever with higher rates and fees, despite glossy advertising campaigns that profess their SME love.

Why do banks squeeze SMEs? Because they can. Unlike home borrowers, SMEs cannot easily move between lenders and there are fewer competitors for their business. In turn, SMEs are soft targets when banks need to lift their lending margins to maintain high profit growth and please shareholders.

SMEs I talk to complain of increasingly risk-averse banks, more compliance, less experienced bank managers and constant changes in the bank staff they have personally been dealing with since the GFC. Not enough SMEs realise how even longstanding banking relationships can change overnight if debt covenants are breached.

What’s your view?

Have banks become even harder to deal with in the past year?

Have you struggled to raise bank debt for your SME?

Are you paying higher interest and fees than a year ago?

Has service from your bank improved or deteriorated?

What can be done to improve SME access to bank debt?

The irony is the strength of the banking system helped spare Australia the worst of the GFC, yet lending conservatism towards SMEs is holding the country back. How will we ever turn small companies into large ones if access to capital remains a significant barrier?

There is no easy answer. SMEs have complained for decades about the banks and there have been myriad reviews and calls for action. Yet for all the talk, SMEs have never been more dissatisfied with banks.

The only real solution is greater competition. The big hope is independent second-tier banks take more share from their larger rivals, but higher funding costs put smaller banks at a competitive disadvantage. The return of foreign banks focused on SME lending would also spur competition, and should be encouraged.

SMEs, too, are part of the problem. The sector has shown banks far more loyalty than they have received in return, in part because many SMEs don’t look for a better deal, or because they believe all banks are the same. They need to review their bank almost as often as the bank reviews them.

Something has to give. How much more can SMEs be squeezed by higher rates and bank fees, and lower service, when the sector is under intense cash-flow pressure from a sluggish economy?

And how much growth – and jobs – will be lost when even solid businesses struggle to get sufficient bank debt at a fair price, and have their loan called in at the first or second whiff of trouble?

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