Banjo is a new Australian startup created by three former National Australia Bank executives, Andrew Colliver, Julian Hedt and Stephen Murphy.
David Gee sat down with CEO Andrew Colliver to discuss how the online lender of secured and unsecured loans to small businesses – which raised $7.5 million last month – intends to take on Australia’s big four banks.
CIO: Where did you get the inspiration to start Banjo and how are you different from the banks?
Colliver: We leverage the power of data to obtain a more holistic view of a businesses’ position so we can approve more loans.
Our logo is a folded $10 note, and Banjo Paterson inspired the name. The concept for establishing a marketplace lender such as Banjo [popped into my head] during a ‘make over’ of my front and back yard.
Over a coffee with my two co founders [Stephen Murphy and Julian Hedt], I remember both of them saying that I needed to understand that: firstly, we were building a technology company with a financial services offering; and secondly, a symbiotic relationship between the business and technology was fundamental for success.
All of our people irrespective of job role are co-located to solve common problems. From inception, we have built an organisation totally focused on seven principles.
- Leveraging data to remove friction between the customer and the institution
- Prototyping and constantly evolving every aspect of the customer interaction. Not just optimising the experience but looking to revolutionise it
- Mobile as a core competency
- Originating clients without concerns of the costs of a large branch network
- Being channel agnostic. Simply, use the channel the customer uses
- Establishing a symbiotic relationship between software developers, executives, business development people and marketing
- Risk management and compliance monitoring solutions implemented at level equal to or greater than any mainstream bank, and available in real time with minimal or no human intervention.
CIO: Based on your own research, what is the customer experience like for businesses and what benchmarks are you trying to beat?
Colliver: Post-GFC, there has been a global trend of a growing disparity between banks and small businesses whereby demand for small business loans has exceeded supply. More onerous restrictions have been imposed on borrowing arrangements; the application takes too long and processes are too difficult.
It is also evident there has been a growing spread differential between home loans and small business loans, with small business loans being charged 200 basis points over the average cost of a home loan.
A survey from an established market place lender in the US revealed that for every 10 customers, 6 considered borrowing from banks and 4 of those 6 did not end up applying due to the perception the process is too difficult and will take too long.
In Australia, a business credit card can take 7 – 10 days, and a typical business loan will could take 30 – 60 days.
Marketplace lending can provide a better solution to the borrower. If you review the daily life cycle of a small business client, they have a series of tasks that need to be done efficiently. And 40 per cent of SMEs apply for banking services after 6pm.
However in Australia, our experience shows peak usage at 10am and 4pm with applications also flowing in at these times. We also receive a number of applications and queries on weekends, presumably when small business clients catch up on their paperwork and process matters for their business.)
So when you have ‘financial technology’ platforms such as Banjo being totally designed to take banking services to customers when and where they need it, regardless of device (mobile, tablet or PC) and remove the frustrations of paperwork…this becomes a powerful value proposition.
Customers’ expectations for anything, anytime, anywhere banking was our foremost design parameters from inception.
CIO: What process did you follow to build the offering?
Colliver: To become an online marketplace lender, we focused on 4 major pillars all executed in parallel:
1. Building a modular technology platform incorporating the best of breed off the shelf systems melded with our own proprietary systems using technology to enable scale and operating leverage.
2. Unlocking value and creating liquidity for buyers and sellers through the establishment of the Banjo Small Business Fund, offering a targeted fixed income coupon of 8 to 10 per cent per annum for corporate and wholesale investors.
3. Build a value proposition across product type and user experience that is consistent with helping the customer complete their daily tasks efficiently…where and when they want to.
4. Built our company from inception around the brand. For instance, the brand was not retrofitted to the company once it was built. We commenced with a brand platform, followed by a brand narrative and brand identification process, followed by the creation of brand assets and so on. It was a total build.
Of these steps, 1 and 2 were the most difficult, closely followed by raising seed funding for the business.
CIO: You have engineered your solution to maximise provide both simplicity and speed. Was it harder to break established norms and achieve simplicity?
Colliver: Post-GFC, large banks globally focused on the strategic imperatives of risk management, and adapting to a new regulatory compliance and capital regime. Cost reduction initiatives tackled flat line revenues in a low consumer and business growth environment.
In every other financial shock, the banks could rely on long tested means and methods to respond to a conventional value chain. And they did again.
Yet at the same time, the building blocks of the internet of things (IoT) were gaining traction improving information connectedness, scalability, speed and driving the costs of technology stacks down to levels unheard of ten years ago.
It was only natural that new entrants leveraging technology to focus on taking banking services to clients in a relevant and convenient manner would fill the gap.
Even today, most of the technology investment by banks is going into compliance and retooling of core legacy systems rather than the user experience and servicing the needs of the client.
For Banjo, we did not need to deal with retooling core legacy systems or transitioning existing systems to a new modular technology platform. We could review what the customer was seeking, and build a customised solution.
CIO: Without giving away too many secrets, could you talk about your cost to income ratio and roughly how this compares to the big banks?
Colliver: Our cost structure would be approximately 350 basis points lower than a mainstream bank. The cost savings are predominantly in the absence of a large branch network, and lower people costs across administration, collection and processing role types.
CIO: Given that you are a startup and trying to build a brand. How do you plan to compete with the bigger players? Is there a social media strategy that you are adopting or is this relying more on expert referrals.
Colliver: We have a very detailed digital marketing campaign, and a ‘business to business’ channel management strategy involving strategic partnerships with accountants, and other 3rd parties interested in assisting SMEs achieve their goals. We are currently in discussions with a number of 3rd parties.
There are 2 million SMEs in Australia and 51 per cent do not have a business lending product at all. The SME market is estimated at $250 billion in Australia, with compound annual growth rates of 4 to 5 per cent.
But there are a large number of SMEs in Australia that either do not have a home to offer as collateral for a small business loan or they would prefer to not provide their home as collateral.
In some ways, we are trying to expand the $250 billion small business lending market by offering access to finance to those SMEs that are using credit cards or cash reserves or family loans, and our marketing may not compete head to head with the bigger players.
CIO: Have you made much investment into analytics to understand your loan portfolio and gain greater insights into credit risk management?
Colliver: We have incurred significant investment in analytics to understand our customer interactions through our customer contact management system; to understand our clients through website usage; and to understand our clients holistically in the operation of their businesses.
As mentioned above, we have Banjo Score, which is a good example of our investment in this space. We have a sophisticated call centre, Salesforce contact management system, combined with data gathered from Google Analytics and our own database.
CIO: What’s the idea behind the selfie? Other starups such as We Chat using such approaches to validate a transaction.
Colliver: We wish to remove friction between Banjo and the client. That means the elimination of paper, and we wished to avoid a person seeking validation of their identity in a branch or Australia Post office. Our aim was real time verification online. We have witnessed Airbnb and others successfully use this approach over many years.
CIO: But as you already have a photo of the driver’s license, what purpose does this serve?
Colliver: Security is paramount, and we wish to mitigate against identity theft. The person applying needs to be the owner of the licence. In a 3 director company, the other 2 directors need to consent to the borrowing and we need evidence of their identity and consent. (This is the same for where this is a partnership entity or a complicated trust vehicle.)
David Gee is the former CIO of CUA where he recently completed a core banking transformation. He has more than 18 years' experience as a CIO, and was also previously director at KPMG Consulting. Connect with David on LinkedIn.