Greater transparency to be implemented by FinTech lenders

Transparency and disclosure will be increased by FinTech lenders, according to a new report.

The Australian Small Business and Family Enterprise Ombudsman, FinTech Australia and theBankDoctor.org released the report, which outlines the steps that have been taken by FinTech lenders to achieve this goal.

The report, ‘Fintech lending to small and medium sized enterprises: Improving transparency and disclosure’, analyses the different approaches to disclosure across the FinTech industry and makes recommendations on best practice and identifies commitments to action.

Ombudsman Kate Carnell said Australia presents a huge opportunity for the FinTech industry, in that it provides a genuine alternative finance solution for small businesses where traditional banks are limited in their capacity to serve the sector.

“I commend the FinTech industry for embracing the need to improve transparency and disclosure and its leadership in the financial services industry in addressing the needs of small business borrowers,” Carnell said.

“This report informs both the FinTech industry and small business borrowers of the steps being implemented to allow an easy comparison of products and to ensure loan agreement contracts comply with the unfair contract terms legislation.”

FinTech Australia CEO Danielle Szetho said the report explains how FinTech business lenders are able to help Australian small to medium businesses access the funds they need to grow.

“Through the use of technology platforms which analyse rich, real-time business financial data and deliver easy-to-use and fast application processes, FinTech business lenders are making a real difference to small businesses,” Szetho said.

“However, like many financial services products, lending contracts are complex and have the potential to be complicated and confusing.

“It’s for this reason our lenders have decided to work together — in an historic move for Australia’s FinTech industry — to help define best-practice transparency and disclosure.

“This report represents an important step in this initiative, by analysing the different approaches to disclosure across the industry and suggesting a way forward to drive results which are in the best interests of the customer.”

Independent SME finance expert Neil Slonim, from theBankDoctor.org, said small business owners, who were time poor and often financially unsophisticated, found it difficult to make fully informed decisions when borrowing from FinTech lenders.

“We need a level playing field for both borrowers and lenders so business owners are able to make fully informed decisions and lenders can compete on an equal footing,” Slonim said.

“Put simply, borrowers should be able to answer three simple questions: Is this the right product for my needs? Do I know exactly what it is going to cost? Do I know that I can’t get a better deal elsewhere?”

Items for action in the report include:

• Development of an industry code of conduct to cover FinTech balance sheet lenders offering unsecured business loans by June 2018. This is proposed to be a customer-centric document that will prescribe what a customer can expect in terms of transparency and disclosure from a lender.
• Expanding this code of conduct to other FinTech lending and finance products over time.
• FinTech lenders to agree to the contents of an easy-to-understand contract summary page by June 2018. This summary page would include a common set of measures when making loan offers to customers.
• The ASBFEO and theBankDoctor.org to work together to produce a guide to assist small business owners better understand the ‘ins and outs’ of borrowing from a FinTech lender. This will also be published by June 2018.

The report also includes a Glossary of Common Lending Terms as a first step towards driving a consistent industry-wide approach to the communication of these terms, which should ultimately make different contracts easier to understand and compare.

Image credit: ©nito/Dollar Photo Club

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