A new lender is set to launch this year; Judo Capital. Co-founder Chris Bayliss tells SME Adviser why brokers will be a key ingredient in the group’s plans to provide small- and medium-sized businesses with the lending services they want and need.
Judo Capital (Judo) was founded by a team of experienced bankers, all of whom are extremely passionate about SMEs — the engine room of the Australian economy — and share a deep understanding of the growing dissatisfaction in the SME market.
Judo is a purpose-built, relationship-centric SME-focused financial institution that has been designed to become a bank when the time is right. Although Judo will be the first of its kind in Australia, Judo is not alone; it is part of a small revolution happening in the global financial markets. Led by the success of Aldermore and Shawbrook in the UK, a healthy and rapidly growing network of challenger banks is coming to the market and customers are flocking to them to get the services they need and truly deserve. Judo is emphatically not a fintech, it will use technology wherever appropriate to deliver exceptional service but not at the cost of the strength of a deep and authentic relationship with our customers and our partners.
I think there are three or four clear components to a fintech, none of which apply to us. Number one – it’s small lending; their maximum loan in many cases is $250,000. The average loan size is $25,000. Our maximum loan size will be $5 million and our average around $750,000. Secondly, they are only interested in short-term lending, in and out. We’ll go out to 15 years and build an enduring relationship. Thirdly, it’s unsecured, and that’s because they want to be able to provide 24-hour responses, which means by definition there isn’t enough time to take security. It’s purely algorithm based and it clearly serves a need for that segment of the market.
In my opinion, there are two bookends in the industry right now. There are the fintechs of the world providing fast, short-term unsecured algorithmic lending. Then there are the big banks doing more and more commoditised secured lending. We are in the middle, offering a full suite of secured/unsecured, long term/short term products, at market rates, with a strong relationship component that assesses the underlying strength of the business and the character of the customer.
A full suite of SME-tailored lending facilities. If you want a commercial mortgage for 15 years with us, we’re there. If you want a working capital facility and the only security you have to offer is your debtors and stock, then we’re there. If you want an equipment finance facility we’re there. We want to provide these facilities to the right customers.
Our offering will be all about the quality and character of the customer. Our relationship managers will be able to assess that – they will be recruited for these skills and experience. Working in true partnership with brokers, we will deliver meaningful, on the ground support to SME businesses and the communities they serve.
Our ability to recruit George is testament to our SME broker proposition, as those who know him understand his passion for enabling brokers to unlock the potential in SME customers. For launch we will work exclusively with brokers. There will be no ‘apply now’ button on our website.
We decided 18 months ago that this would be a red carpet proposition, purpose-built for brokers. We believe in a multi-channel approach and see brokers as an integral part of the future of the SME finance industry. They are already approaching 30 per cent of the market and in five years’ time I think they will be close to 50 per cent of the market.
We think the broker market will be a dominant force. We’ve spent a lot of time talking to aggregators and brokers to understand what makes them tick and how we can work with them to create a winning service for SME customers in Australia.
We are not the lender of last resort, so it won’t be a blanket accreditation to all brokers. We will build our network carefully and gradually. We don’t see ourselves taking on any more risk than the big four. We will just have a better ability to understand that risk, in a way that a commoditised service doesn’t value.
In terms of our partnership with brokers, we will be working with five or six aggregators to start with, and only with their top finance brokers. They will be getting unprecedented full access to our credit policy and CRM system, allowing brokers access to their customer information. We don’t want to be hitting 50 per cent success rates with our broker partners – we want them to feel like they are an integral part of our business and hence approving the vast majority of the deals presented. They will know exactly what type of deals we want to do, will have close relationships with our relationship managers and be working with customers together.
Brokers all tell us that speed and consistency are paramount and that their long-term relationship with their customer needs to be protected – that is what they will get from Judo. This message is already resonating with many brokers; in fact highly skilled brokers who specialise in this space are already seeking us out, eager to do business. That’s a great sign.
We are launching in Victoria first before moving into NSW later this year and we will be national in 2018. It’s an exciting time for us, Judo’s proposition to brokers will be first-class and they will certainly notice the difference.
It is the disadvantages of scale. Once you become the size of the big four and you industrialise your processes in order to maintain results, ultimately the uniqueness of the service proposition weakens and the ability to traverse outside a standard menu becomes challenging and largely inconsistent.
There are three key stakeholder lenses I use to view things through. The first is the customer. The bank would call its service ‘Relationship Banking’, but more often than not the customer doesn’t actually know who their relationship manager is. A lot of the customers we’ve spoken to can’t name the individual handling their account because he/she changes so frequently. This is a customers’ number one pain point. It’s frightening now to see the level of churn of relationship managers in business banking. Because of that, bankers feel like they are acting and incentivised more like salespeople, and are often recruited for those skills. Customers tell us that their bankers are also largely disempowered to make decisions. So unsurprisingly, it’s not an enduring relationship. You only have to look at customer satisfaction surveys to see where the problem lies.
Without giving away too much, Judo’s proposition will provide customers an enduring relationship, with a deeply skilled and highly empowered relationship manager (alongside their broker) who is not incentivised by any sales targets.
Secondly, I look at it through a broker’s perspective. The things that are most important to a broker are speed, consistency of decisioning, access to a full range of lending facilities (secured and unsecured) and relationship managers that they can get to know and trust and who look beyond the prima facie financials and the bricks and mortar security on offer.
Many finance brokers are very experienced ex-bankers and highly skilled professionals who understand lending and want to have access to all the company’s decision makers. But the banks have commoditised the product set to such a degree that they are really only interested in secured lending now – there’s no access to people who make the credit decisions, the computer often just says no.
You ask a broker how easy it is to get access to a working capital facility secured against debtors and stock, and perhaps a limited director’s guarantee with no bricks and mortar security – they’ll laugh at you. It is practically impossible, or it will take a very long time to process.
Then, thirdly, you look at it through the eyes of the government and regulators with the decade’s worth of reviews into the industry that has culminated in Small Business Ombudsman, Kate Carnell’s banking inquiry report earlier this year. It is evident across the board that community, government and industry have lost all confidence in the banks to ‘do the right thing’. Judo will be embracing all of the recommendations that have come of out the Ombudsman’s report.
For us, the tailwinds have never been stronger for a new, specialist lending institution like Judo Capital to enter the market and challenge the status quo.