He predicts “you will 100 per cent see mergers and acquisitions in this industry” driven primarily by rising customer acquisition costs.
‘I think the natural evolution is going to see some consolidation in the industry.
David Goldin, Capify founder
Mr Goldin said on an average transaction of around $30,000, the customer acquisition cost used to be under $1000 but it was now approaching around $2000 which was a large percentage of gross margin and cut into lenders’ ability to make a profit.
“As these companies scale, they are obviously going to hit economies of scale,” he said. “I think the natural evolution is going to see some consolidation in the industry.”
Mr Goldin has some experience in this consolidation after Capify sold its United States business in 2017 to a competitor and focused its operations in Australia and Britain.
“We are actively looking,” he said. “We are interested in acquiring synergistic companies that can either be direct or indirect competitors, or companies that have a large SME customer base. That may be an interesting acquisition target for us.”
Mr Goldin sees opportunity in entrants to the Australian market which have been too focused on growth at the expense of profitability.
“When a lot of the players started coming into the market here, they were just buying up market share, sacrificing profit for growth,” he said. “Anyone can lend money – collecting it back is the hard part.”
Mr Goldin said some fintechs in Australia had sacrificed their underwriting standards.
“There’s a lot of players, especially in the Australian market that are not profitable,” he said. “I think they are going to have to re-evaluate their business models, because at some point, they need to show a profit, and in my opinion, a lot of them are not pricing the risk properly. They’re taking on too much risk and not charging enough margin in their product to justify the risk they’re taking with some of their borrowers.”
In the meantime, Capify’s strategy is to continue to build its business in Australia focusing on its broker program.
“We’re seeing a new trend,” Mr Goldin said. “We’re seeing that SMEs are not even trying the bank, they’re going directly to alternative lenders, online lenders and fintech lenders. For the Australian market, as well as our UK business, we are looking to expand exponentially to be able to deploy capital.”
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Cara is the small business editor for The Age and The Sydney Morning Herald based in Melbourne