Exclusive: ‘The next frontier’ – Edo Omoniyi, Cape in “The Paytech Magazine”
Australia’s open banking environment and an SME community hungry for new funding options has led Edo Omoniyi, Co-Founder of Cape to head Down Under.
By almost any metric, buy now, pay later (BNPL) has found a natural home in Australia. So-called ‘soft credit’ providers such as Klarna, Afterpay, Humm, Zip, LimePay and LatitudePay have already staked their flag in the territory, allowing consumers to defer payments for purchases. AfterPay alone saw the value of its transactions double last year, from A$5.2billion to A$11.1billion. During the 2020 online holiday shopping season, it is believed one in three Australians made a BNPL transaction.
In March, Australia’s biggest lender, Commonwealth Bank, revealed that it’s throwing its hat into the ring with its own offering, while PayPal announced that it would launch a BNPL option in Australia this June. From clothing to conveyancing services, consumers are falling over offers to ‘spread the cost’, often for zero fees.
But what about businesses?
Various studies put the funding gap for Australian SMEs at between A$70billion and A$103billion. While that is partly being addressed by the federal government’s Small Business Stimulus/Relief Package, announced in January in response to the pandemic, it’s been estimated that as many as 160,000 of Australia’s two million small businesses won’t survive having their cash flow choked off by the crisis.
That’s where small business financial provider Cape, which offers a ‘recession fighting’ business credit card and expense management capability for SMEs, has spotted an opportunity to step in.
“There hasn’t been a massive focus on BNPL for SMEs so there is a huge opportunity there. We can understand businesses, provide them with more choice and deliver a brilliant way of lowering borrowing costs,” says co-founder and COO, Edo Omoniyi.
Developed in the UK, Cape is the brainchild of former 11:FS staffer Omoniyi and ex-Funding Options MD Ryan Edwards-Pritchard. Powered by open banking, it’s due to launch first in Australia where SMEs find traditional credit models unfit for purpose, says Omoniyi; they are too rigid and data-poor, especially in a COVID-impacted world.
“Look at the current route that lenders or banks use to try to assess the picture of an SME, or assess risk – it is pretty rigid and wooden,” he says. “They wouldn’t seek the information you need to have an up-to-date accurate picture of a business. That’s the space we can occupy.
“We’re simply trying to solve the issue of access to working capital for SMEs. For example, if you are a relatively new business, you don’t typically have the track record that a traditional lender will require. They might instead want a personal guarantor or secure a line of credit against your home.
“What we want to do is knock down some of those barriers to credit for SMEs, remove all that unnecessary complexity and provide a flexible solution.”
Cape is one of a growing number of fintechs that are chipping away at the old ‘one-size-fits-all’ approach to business banking, which never really suited the SME multiverse.
“They’re all unique, they have different characteristics, depending on the industry, and all of these need to be catered for,” says Omoniyi. “Business banking always seems to be the last to have any product accessibility or forward thinking, but you can create lots of interesting propositions to help serve different parts of the market and serve them well.”
Understanding the nuances of a particular SME requires data, and lots of it. Cape seeks to look ‘under the hood’ of a business – providing insights into cash flow, spending decisions, and workable credit limit. An open banking native, it will use Australia’s progressive regulatory landscape to create a tailor-made approach to credit.
“The progress in open banking means we have a rich seam of data to use,” says Omoniyi. “Even access to accounting data, from accounting-as-a-service platforms, like Xero or QuickBooks, allows companies like ourselves to ingest this data, and offer services or products off the back of that.
“At Cape we are looking at data outside the traditional parameters. So we’re pulling in all of the data from credit bureaus, all the data around the business, to understand them, but also looking potentially at vertical or industry data, that’s specific to them.
“If they’re a software-as-a-service (SaaS) business, for example, we’re looking at their invoices, to understand their unrealised revenue. Maybe they’ve sold a contract to another business, or some licensing to another business, for a year; they’re six months in, so there’s six months of unrealised revenue. We would try to pull that into our credit model, to understand, and underwrite that company. The same goes for an e commerce company, looking at some of their trading data, or trading history that comes out of the e-commerce platform. That’s where I think it gets really interesting, where we can really set ourselves apart and differentiate from a traditional lender or a bank.
“One of the key issues that we find with lots of SMEs, is around cashflow and access to capital. At the best of times, it can be very difficult for a business to understand what their position is, what their forecasted sales might be, especially during a pandemic. We give them the ability to try to surface some of this through our products, especially our cashflow forecasting and analytics tools. We’re trying to enrich the experience for SMEs, around not just the line of credit, but also to understand what they’re spending, how they’re spending it, and improve their confidence around that.”
Australia has been something of a poster boy for BNPL. So what is so attractive to businesses looking to set up in that country? Well, certainly the introduction of the Consumer Data Right (CDR) in 2020 paved the way, giving individuals and small businesses control over their banking data and how it is used. Another reason may lie in the fact that Australians’ credit card debts fell to a 15-year low in July 2020, according to Reuters, the shift from credit to debit, a result of people and businesses prioritising repayments as the future became more uncertain. The subsequent pressure on credit growth and fee income for banks results in an opportunity for providers like Cape to absorb these losses with alternative offerings.
Meanwhile, the phased introduction of data sharing mandated by the Australian government will see information on business overdrafts, finance agreements, investment loans, lines of credit, asset finance, and cash management accounts, fully exposed this year. Like many UK fintechs, which have been actively encouraged and welcomed by the Australian government, Omoniyi believes Australia is ripe for expansion and it’s been busy beefing up its leadership team in readiness for coming out of BETA in the first quarter of 2021. Tanya Ward (chief financial officer), Rahul Pakashi (chief risk officer) and Gerry Hoare (non-executive director) are now all part of the endeavour.
“I think there’s been a real shift in how fintech is evolving now in Australia,” says Omoniyi. “Open banking has changed everything. And, for us, it’s going to be a busy, busy year!”