Nimble, an Australian micro-lending fintech, is now piloting a new business in larger personal loans, with the aim of going live in October.
The company sees a gap between installment loans for consumers – the AfterPay model – and large personal or auto loans from banks or other lenders. It wants to use mobile-first technology developed for microlending to win interest from millennials and younger people who want access to a standing limit of credit over time.
The move derives from the desire of the company’s management to take a 15-year old company and increase its value so it can go public next year, says Gavin Slater, managing director and CEO in Melbourne.
Nimble was founded in 2005 but Slater joined in 2018, after a career in various government-backed innovation programs and 17 years at National Australia Bank’s consumer banking business.
“The business was generating attractive returns, but it wasn’t creating value,” Slater said. Fintechs in other asset classes, including non-prime consumer lending, could fetch valuations in the 4-5x range, or even higher. The point was rammed home when Tencent acquired a strategic stake in AfterPay, sending the Australian payment company’s stock on a tear.
New credit market
The team at Nimble is hoping business expansion will give it the kind of lift it needs to create an IPO or other “liquidity event” that lets its shareholders convert their equity into cash.
It is using its platform to grow a new segment of the lending market, somewhere between an AfterPay and a bank personal or auto loan.
AfterPay allows people to pay for small purchases, such as apparel, on a fortnightly basis on a scheduled basis, with no additional interest charge. It is short term and for small amounts. Banks will provide personal loans but these are for fixed purposes such as renovating the house or buying a car, and tend to be large, ranging from A$5,000 to A$70,000.
The business wasn’t creating valueGavin Slater, Nimble
Nimble’s Anytime app is designed to give people a fixed loan amount that can be called at any point over the term, giving people a known interest rate for whatever they draw. It is the personal equivalent of a revolver loan in the corporate lending market, in which a company maintains an open credit line up to a specific limit, and instead of fixed or coupon payments, borrowers pay a monthly minimum based on the outstanding balance and interest rate according to the originally agreed terms. If borrowers only draw down a portion of their limit, their interest payment is reduced.
Slater expects the average loan size to be around A$3,000, with a 65% utilization rate. Although Nimble will impose some restrictions on how the money is used – gambling is out, for example – borrowers have wide latitude on how they use the money.
He reckons the non-prime, non-bank lending industry in Australia is A$30 billion and growing, and millennials have demonstrated their willingness to try new financial apps.
That won’t be enough to ensure Nimble creates a profitable business. Slater says it does bring some advantages into play.
First, the company has been spending a lot of money on marketing over the past several years: A$33 million since 2015, says Slater, giving it some brand power in the non-bank lending space. That history also means it has built up a big database of SME and consumer behavior.
Machine learning is littered with the carcasses of the fallenJason Barry, Nimble
This leads to its other advantage: a credit-decision engine originally designed for micro loans. It draws from Australian credit bureau data and individuals’ finances and bank accounts to predict their free cash flow (disposable income) and ability to repay a loan. It uses risk-based pricing to determine what interest rate to charge, which can range from 13.99% to 34%.
Once the team decided to target new markets, it needed to build a core lending system. Jason Barry joined the company in 2019 as chief digital and innovation officer, and he selected Germany-based Mambu to do the build.
Mambu provides core banking and its system of records as a cloud-based software subscription. Other vendors or in-house systems plug in, from credit-decisioning like Nimble’s tech, or AML and KYC, onboarding, or other aspects of the customer-facing end.
Barry said, “The Mambu core system lets us assemble an ecosystem of partners. It’s all API-driven. Instead of us asking vendors to fit into our existing system, Mambu looks at what we’re building and decides whether it approach can fit.”
In this case, the API-first approach suited Nimble’s strategy, Barry said.
Myles Bertrand, Mambu’s Singapore-based head of Asia, says this approach is a “cultural roadblock” for many firms, but says even traditional banks are beginning to shift this way.
Barry says Nimble sees potential partnerships with Australia’s new crop of neo-banks (aka virtual banks). Some, such as Volt Bank and Xinja, do not yet have lending capabilities, a gap Nimble hopes to fill.
“We’ve created a machine-learning infrastructure to turn experiments into production,” Barry said. He acknowledged this remains unproven terrain: “Machine learning is littered with the carcasses of the fallen,” he said. Nimble’s approach is to create a “continuous credit intelligence” based on a ceaseless feeding of its natural-language processing software with new customer data, in order to be able to explain why a customer was granted or denied a loan.
There remains human supervision, but Barry hopes once the product launches in October, the entire process will be mostly automated.