Japanese crowdfunding platform Crowd Bank is venturing into the Australian small business lending market, tipping A$50 million into Zagga, a marketplace lender set up in 2016.
Crowd Bank is the third largest crowdfunding platform in Japan with funds under management of ¥20 billion, total loans of ¥116 billion (that is, around A$1.5 billion) and 34,000 investors as at November 2020.
President of Crowd Bank, Mr Hajime, said his company intended to "invest aggressively in [the Australian] market", and Zagga met a number of criteria.
Zagga is a "mortgage-secured marketplace lender", co-founded in Australia in 2016 by Marcus and Edwin Morrison, Peter Clare and Alan Greenstein. It is an affiliate of another marketplace lender Zagga New Zealand (formerly LendMe), launched in 2015. Peter Clare was CEO of Westpac New Zealand and is a director of Heritage Bank.
Since its launch, Zagga has originated almost $400 million in loans across more than 100 transactions, the company said in a statement yesterday outlining the deal with Crowd Bank.
Zagga’s funding comes from an investor base which includes several financial institutions, investment managers and family offices, and from the Zagga Feeder Fund, an internal ‘warehouse’ that has grown by 40 per cent since July 2020.
The platform matches Zagga's investors with small to medium business borrowers, a sector that has been underserviced by major banks in recent years but is becoming a crowded arena as more lenders chase a cohort of reluctant borrowers. Zagga’s average loan size is $5 million, although the lender said it "regularly" funds loans up to $30 million.
Senior management at Zagga cited an RBA report from September to explain why their corner of the market – the Australian alternative lending industry – is attracting international investors' attention.
"With a strong regulatory framework and competitive returns, the Australian alternative finance market offers an attractive investment for institutional investors and we expect to see growing interest from international players in the market," said Alan Greenstein, Zagga's chief executive officer, and one of its co-founders.
The RBA report noted that demand for bank-based finance remains low, despite the incentives being offered by government agencies, while the use of non-traditional finance – predominantly balance sheet lending and marketplace lending – has been increasing.
The RBA also warned that the latest numbers available for this sector date back to 2018, so any growth was coming off a very low base. With that caveat in mind, as of 2018, Australia had the largest non-traditional finance market in the Asia Pacific region after China, and the seventh largest globally, with 31.6 per cent market share in Asia Pacific, totalling US$1.15 billion.
Peter Clare, chairman and co-founder of Zagga, was equally keen to detail selling points beyond the Crowd Bank deal.
"In addition to the structure for Crowd Bank, which is tailored to their regulatory needs and structured as a fractional investment trust, we have also outsourced our platform through two white-label arrangements, another key area of growth for our business," he said.
The funds from Crowd Bank will push Zagga further towards its 2021 growth targets: total origination to increase by "more than" 33 per cent, with an active book in excess of A$250 million. If achieved, it would add to a strong performance in 2020, which saw the firm generate $162 million in loan originations, up 42 per cent on the prior year.