Prospa is an Australian fintech company which specialises in lending money to small businesses. In some ways, it is similar to a “subprime” lender – it lends money to borrowers which do not meet the usual credit risk standards for obtaining a bank loan.
In its most recent financial reports, Prospa has reported strong growth in lending, with total loans of about $430 million. It has expanded into New Zealand. According to its own reports, it is the Australia’s number one online lender to small business.
Your task is to write a report which answers the following questions
· Describe Prospa’s business. Who does it lend money to? How does it attract borrowers? How does it assess credit risk? What is the source of funding for these loans?
· In May 2018, Prospa was planning to float its business, i.e. have an initial public offering and become listed on the Australian stock exchange. What went wrong?
· Banks must decide how they should respond to competition from fintechs: should they work in partnerships with fintechs or should they create their own products to compete against fintechs. What did Westpac decide to do about Prospa?
· In 2019, Prospa did eventually proceed with its initial public offering, i.e. offering shares to the public. As part of the process, they must issue a prospectus, which includes a summary of the key risks facing the company. Describe the five most serious risks facing the company.
· Has Prospa been profitable in the past (prior to the coronavirus pandemic? What are the key factors affecting profitability? [The prospectus contains the profitability figures for years 2017 and 2018 and a forecast of the 2019 figures. Prospa subsequently released the results for the half-year ending 31 December 2019] What has caused the changes in Prospa’s share price (as shown in this graph)?
Note: In response to the coronavirus epidemic, the Australlian government has encouraged banks and non-bank lenders to make loans to small businesses, to help the small businesses to survive the (hopefully temporary) economic downturn. The government has offered to guarantee half of any loan made to small businesses. Prospa can make loans up to $225 million in total under this scheme. This was announced on April 9, which accounts for the uptick in Prospa’s share price. The government’s press release is at https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/supporting-40-billion-lending-sme-businesses. You need not discuss this new development in your report.
Sources of information
The most useful sources of information will be
· The prospectus issued by Prospa in 2019, when it had its initial public offering
· Articles from the Australian Financial Review (or other newspapers and journals) about Prospa (you can access this information using Factiva, an electronic database available on the University library website).
Of course you may also use additional sources of information. For example, you can use Factiva to find more newspaper articles about these events.
The Australian Stock Exchange provides information for listed companies – you can find Prospa at
Note that you should read sceptically. For example, information published by the company on its own website is likely to emphasize the most positive aspects of the company’s performance, and may downplay some negative aspects.