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Topic: Prospa Background: 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...

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Topic: Prospa


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

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 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.

Answered Same Day May 27, 2021


Ayush answered on Jun 01 2021
130 Votes
Prospa’s Business Model
Prospa is an online lender to small businesses based in Australia and recently, expanded its operations in New Zealand. It is “Australia’s #1 online lender to small business” (Prospa Prospectus, May 2019). Founded in 2012, it has served 26,900 customers and lent over $1.4 billion (Prospa Half Year Results, Feb 2020). The company has multiple product and service offerings. Its first and starting product is Small business loan. The loan size varies between $ 5,000 and $ 300,000 with terms between 3 to 24 months. The average loan size is $ 25000. The company launched its second product Line of Credit where the customer can bo
ow an amount ranging from $ 2000 to $25,000 with terms up to 12 months. Both the product doesn’t require any asset security (exception for more than $ 100,000 in case of small business loans) (Prospa Prospectus, May 2019). Prospa adopts risk-based pricing with costs determined by cash flow, the type and quality of business (Prospa raises $20m from Partners for Growth, Jul 2017). Prospa charges an average interest rate of 37 percent down from its earlier rate of 41 percent. Cu
ently, Prospa is beta testing its new B2B payment solution Prospa Pay. The company attracts its customers through accessibility, speed, and experience. Small businesses don’t have security or documents which traditional banks require. The company serves such customers by simplifying the process and a
ives at decision fast within the business day itself. It has a proprietary Credit Decision Engine (CDE) (Prospa Prospectus, May 2019). This engine digitally connects around 400 data sources and uses analytics to make a credit decision in an average of 13 seconds (Prospa raises $20m from Partners for Growth, Jul 2017).
Prospa follows a multi-channel distribution strategy. It has collaborated with AFG, Australia's largest mortgage
oker, and Westpac. They refer their customer to Prospa. It struck deals with 4000 distribution partners including finance
okers and cloud accounting platforms (Prospa raises $20m from Partners for Growth, Jul 2017). Also, it acquires customers through a direct channel such as social media, TV, radio, print media, and sponsorship (Prospa Prospectus, May 2019). The company has received 4 funding rounds by VCs and PEs such as the Carlyle Group, Iron
idge Capital, AirTree Ventures, and few other institutional investors. Prospa has mainly 4 sources of funds to support its loans and operations: “Warehouse facilities, Term facilities, Corporate Debt, and Cash” (Prospa Prospectus, May 2019). Warehouse and Term facilities are both multi-tiered capital structure. Corporate Debt can be used for corporate purpose and Cash can be used for subscribing to notes in our Warehouse facilities or Term facilities (Prospa Prospectus, May 2019).
Prospa’s IPO postponed
Prospa was going to raise money at the market capitalization of $ 576 million when suddenly 15 minutes before trading commenced, it was postponed on 48 hours. The Australia Securities and Investment Commission (ASIC) had expressed its concerns regarding the fairness of its loan contracts. The corporate regulator said that “Prospa’s standard form contract may contain unfair clauses in
each of consumer laws” (Prospa float postponed by ASIC probe, Jun 2018). ASIC had published a report on 7 May 2018 on unfair contract terms and told fintech industry that they would be at “high risk if they don’t comply with the unfair contract terms (UCT) laws if they were using financial indicator covenants (which can trigger defaults based on loan-to-value ratio
eaches), material adverse change in conditions clauses giving lenders
oad default powers, or other "non-monetary default" clauses” (Prospa float postponed by ASIC probe, Jun 2018). The regulator also grilled banking royal commission for not being strict in enforcing UCT. So, Prospa decided to postpone IPO indefinitely as regulatory risk emerged and the stock would have fallen heavily (Prospa float postponed by ASIC probe, Jun 2018).
Banks versus Fintechs...

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