Prospa float postponed after ASIC query

Online lender Prospa’s ASX debut has been delayed for at least 48 hours after ASIC raised concerns over its loan terms.

Prospa’s joint CEOs Beau Bertoli and Greg Moshal. Pic: Renee Nowytarger

Fintech heavyweight Prospa’s ASX debut has been postponed after the Australian Securities and Investments Commission (ASIC) raised concerns over the online lender’s loan terms.

Prospa had been due to list at midday (AEST) today but the regulator’s queries forced it to push that back by about 48 hours, as it looks to answer the queries.

According to Prospa, the regulatory delay is part of an industry-wide review of small business lending — bank and non-bank — by ASIC.

“Consequently the listing is expected to be postponed for approximately 48 hours,” Prospa said in a statement released to the ASX.

The company’s $146 million IPO is widely seen as a litmus test for how integral the local fintech scene is to the broader financial services market.

Launched in 2012, Prospa has lent over $500m to Australian small businesses and with current net loan book of $200m, the lender is looking to use the IPO to propel its lead in the market.

However, there have been ongoing concerns about the interest rates it charges small businesses and disclosure practices.

The company decided to defer the listing and is working with ASIC, the Australian Finance Industry Association (AFIA), FinTech Australia and the office of the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) to allay regulatory concerns.

The company is already working with its industry peers on a code of conduct, that would be enforced by ASIC, after ASBFEO last year raised concerns about the sky-high interest rates charged by online lenders.

Prospa, which is part-funded by Square Peg, the investment fund founded by Paul Bassat and backed by casino billionaire James Packer, charges some of the highest interest rates in the sector.

Online lenders like Prospa naturally charge higher rates given that they don’t demand any security from the borrowers other than a personal guarantee. However, there’s little consistency across the sector and many lender, including Prospa, don’t disclose an annualised percentage rate (APR) to would-be borrowers.

In Prospa’s case the lender uses the so-called “factor rate” — a number that when multiplied by the face value of the loan shows the amount of money the SMB needs to pay back by the end of the term.

For example, a factor rate of 1.24 applied on a loan of $26,000 would see the borrower pay back $32,240.

However, the approach has its critics, who say that it makes the loan look cheaper than it really is.

Prospa’s average annual percentage interest rate (APR), a more traditional metric used in the industry, ranges between 40 per cent and 60 per cent.