Instead of lengthy loan applications and even longer waits for approval, Moula is using artificial intelligence to accelerate the speed at which small businesses can get a loan. It’s turned what was often a fortnight’s delay into a 48-hour turnaround, delivering fast funds based on a much clearer understanding of an organisation’s creditworthiness.
The advent of open banking in Australia is tipped to accelerate innovation in the financial sector with firms like Moula leveraging intelligent technology to transform the banking experience for many organisations.
Most small businesses start as micro businesses – funded by what is often described as the “3Fs” – family, friends and fools.
But as the business starts to grow, revenues start to flow, people are hired, stock is bought, and the funding needs of the business expand beyond the capacity of 3F; a recent small business survey conducted by CPA Australia reveals that almost a third had sought external funding to grow their business.
While traditional banks still account for a sizeable portion of loans made to small business, technology is fuelling lending alternatives – and accelerating the speed at which loans can be made available thanks to a judicious combination of data, cloud computing and artificial intelligence (AI).
Australia is home to around 2.3 million businesses. Most of them class as small and medium – and between them they employ around 7 out of 10 workers, and contribute almost $6 out of every $10 of the nation’s GDP.
This is an important sector of the Australian economy and ensuring small business has the funds to grow is important too.
Moula is an Australian founded organisation that uses data, AI and machine learning to assess business loan applications made online. Successful applications can result in business loans of up to $500,000 being made available in 24-48 hours.
Unlocking the value of data
Justin Green is the Chief Product and Strategy Officer for Moula, and explains that for many businesses traditional banks simply don’t work.
“If you don’t have the benefit of assets, like the family home to put up as collateral, then your ability to borrow money from the bank is pretty limited. So Moula’s thesis was very much ‘can we partner with small businesses?’, try and demystify this volatility that exists in small businesses, encourage this open-sharing of business data, as the critical asset to understand the nature of someone’s business,” says Green.
What Moula recognised was the value of the data that small business held about itself. If there was a way for lenders to see that data, analyse it, and assess the opportunities and risk – in short, determine the creditworthiness of the business – then it would be possible to identify who to offer loans to, because the data revealed that the underlying business was a good bet.
Moula struck partnerships with the likes of cloud accounting business Xero that many small businesses already trust with their data, and started to develop an intelligent platform to underpin the loan process.
Green notes that the small business lending market was ripe for disruption.
Firstly, the major banks were grappling with the repercussions of the Banking Royal Commission, and less focussed on meeting the immediate needs of small business. Meanwhile small business was growing ever more comfortable with the idea of transacting online and engaging with fresh sources of support.
For Moula that translates into the triple digit growth of its business – and earlier this year it pledged to lend $250 million to businesses over the next 12 months, after the major banks pulled back from SME lending.
Green says the actual process of applying for a Moula business loan takes 7-10 minutes. It involves completing a fairly light touch application form, and granting approval for Moula to access the applicant’s business data. That’s generally achieved through an API into a data source, such as Xero.
From there the data is accessed, the business is analysed, the risks assessed and a decision taken about the requested loan. “It’s typically a 24 to 48-hour underwriting approach, once we have all of the business data provided.
“A 10-minute application process and a 48-hour turnaround, which is well inside what would’ve typically felt like a 10 to 14-day process for a bank,” says Green.
Moula started testing Azure at the beginning of 2018 before transitioning to the Microsoft cloud in October that year.
According to Paul Pesavento, Moula’s Chief Data Officer; “Taking into consideration the licensing and service expenses, Azure is more cost-effective. As we are using PaaS, we are no longer concerned with updating the VMs and patching the frameworks. Azure provides better and more fine-grained security. It has helped us to use advanced threat detection and security features in Azure SQL databases we are using. Last but not least, we can scale up to any kind of workload we have to deal with.”
Moula worked with Microsoft partner, BizData to plan and execute the transition. Together they established an Azure based data warehouse using Azure SQL DB, implemented Power BI to run business analytics, and leverage Azure AI and machine learning capabilities to assess data and analyse risk.
According to BizData Director Nadav Rayman the solution helps to empower small businesses by allowing them to use their own data as evidence of the quality of their business. “Moula’s partnership with Xero streamlines access to that data while Microsoft Azure and the surrounding Azure services provide an AI driven platform for Moula to rapidly analyse and assess a business’s loan application.
“Microsoft Azure is also acting as the foundation for ongoing innovation at Moula – for example the opportunity to create finance solutions available to the small business at the point of scale with Moula Pay.”
Rachel Bondi, general manager, One Commercial Partner, Microsoft Australia, applauds the partnership between BizData and Moula, for the vision it brought to the market.
“Small business is the engine room of Australia’s economy. It’s where most people work, and without small business big business simply could not function. The vision of Moula in terms of liberating the value in small business data is impressive, and the partnership with BizData using Microsoft AI technology to bring that vision to life is a prime example of collaboration across our ecosystem to bring about not just business transformation, but sector transformation.”
AI and machine learning key to success
Lift up the hood on Moula’s credit decisioning and there are deep coils of data. Moula has designed its own logic which is applied to the data made available to it through the lending process, which includes the application form details as well as accounting, banking, tax and credit bureau feeds.
This helps create the quality accurate inputs needed by Moula’s machine learning algorithms.
A machine learning decision model developed using Scikit-Learn machine learning algorithms that are accessed through Azure Machine Learning Services, then provide a prediction of the probability (or risk) of the SME being able to pay back its loan.
Moula has been able to refine that prediction by using historical data from past applicants to train the model. “The machine learning models also provide useful context in the form of the relative importance of each of the pieces of information that it has based its decision on,” says Pesavento.
“We use Azure Machine Learning Services to calibrate the risk engine models, which includes retraining them on updated historical data and assessing the performance of alternate models and associated hyperparameters.”
With a DevOps approach to innovation Pesavento explains; “We are using App Services for .net, app service containers for Linux, Functions, Azure SQL database, ServiceBus, CosmosDB, Azure Documents, Data Factory, Key Vault, VMs.”
The technology foundations now in place at Moula are also supporting its ongoing innovation efforts. Green points to the initiative with Xero which offers a buy-now pay-later facility for small businesses.
“Essentially this uses some payment service integration for Xero accounting customers as merchants. So they can issue invoices and get paid upfront, while their end-customer is able to repay over 12 months with Moula Pay, and benefits from the three months, no interest, no repayments opportunity.”
Again it is a way for Moula to offer a new level of service to small businesses that essentially allows the inherent value in their data to be leveraged.
Well aware of the value of that data Moula deploys multiple layers of defence in order to ensure data is protected. As part of its security controls, Moula takes advantage of Azure security features such as Advanced Data Security and Dynamic Data Masking.
It also has documents and files stored in private storage accounts accessible via its own application and uses KeyVault to ensure there are no naked connection strings or access keys in any deployed applications. It also employs IP whitelisting and subnets to restrict access to some applications and VMs.
Operating in a currently self-regulated part of the financial services market Moula nevertheless expects to be impacted by changing regulations affecting other institutions.
Pesavento for example expects that the arrival of open banking in Australia will accelerate the interest in alternative financial solutions as people and business grow used to greater choice and flexibility.
“Whilst customers already have the ability to share their banking data with us, the move to open banking should make this practice more common place and trusted, and help customers feel more in control of their data and able to use that data to more easily and more quickly access services from non-bank providers including Moula.
“More of our potential customers will feel more confident and in control of their banking data, and being more aware of it as a way of doing business. It just increases the appetite for the sort of services we provide and for customers to look outside of their existing banking relationships.”
Green adds that the financial sector transformation currently underway reinforces the latent value of data. And now through platforms such as Moula, that can be liberated.
“Your business data is your biggest asset, in looking for a lending solution,” he says, adding that Moula now has the right platforms in place to interpret and put that data to work, adding value for the business and boosting its opportunity to grow and flourish.