Small business lender Judo Bank is using automation and AI to bring the fight to the Big Four

Small business lender Judo Bank says its new forays into automation and artificial intelligence will provide customers with insights they could not gain on their own, as the scale-up challenges “industrialised” SME loans offered by the Big Four.

On Monday, the seven-year-old Judo Bank revealed pre-tax profits in the nine months to March 31 of $86.7 million, surpassing the full-year profits of $15.6 million tallied in 2021-2022.

The institution also projected a net interest margin — the difference between the interest it earns from loans and the interest it pays on deposits — to between 3.35 and 3.5% for the second half of 2022-2023.

Those results were buoyed by climbing interest rates and loan book value, which expanded to $8 billion by the end of March, compared to $6.1 billion at the end of the last financial year.

The results mean Judo Bank is now chasing its “second horizon” of growth, CEO and co-founder Joseph Healy said, taking aim at Australia’s existing lenders and the billions of dollars in new business loans they write each year.

Speaking to SmartCompany, Lisa Frazier, Judo Bank’s chief operating officer, said technological investment will bring the bank closer to the scale of those incumbents.

“When we started Judo a number of years ago, we really focused our capital on establishing the ‘relationship’ bank, hiring our bankers, improving the customer value proposition in market,” she said.

“But going forward, now, we’re going to be bringing the technologies that scale the bank, and that really does give our efficiencies back, from our customer support teams to our operations teams, to our corporate functions and our bankers.”

A major upgrade to Judo Bank’s workflow tools is on the cards, according to the bank, along with heightened data analysis tools to “facilitate higher quality interactions between bankers and customers.”

Leveraging automation and artificial intelligence in that will build on Judo Bank’s existing strengths and understanding of SME needs, she said.

“We can use the power of Judo, the power of Judo’s technology and data platform, to mine those insights to help them better run their businesses,” she said.

Those findings might not take the form of reports or simple data read-outs, Frazier added, saying usable insights will come from bankers, who can pull out and interpret data for clients.

One example: A Judo Bank staffer could delve into supply chain data to explain how a small business borrower could improve their supply chain in the future, she said.

By contrast, the major banks have “industrialised” the SME lending process, Frazier claimed.

“Our technology is used to leverage this kind of power in humans,” she said.

“And I think this is really important to understand, because of how SMEs have been treated for quite some time.”

Naturally, those new data insights will also flow into Judo Bank’s own lending decisions as a souring macroeconomic climate puts the squeeze on many small businesses.

Although company insolvencies are normalising towards pre-COVID levels, Judo Bank said it did not write off any loans in the most recent quarter.

Judo Bank’s focus on mature businesses already protects it from volatility experienced by newer enterprises, Frazier added.

“We’re a young bank, but that doesn’t mean our customers are young or inexperienced in their companies,” she said.