Judo Capital’s $350 million debt facility will provide a boost to the Aussie challenger bank boom

Aussie small business lender and challenger bank Judo Capital has secured $350 million in a debt facility from Credit Suisse, and according to chief operating officer Tim Alexander, who helped structure the deal, it’s just a small step towards Australia’s neobank revolution.

The funding is intended to provide more depth to Judo’s funding proposition for small- and medium-sized businesses, while helping Judo leverage its equity, Alexander tells StartupSmart.

Judo raised $140 million in equity funding in August, and this debt facility is a cornerstone to help Judo leverage those assets, Alexanders says.

In Credit Suisse, Judo saw “a meeting of minds and culture”, he adds.

For the bank, it provides an alternative source of investment, offering “a different class of assets to what they would normally see … It’s a nice diversification for their business.”

According to Alexander, financial institutions such as Credit Suisse should maintain a modern mindset if they’re going to stay relevant as challenger banks such as Judo become more prominent.

“It’s really important they’re supportive of the industry and use their skills and capital base to support us to get going,” he says.

Currently, Judo is operating as a small business lender, but it has lodged its application for a full banking licence with the APRA, which is expected to be granted in early-2019.

At the same time, challenger bank Xinja has rolled out a pre-paid credit card and app, while it awaits its own banking licence. Having raised $2.4 million through equity crowdfunding in March, the neobank is now gearing up to another raise using the same method.

Elsewhere, Volt Bank has become the first challenger bank to be named an authorised deposit-taking institution by APRA, 86 400 is planning to start offering transactions and savings accounts at the beginning of next year, and Bendigo Bank-backed Up launched last month, claiming to be Australia’s first digital bank.

There’s competition in the challenger bank space, but Alexander says he and the management team are not worried about it. In fact, they welcome it.

“We’re all in it together and we don’t see them so much as competing against each other. It’s building a new capability to give the customers more options,” he says.

He compares Australia to the UK market, where challenger banks and fintechs popped up all at once.

“They became a bit of a movement, and became known as the challenger bank group,” he says.

“It reinforces confidence in the market,” he says.

And there’s appetite for change in the financial industry in Australia, Alexander adds.

He notes “tailwinds of political and public sentiment, customer satisfaction at all time lows and the backlash of the royal commission”, which mean customers are more likely than ever to try another option.

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