For yield-starved self-funded retirees and superannuation funds alike, locking into the best of the increasingly meagre term deposit rates on offer should be a given.
But like teeth flossing – which is also good for us – we just don’t do it. As a result we’re leaving billions of dollars of margin on the table for the banks, which despite their recent travails don’t exactly deserve charity.
Reserve Bank of Australia data shows that approved deposit taking institutions (ADIs, mainly the banks) held $624 billion of deposits in term accounts as of April 2019, with a further $92bn held in at-call or transaction accounts.
That’s more charity than the Salvos and Vinnies combined.
According to rates comparison house Canstar, current advertised rates on a $100,000 12-month term deposit vary from 2.55 per cent to a miserable 0.99 per cent. So in theory, going from a worst to best could improve a struggling self-funded retiree’s pre-tax cash income by 157 per cent.
Even an investor locking up funds for five years can get no better than 2.55 per cent, such are the non-expectations of a rates rise in the foreseeable future.
Meanwhile, listed Trustees Australia has changed its name to Cashwerkz (CWZ) 30c, a fintech platform for showcasing best-in-show term and at-call deposit rates. Trustees Australia acquired the business from Adcock Private Equity via a reverse takeover in mid 2017.
As with the likes of Canstar, Cashwerkz clients can compare the providers for the best rate and choose the best one. But they can also transact the switch with the click of a mouse.
Normally, switching deposits should be simple enough, but it isn’t: the ‘know your client’ and anti money laundering (AML) rules mean depositors have to re-establish their credentials every time they do so.
The process is also highly manual.
Cashwerkz’s selling point is that once depositors have signed up to the platform, they can migrate seamlessly once the term deposit has matured.
Like mortgage brokers, Cashwerkz is paid by the bank: a cut of 10 basis points, paid either up front or on a trail basis.
Since its launch in July 2016, Cashwerkz has facilitated $2.6bn of funds, with $1.059bn currently deposited (the company does not hold the funds at any stage of the process).
Cashwerkz currently has 43 ADIs on its panel, including the National Australia Bank and the ANZ.
Cashwerkz director John Nantes says the banks are keen to participate, because they will be requiring billions of dollars of extra capital in coming years.
“It is an extremely cheap way for the banks to attract capital,’’ he says.
However the country’s two biggest deposit takers – the Commonwealth Bank and Westpac – obviously demur because they are not on the platform. Or not yet, anyway.
“They are a work in progress,” Nantes says.
Cashwerkz should hold most appeal to smaller ADIs with competitive rates, but without the prominence in the market (customers of all ADIs benefit from the government guarantee of deposits up to $250,000).
“Some regional players like Auswide Bank could never get a foot in the door but with the platform have progressed and grown their market share,” Cashwerkz CEO Hector Ortiz said.
“Cashwerkz has levelled out the playing field.”
On the depositor side, Cashwerkz is focusing on the platforms and dealer groups to access financial advisers. It recently signed a deal with managed accounts platform Praemium, by which Cashwerkz is integrated into the managed accounts platform’s product offerings.
It also has struck a deal with the HUB24-owned Agility Applications to access 175 financial services groups.
“Advisers don't have to change the way they do business and we are free,” Nantes says. “We haven’t spent time and money on the business-to-consumer (direct to investor) route, but that doesn’t mean we won’t.”
Cashwerkz is also targeting super fund custodians in both the industry and retail fund sectors.
Apart from growing like bilio, the superannuation sector is a fertile target because funds have been taking risks to maximise the returns on the cash component of their portfolios (such as residential backed mortgage securities).
In many cases, the returns have been less than a zero-risk, government guaranteed term deposit.
Trustees Australia had various guises over three decades, more recently investing in a grab bag of assets including backpacker accommodation and dairy farms (now divested).
It continues to own fixed-income specialists Rim Securities and Redgate Asset Management, while the future of its trustees licence (a valuable asset) is under review.
As the new moniker implies, the company is all about Cashwerkz now.
Is the stock a worthy punt, or should punters leave their cash in those low-interest term deposits?
With a $47m market cap, Cashwerkz has a way to go to build a meaningful presence: in the December (first) half, the company recorded revenue of $639,000 and a $4.07m loss, with cash on hand of $7.85m (no doubt earning the best possible return).
Given the local deposits market is worth well over $1 trillion, the potential prize is immense. The company also believes it can replicate its model offshore, including in the US or in Singapore (where it takes up to nine months to switch deposits).
The Cashwerkz model is also well suited to the pending open banking regimen, by which banks will be forced to share customer data with new and upcoming rivals.
Prospa (PGL) $3.54
Still on fintechs, investors have cooled on Prospa’s prospects following the small business lender’s stellar listing on June 11.
Having delivered a 19 per cent day-one stag gain to investors, the shares at the time of writing were below the $3.78 listing price, which valued the lender at $610m.
As with fintech heroes Afterpay, Wisetech and Appen, Prospa still trades on fancy multiples that assume the lender’s loan growth – pitched at lending on cash flow rather than security – will continue.
Prospa lends between $5000 and $300,000 over three to 24 months, with approvals generally granted the next business day.
Founded in 2012 by joint CEOs Greg Moshal and Beau Bertoli, Prospa has lent out $1 billion to 19,000 customers and currently has a $300m loan book (net of loan impairments and amounts funded by syndicate partners).
On a pro forma basis, Prospa generated $124m of revenue in calendar 2018, as well as underlying earnings (ebitda) of $9.5m and a net profit of $1.5m.
The prospectus projects current-year revenue of $156.3m (up 26 per cent), ebitda of $10.6m (up 11 per cent) and a $2.6m net profit (up 73 per cent).
As with Cashwerkz, Prospa is well placed for open banking because it can demand the prospective clients’ bank accounts that give a full picture of their income and expenses.
But Prospa’s automated credit decisioning model is yet to be tested in a downturn. Prospa has prospered to date because the banks reject such unsecured lending and it may transpire that’s for a good reason.
Prospa’s interest rates of 9.9 per cent to 26.5 per cent have also raised eyebrows. Even though they have been lowered, at the upper end the rates are no better than a credit card.
Still, such steep charges haven’t stopped 68 per cent of Prospa customers taking out a new facility - and no-one was putting a gun to their heads.
In short, Prospa’s listing - the second attempt after a stalled effort a year ago – looks to have left little on the table for new investors. Not that Australian Super – the country’s biggest industry fund with a 5 per cent stake – would agree with that contention.
Tim Boreham edits The New Criterion
Disclaimer: Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.
Prospa market cap on $1.5m NPAT is eye watering.