The Australian economy is rife with uncertainty due largely to the ongoing impacts of the COVID-19 pandemic and its multiple variants, such as supply chain disruptions and labour shortages, but also the war in Ukraine, floods on the east coast, rising inflation and the impending Federal Election.

In our latest Business Insights episode, CreditorWatch CEO Patrick Coghlan and Shift CEO Jamie Osborn unpack what all this means for business operators and how they can best prepare themselves. They also discuss the main takeaways from CreditorWatch’s Outlook 2022 – Australia’s ‘phantom’ lockdown threatens sustained economic recovery whitepaper.

Key points:

• Managing uncertainty and driving success as a business operator
• Whether we will see a K-shaped recovery, with big winners and big losers
• The prospects for SMEs for the remainder of the year
• The biggest challenges currently confronting the business community

Download our Outlook 2022 whitepaper to read the business forecasts from a host of Australian business leaders including Ray White Chief Economist Nerida Conisbee and Managing Director of Open Analytics, James O’Donnell as well as Patrick and Jamie.

INTERVIEW TRANSCRIPT:

00:01.21
Patrick Coghlan
Hi everyone welcome to the latest episode of the business insights podcast. My name’s Patrick Coghlan and I’m the CEO of CreditorWatch. We’ve got a fantastic show for you today. I’m joined by Jamie Osborn the CEO of Shift. Jamie welcome to the show. Thanks for joining us.

00:16.78
Jamie Osborn
Thanks for having me Pat.

00:19.74
Patrick Coghlan
So today. We’re obviously going to talk about our latest release outlook 2022 Australia’s ‘Phantom lockdown’ Threatens sustained economic recovery. There’s plenty happening in Australia and around the world as we know. And what we want to look at is you know will the the continuation of Australia’s somewhat phantom COVID lockdown threaten the sustained economic recovery in 2022 when can we expect an increase in insolvencies back to pre-COVID numbers which which has to happen and are there certain. Business types whether it’s regions, industries or business sizes that are at risk so Jamie’s going to give us his fantastic insights as always we’ve had him on webinars and at at events before so Jamie as I said welcome to the show if you are. If you could could you talk a little bit about yourself and also tell us a little bit about shift and and and how you’ve got to where you are today.

01:18.17
Jamie Osborn
Happy to Pat. Well you you know the history well because I think we’ve been working in partnership with creditor watch since we started the business in 2014. Look I mean in a nutshell we offer credit and payment platforms for business. So the aim is really to be able to support all of the financing and payment activities that a business undertakes and to do that in a way that is fundamentally better than the incumbent solutions out there. That could mean that we’re offering a working capital solution or it could mean that we’re offering trade terms on behalf of a merchant to its customers. The idea is to be relatively broad in those solutions for our customers. So as I said you know the history of the business. We founded it in 2014. We’re 8 years into the journey. It’s about just over 200 staff today and we serve really all of the industries and all of the geographies across Australia.

02:25.95
Patrick Coghlan
Yeah, it’s been fantastic to be to see that growth that that you’ve experienced and and thank you for having credit watch as a partner as well. And I think you know what’s what’s really important you and I have spoken about this previously is that the the way that technology has obviously been thrust upon businesses in Australia and and you’ve been at the forefront of that you know. Certainly pre-COVID well before COVID which is which is great to see and I think in the the uncertainty which is a sort of a key word that we’ve seen through through the last two years we find ourselves almost even in a more uncertain period than ever before with reduction in government.

You know stimulus and then we’re now seeing you know this ongoing Omicron cases, supply chain shortages, labor shortages shortages and then of course geopolitical issues with the Ukraine and then natural disasters with with the East Coast floods and I don’t want to be negative about it I think I’m I’m being quite factual, but you know it it feels like every time we’re we’re about to get going something else pops up. You and I spoke about you know K-shaped recoveries which I really like because depending on who you speak to it’s you know it’s okay. There’s you know multi-speed economies but just tell us a little bit about that K-shaped recovery that you’re seeing and I guess the winners and and the losers with that within the economy.

03:59.82
Jamie Osborn
Yeah, it sounds like a strange shape doesn’t it K and it more difficult to explain without the visual. But yeah, so you know think of the up leg and the down leg of the K.

04:08.95
Patrick Coghlan
I’m a visual person I’m fortunate that that I’ve had the visualisation of it previously.

04:18.31
Jamie Osborn
And and that’s what we mean when we we talk about that K-shaped so you use the word winners and losers and we’ve absolutely seen that. So maybe just a little bit I’ll just touch on the technology point that you referenced Pat which will lead into you know what we’re seeing today.

04:32.30
Patrick Coghlan
Yeah, so.

04:37.50
Jamie Osborn
We have a bank connect technology that we started to put into place probably five years ago and so the idea was for our customers to connect through a live feed that we ingest the bank transaction data and we make credit and payment decisions based on what we’re seeing in the bank accounts and if I kind of go back five years the adoption of that service was started at about 45 to 50 per cent of our customers grew to something like 65 per cent and then during COVID we made a decision just because of the uncertainty and volatility in the market that we really needed to see that heartbeat of a business in a live way and so we actually made the decision to make a part and parcel of the products that we offer and so today we have essentially 100 per cent of our customers that sign up through bank link and give us access in live way to their bank statements and and the quid pro quo there is we then have designed the products to give them a lot of flexibility and control over the products in their hands and so you know just in the space of a few years we saw that technology adoption and then you know with COVID we described COVID as pulling the future forward. So some people have described it as a change agent. We actually see it as an accelerant. So the vast majority of the trends that were afoot.

Leading into COVID, COVID just sped up and digitisation you know was a big part of that. So then jumping to kind of K-shaped recovery that data asset that I touched on you know we have a lot of very high quality data that we receive from our customer base and the story that we saw over COVID over the two years of COVID was big differences within industries of winners and losers. So for example, if I take the construction industry as an example. The top quartile in our portfolio is doing something like 75 per cent better than they were twelve months ago and the bottom quartile is doing 50 per cent worse and so I think that’s the That’s the story that we’re seeing play out and even as we move into the recovery. There’s that dichotomy between those even within industries that are doing well and those that are not doing so well and we can get into if you like as to you know why? that might be the case.

07:20.67
Patrick Coghlan
Yeah I really like that because there’s ah it’s easy to generalise and I think there’s a tendency to do that and you know I think with the likes of pro build. For example I think there’s a lot of talk about you know constructions. The whole industry is you know on the edge. And when you and I have spoken previously. You know you do a really good job of taking the emotion out of it and taking the narrative out of it and making you know a data-driven decision. So it’s it’s not a case of hey Jamie what? what industries are you are you targeting which ones are you avoiding. You’ve often said? Well no, it’s it’s actually the data. So just maybe talk about talk about that a little bit.

07:59.83
Jamie Osborn
Yeah I think you know you’ve touched on it. But there’s competing narratives and you’ve touched on construction there. So let’s use that as the example, you know there’s there’s a school of thought from one camp that fix price contracts and issues with supply chain is going to see some really severe impact on the construction industry. You’re going to see insolvency spike, you’re going to see bankruptcies you’re going to see you know liquidity issues. At the other end of the extreme, there’s another narrative playing out that says with the flooding that we’ve seen in South Queensland and Northern New South Wales that there’ll be you know a rebuilt and a real boom for construction and so you know we try not to listen to those stories too much and rely very much on the data and I think that’s for the type of business we’re in that’s been really really important over the COVID period because things are moving so quickly and there’s so many competing narratives out there that I think it’s really easy to misstep.

So, again back to us relying on live up to- the-minute data. We can see what’s happening in a business’s transaction account literally today and that how that that forms the basis for the decisions. We’ve made you know, interestingly just in terms of our credit decisioning models. We really haven’t changed them over the course of the last two years we’ve we’ve been able to rely you know on that data and obviously where businesses have been impacted and that revenues impact and their liquidity is impacted then you know they can’t as easily support taking on credit but there’s plenty of stories where businesses have been able to either pivot and take advantage of the opportunity or in some instances actually take the opportunity to do a new fitout on their facility.

We’ve seen that in the gym sector for example, over COVID many gyms took that opportunity to say okay, here’s the opportunity for me to do a full refresh on the facility. So we’ve seen lots and lots of narratives out there for us and we think it’s probably something that is extendable to most businesses that just to rely on the on the data that you’re actually seeing you know, come through your business.

10:22.29
Patrick Coghlan
Yeah I like that that sort of you know play each ball as it’s delivered rather than trying to pre-empt it or think about it too much. You know, depending on what the data says is ultimately how you’re making that decision which is great and I’m sure. That gives plenty of opportunity to get into those industries and find those good quality customers and to serve them when they’re probably being turned around quite easily by others within by your competitors potentially which is good. So I guess if we if we talk about if we talk about SMEs you know there’s I think. SMEs are always you know the ones spoken about whether it’s you know because of you know the pandemic or or tightening of credit or, you know how do we serve that segment.

The fact is that they they make up 90 odd you know, depending on how you measure them between 90 and probably 98 per cent of all businesses out there. A huge employer. You know a huge amount of wealth kept in in that space. But there’s a big difference obviously between an s and and m as you get into it. You’re quite would you say bullish about prospects for for SMEs about the future prospects for SMEs where are you sort of sitting when you look at the future for them.

11:32.83
Jamie Osborn
Yeah, look I think the short answer is yes Pat with some caveats. Obviously you touched on uncertainty upfront we think there’s a layer cake of uncertainty right? You’ve got geopolitical risk. You’ve got weather risk. You’ve got an election coming up. You’ve got inflation risk. You’ve got interest rate risk. So. There’s just a lot layering on at the moment and that that leads to uncertainty. We think that this sort of environment favours those that are probabilistic about their thinking. You know, meaning there’s a number of different scenarios that can play out here where we’re not big believers in putting a sort of point forecast out there that this is what the world will look like in December 22 or June 23 and so for businesses that have set themselves up to do well in that environment. We think they should succeed and it so happens that many many of those SME businesses that you talk about I think have those characteristics and we saw this.

We saw this actually through the last two years we were really surprised on the upside at the resilience and probably more importantly, the adaptability of our SME clients. so if you play that forward into the recovery phase if you if you continue to have set if you’ve set yourself your business up that way and you continue to. Maximise the opportunities that you know come your way and mitigate the risk. You’re in a really really good position now. Of course there’s a bell curve and you know I know a lot of your work, Pat is sort of around the left tail or mitigating that left tail which we will always see in the economy right.

13:28.24
Patrick Coghlan
Yeah.

13:29.89
Jamie Osborn
And so not saying it’s ah it’s a sort of layup for every small business. But I think the opportunity is there you know for them to thrive and we’re starting to see that you know and I think it’s some of the data that you’ve got in your outlook as well. Certainly in January and February. We’ve seen confidence and we’ve seen that confidence translating into our business customers investing further in front of the curve. You know for growth.

13:56.38
Patrick Coghlan
Yeah I agree and and you know you talk about that uncertainty and you know you think back for the last two years. I kind of feel if you’ve made it this far as a business and and you can sort of wade through this last bit of mud. That’s how I’ve been describing the last you know, probably three or four months is there’s forward momentum there but it feels like you know we’re trying to run in mud. The the future is is rosy now there’s obviously going to be a slow economic recovery. No one knows how fast or slow that will be I think every time an economist or myself has kind of gone on the record to make a prediction. Something else is rolled around and and made us look somewhat foolish. We’d have to you know reassess every every couple of months but I think if you can make it through this time you’re you’re doing ah a phenomenal job and it’s only going to get easier.

Yes, interest rates you know are likely to go up. Yes, we’ve got you know supply chain issues and and all the other things that you that you flagged but you know we’re extremely resilient and and I look at creditor watches itself. You know we’re twelve years on now and still you know a fast growing business and you know we’re in that tech space. It’s think it’s at times of you know when times get tough, desperation can be quite a good motivator. You know for small business owners out there it’s money out of their pocket when something goes wrong, it’s rent, it’s mortgage repayments, it’s school fees, it’s really human story sort of things rather than just looking at it as a… Okay 800 companies went into administration this month that you really have to work to succeed and I think Aussie businesses have have done a phenomenal job of doing that in the last you know 2 years and and I’m quite confident and and bullish as well that they’ll be rewarded for it.

So you know I’m quite keen to to look for the future and and find those positives. With that in mind, what do you see as being you know, the biggest challenge. Obviously we’ve got you know supply chain. We’ve got election. We’ve got COVID you know. Are there certain things that businesses have to get back to basics to get through this period?

16:18.31
Jamie Osborn
Look I think a couple of answers. The first one is I think it’s going to be different for different businesses and different industries. But but the second answer would be you know look I don’t think we’re going back I mean I think this that the the thought that. You know COVID as a blip and let’s try and press pause by having you know government support, keep everything on life support, keep the economy on life support and then it’s all going to go back to 2019, is flawed you know back to my comment I think the future’s been pulled forward.

16:52.11
Patrick Coghlan
Yeah.

16:57.44
Jamie Osborn
And so you know all of the trends that we saw in 2019 with 1 possible exception and that’s globalisation but pretty much everything else. We’ve seen accelerate and so I think you know the challenge is.

17:08.36
Patrick Coghlan
Yeah.

17:16.40
Jamie Osborn
Have you have you adapted your business quickly enough have you used the COVID period to recognise that and kind of set yourself up for you know more change frankly and so whether that’s you know in the retail space do you have an e-commerce strategy. For example, are you really really clear on your point of difference in the market. Do you own a little patch that you have a moat around a competitive advantage. You know, I think this volatility in the market exposes businesses where there’s weaknesses. And so on that point, you know if I was to kind of just have one of the challenges that might cut across all industries and all all individual businesses. It would be you know having an antenna up for the opportunities that present themselves but also having built into the DNA the business, some ability to withstand further shocks and that’s usually how we see it in our business, is businesses that aren’t properly capitalised.

18:10.10
Patrick Coghlan
It.

18:28.15
Jamie Osborn
So if you see a thinly capitalised business. They just can’t withstand the shocks so and look I know this is hard but for small businesses because most of them have been bootstrapped but you know most of them are pushing the limits of their equity base. They actually need.

18:36.56
Patrick Coghlan
Yeah.

18:45.70
Jamie Osborn
You know as they’re growing fast. They they probably need a bit more equity and that’s the preferred option if they can’t get that then they need access to capital in some other form you know working Capital or something else. So they’re probably I think they’re setting themselves up to take advantage of the opportunities on the upside and mitigating the risk of the downside you know would be the the common facts.

19:07.86
Patrick Coghlan
Yeah, like that that is that is good and small businesses are nimble and agile and they’re around because they’re able to take advantages of their larger slow arrivals which is which is a really important thing to remember. To come to some sort of a conclusion to somewhat not a conclusion I’m quite keen to hear what the future looks like for for Shift you know what can we expect? What are you expecting from you know from your people and and the business over the next you know 12 to 24 months.

19:38.44
Jamie Osborn
Well like your business Pat I mean we’re ah we’re a fast growing business. And it has continued to grow quite rapidly over the last you know 12 to 18 months which surprises you know some people and you know January, February has continued that trend. We’re pretty ambitious where we’re looking to disrupt some markets that we think, where the incumbents aren’t serving the customer as well. So I probably won’t be more specific than that. But yeah.

20:12.18
Patrick Coghlan
You don’t to give away the secret source.

20:15.12
Jamie Osborn
Where today something like you know one per cent market share. So there’s there’s a long long way to go but we’ve got a phenomenal team and they’re all very very focused on delivering just exceptional outcomes for our customers and partners.

20:32.36
Patrick Coghlan
Yeah, fantastic. Well, that’s great to hear and I’ve loved watching from from the sideline I’ll say and get the opportunity to catch up with you fairly often and always enjoy the time whether we’re talking about you know business or work from home versus work from office or the the pros and cons of lockdown and government stimulus that doesn’t really matter, I always enjoy the time that we spend chatting about that. So with that in mind Jamie thanks very much again for your time I really appreciate it.

You’ve put a huge amount of effort into this Outlook 2022 for those listening at home in the car in the office. Please go to https://creditorwatch.com.au and you can see on the front page on the homepage, there should be a link through to Outlook 2022 that you can download and get access to some fantastic insights from the likes of of Jamie Osborn, the CEO of Shift and a few other fantastic contributors as well. Jamie thanks again for joining us and I look forward to our next chat. Thank you, everyone.

21:33.48
Jamie Osborn
Excellent Pat thanks very much.