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Queue Up for P2P Lending!

wiseclerk 2 Comments

When was the last time you stood in a long line outside your bank branch, patiently waiting to deposit money into your savings account? Imagining a scene like that seems ridiculous at a time with near-zero interest rates in an increasingly large number of developed countries.

But there where you would least expect it, in the Fintech world of fast-moving bits, some startups actually are imposing measures to throttle influx of investor money in order to balance it with borrower demand. Welcome to p2p lending (short for peer-to-peer lending). The sector is experiencing tremendous growth rates. With attractive yields for investors some platforms struggle to acquire new borrowers fast enough for loan demand to match the ever-rising available investor demand.

One challenging factor is deeply ingrained in the business model of p2p lending marketplaces: once a new investor is onboarded and found the product satisfactory, he is most likely to stay a customer for years to come and reinvest repayments received and maybe the interest also. On the other hand the majority of borrowers are one-time customers. They take out a loan typically just once. While it may take years for the borrower to repay that loan, in most instances there is no repeat business for the marketplaces. So the marketplaces have to constantly fire on all marketing cylinders to win new borrowers in order to keep up and grow loan origination volume.

This has sparked some outside of the box thinking, e.g. the partnership of Ratesetter with CommuterClub to win their loan volume, which is in fact mostly repeat business.

Winning investors has been relatively easy for many of the p2p lending services in the recent past. Investors are attracted typically through press articles or word of mouth. One UK CEO told me he never spent a marketing penny ever to acquire investors.

But what happens on the marketplace, when there are so many investors waiting to invest their money in loans, but loans are in short supply?

  • If the marketplace does nothing or little to steer it, then those investors that react the fastest, when new loans are available, will be able to bid and invest their money. This is the situation e.g. on Prosper, Lending Club and Saving Stream.
  • The marketplace has some kind of queuing mechanism. This is typically coupled with an auto-bid functionality. Examples of this are Zopa, Ratesetter and Bondora.
  • The investors are competing during an auction period by underbidding each other through lower interest rates. Examples of p2p lending services with this model are Funding Circle, Rebuilding Society and Investly.
  • The marketplace can lower overall interest rates to attract more borrowers while the resulting lower yields slow investor money influx.

The UK p2p lending sector is eagerly awaiting the sector to become eligible for the new ISA wrapper. Inclusion into the popular tax-efficient wrapper will attract an avalanche of new investor money to the platforms.

“That’s going to be a challenge for the industry,” said Giles Andrews, CEO of Zopa. “Once the dates are worked out, the industry will need to plan for that together, and we may have to do something we have never done before, which is to limit the supply of money. It’s not good to have people’s money lying around [awaiting new borrowers] or to lower standards of borrowers.”[1]

So there is some speculation that UK p2p lending services could impose temporary limits on new investments.

The investor viewpoint

The aim of the investor is to lend the deposited money easy and speedy into those loans that match his selected criteria/risk appetite. Idle cash earns no interest and will impact yields achieved (aka cash drag).

For the retail investor none of the above mentioned mechanisms are ideal. The “fastest bidder wins” scenario means he would either have to sit in front of the computer most of the time or be lucky to be logged in just as new loans arrive. The queuing mechanisms are disliked as they can prove to be very slow in lending out the funds and can be perceived as nontransparent (see the lengthy and numerous forum discussions on the Zopa queuing mechanism). Underbidding in auctions does provide the chance to lend fast, but at the risk of setting the interest rate too low and this requires a strategy and can also be time consuming. Continue reading →

International P2P Lending Platforms – Loan Volumes May 2015

wiseclerk 1 Comment
The following table lists the loan originations for May. The top four UK services volumes are close together, with Wellesley catching up. I added two new platforms. I do monitor development of p2p lending figures for many markets. Since I already have most of the data on file I can publish statistics on the monthly loan originations for selected p2p lending services.
Investors living in markets with no or limited choice of local p2p lending services can check this list of marketplaces open to international investors.

P2P Lending Volume 05/2015
Table: P2P Lending Volumes in May 2015. Source: own research
Note that volumes have been converted from local currency to Euro for the sake of comparison. Some figures are estimates/approximations.
*Prosper and Lending Club no longer publish origination data for the most recent month

Notice to p2p lending services not listed: Continue reading →

Crowdfunding and P2P Lending in Switzerland – Market Overview

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Prof. Dr. Andreas Dietrich of the Lucerne University of Applied Sciences and Arts, Simon Amrein, Reto Wernli and Dr. Falk Kohlmann have published the study ‘Crowdfunding Monitoring Switzerland 2015‘. It analyses the development of crowdfunding in Switzerland giving special attention to the development of p2p lending.

The Swiss market is growing fast; albeit on low absolute numbers compared to other European countries. The market is in a very early development stage. As the following chart shows the volume is mainly generated by crowdsupporting/crowddonating.

Crowdfunding Market Switzerland 2014
Source: Crowdfunding Monitoring Switzerland 2015 study

The total market for new loans to consumers in Switzerland in 2014 was 3.9 billion CHF. Via p2p lending 3.5 million CHF were originated in 2014, so that equals a market share of only 0.1%. But the p2p lending volume has nearly doubled compared to 2013 (1.8 million CHF). The authors state:

The crowdlending market has experienced the strongest year-on-year growth of all crowdfunding segments. … The number of campaigns rose from 116 to 214, and all of them were successfully funded. The current challenge of crowdlending platforms is not finding funders. On the contrary, it is (more) difficult to get borrowers on the platforms. Crowdlending campaign funders invested an average of CHF 1,100, which is substantially different from the figures in reward-based crowdfunding & crowddonating as well as in crowdinvesting. The average campaign amount was CHF 16,200, which was slightly higher than in the past year (CHF 15,000). The average loan amount in crowdlending is very similar to the average consumer loan as of the end of 2014. The crowdlending market is, however, still niche market.

Crowdfunding Market Switzerland Growth
Source: Crowdfunding Monitoring Switzerland 2015 study

Regulation limits that a private consumer loan cannot be financed by more than 20 different individual lenders.

The authors analysed loan data of the Cashare marketplace. Examining who uses p2p lending as a borrower the study finds:

The average borrower age is 38. One fifth had at least one child under the age of 16 at the time the loan was raised. At 37 percent, married people were proportionally under-represented, although they make up 54 percent of the permanent resident population. 19 Homeowners (19 percent) and women (24 percent) are also under-represented. The distribution of nationalities is slightly more representative of the Swiss population. 71 percent of the borrowers were Swiss, while 29 percent of the borrowers were not in possession of a Swiss passport. The average proportion of the foreign-born resident population in Switzerland was 22 percent between 2008 and 2013.
The age distribution of the borrowers leads to the conclusion that crowdlending is currently still primarily used by the tech-savvy Generation Y. 60 percent of all loans raised since 2008 went to people under the age of 40. Only 4 percent of the borrowers for successful projects were over 60 years of age.

Also the borrowers regional distribution shows that use is much more common in the German speaking areas of Switzerland.

Regional distribution of p2p lending borrowers in Switzerland
Source: Crowdfunding Monitoring Switzerland 2015 study

Continue reading →

3 Marketplaces Join Forces to Form Crowdfunding Alliance in Singapore

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Today marks a significant chapter in Singapore’s fast-growing crowdfunding industry, as crowdfunding platforms CoAssets, FundedByMe, and New Union announce an alliance that sees the three platforms combining forces to develop the local and regional crowdfunding industry.

singapore-flagAll three platforms – CoAssets, FundedByMe, and New Union – today have international reach of investors and campaigns. Together the alliance recorded over S$200 million dollars raised through crowdfunding campaigns in 2014, with growth expected to accelerate over 2015.

Said Getty Goh, founder and CEO of CoAssets, “As an individual company, there is only so much we can do. Hence, I am excited and honored to be a part of this three-way alliance. However, this is just a first step and we hope that more stakeholders will join this alliance so that it can eventually pave the way for Fintech trade association. As Fintech is a burgeoning sector, the best way forward is to come together and engage the authorities collectively. Akin to the Singapore Venture Capitalist and Private Equity Association (SVCA) or Real Estate Developers Association of Singapore (REDAS), having a Fintech association is not only a good way to promote self-governance, it can also bring greater awareness to what this industry is all about.”

“We are excited about this development with likeminded partners in the industry. There’s so much more we can do together, once we focus on developing the market here and globally in 2015. Crowdfunding is definitely on an uptrend –– we experienced over 600% growth in 2014 year-on-year –– and expect that the next wave of growth will exponential especially considering this alliance, coupled with surging Asian demand,” said Daniel Daboczy, founder and CEO of FundedByMe.

“Technology and the world-wide-web have become irreplaceable to our daily life, and every day business — and today, this alliance represents the emerging wave of financial services that meet crucial needs in the business community. Our commitment is to work closely with government agencies and financial institutions to spearhead a progressive and trustworthy crowdfunding environment,” Jeremiah Lee, Founder and Managing Director of New Union.

The three platforms plan to launch their first combined crowdfunding project in Q3 of this year, as well as joint conferences over the months following their alliance announcement. Continue reading →

Mintos Announces Buyback Guarantee for Car Loans

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Mintos LogoLatvian p2p lending marketplace Mintos today announced a buyback guarantee for all car loans issed by Mogo that are currently on the marketplace or will be listed on the platform until July 31st, 2015. The buyback guarantee applies for the lifetime of these secured car loan. Under the agreement Mintos concluded with Mogo, Mogo will buy back any of those loans that are 60 or more days delinquent.

All secured car loans are originated, pre-funded, and serviced by mogo. It means that similar to real estate backed loans, Mintos puts on the platform already funded loans (and most have had a number of successful payments) and investors can start earning interest from the moment they have invested in a loan. Mogo keeps 5% of each loan on its books.

This construct provides additional security to investors – a bit like the provision funds some UK marketplaces maintain; only that in this case it currently is a limit-time guarantee.

Mintos Buyback

Taaleritehdas becomes an owner of the P2P lending company Fellow Finance

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Taaleritehdas invested 2 million EUR in the peer-to-peer (P2P) lending company Fellow Finance Oy and, at the same time, sold the entire stock of its Financing Company Lainaamo Ltd to Fellow Finance Oy as a share exchange. Lainaamo has a consumer credit portfolio of approximately 20 million EUR  with thousands of consumer customers. After the acquisition, Taaleritehdas owns 38.4% of Fellow Finance Oy. In addition, Taaleritehdas has an option to increase its holding in the company by 7.3%.
Fellow Finance’s founders, Jouni Hintikka and Teemu Nyholm, each own 18.4% of the company. In total, Fellow Finance key persons have a 57.3% holding in the company.

According to its vision, Taaleritehdas aims to develop the Finnish capital market. Taaleritehdas believes that increased direct financing will be one of the most significant changes in the finance industry in the future. The focus in financing will increasingly shift from the bank-centric approach towards direct financing. Another strong megatrend in the financing sector, as seen by Taaleritehdas, is digitalisation. Both Fellow Finance and Lainaamo offer their services completely online. Ownership of Fellow Finance enables Taaleritehdas to offer its customers a new investment form and to utilise digitalisation in its own activities, as well. The merger of Lainaamo and Fellow Finance will not affect the position of borrower
customers or investors. Continue reading →