P2P Lending – a View from Australia

This is a guest post by Leo Tyndall, CEO and founder of Marketlend.

The peer-to-peer lending industry remains embryonic in that there are only two Australian peer-to-peer lenders, Society One and Marketlend. The remaining peer-to-peer lenders RateSetter and ThinCats are spin-offs of their UK operations -RateSetter Australia is by now only partly owned by Retail Money Market.

australia-flagThe focuses of both Society One and RateSetter are personal loans whereas ThinCats and Marketlend focus on commercial lending. Legal structure by Society One and RateSetter is a managed investment scheme. ThinCats legal structure is unclear aside from that they are an authorised representative of an Australian Financial Services License similar to Society One and Marketlend. However, Marketlend has opted for the more traditional debt structure by establishing trusts that issue tradable bonds by an independent trustee.

The Australian peer to peer market is operating in the commercial banking market which is 2123 billion of client loans according to BMI Research as of November 2013. P2P Lending remains a new concept and irregularly reported albeit growing exposure is occurring through crowd funding publicity and statements by new investors like Murdoch investor group and James Packer investor group.

Crowdfunding saw commentary from the regulatory authorities in the form of a guidance and reference in a financial system review in last quarter of 2014. The essence is that it should be encouraged however, there are significant legislative hurdles at this time and consideration should be given to making it easier to commence such endeavors.

At this time if you offer a financial product, service, loan or investment to a retail person, a credit license is needed for lending and you are required to hold an AFSL or be an authorised representative of an AFSL holder who has sufficient licenses to enable it to advise, and offer financial products to the retail market. Furthermore, if you chose to offer a product, through a managed investment scheme, you need a responsible entity or must be a responsible entity (RE) to offer the securities. In layman terms, the RE is a similar entity to a trustee. A notable exception to this includes, operating to offer to wholesale investors and offering only business loans. Each of these has it’s own idiosyncrasies.

As recent as 15 March 2015  CBA top executive Kelly Bayer Rosmarin questioned whether peer to peer lending is driven by supply side factors in a low interest rate environment and wondered if the peer to peer model can sustain an entire cycle. This shows a lack of concern or possible complacency by the mayor banks. However other smaller or progressive banks have looked to discuss with peer to peer lenders about possible cooperation or investment.

Marketlend CEO Leo TyndallFor peer to peer lenders we welcome the benign attitude of the larger banks as it is the type of attitude that drives investors and borrowers towards this market. Australia is marketplace where the internet is a well-accepted forum for doing business and the financial services industry is already using it to develop their own businesses. This type of lending is a graduation of the electronic age of the financial services industry in Australia and here to stay.

There is talk of at least 3 new arrivals this year: Money place, Lend2fund and another that has operations offshore.

Marketlend is a business peer-to-peer lender who offers loans only to business in the form of working capital, traditional business lending and commercial property. Using intuitive software to take applications and automated proprietary software within a matter of minutes, Marketlend can complete external credit checks and rate the likelihood of loan repayment. The software is provided by third parties who offer similar solutions to government departments and public companies. A financial analysis is performed on available financials to determine debt coverage service ratios, leverage ratios and general health of the borrower. These data points, historical payment history and approximately 65 input items are used to determine the rating of the risk. 

Upon obtaining rating and execution of credit agreement the loan is listed on a marketplace where investors, verified by Marketlend, can view the details of loan, results of external checks and all supporting documentation. Investors then make a bid at whatever interest rate within the band set by Marketlend for an amount of their choice below the full amount.

When all bids are in and the auction has ended, if 100% or more than 100% of a loan is bid, it is considered funded and Marketlend will get a loan limit in the loan management system, set up the direct debit payment for the borrower and begin the payment to the suppliers or service providers up to or equal to the limit fund.

Typical rates of net return are between 7-14% subject to risk profile. The main product of Marketlend is this working capital product competing the same space as corporate credit card and a trade credit facility. The additional administrative function of paying suppliers and charging the borrower every 30, 60, or 90 days reduces the borrowers costs in management and gives them increased bargaining power with suppliers by paying them overnight.

Other products offered are business and commercial property loans secured over personal property or real estate. All loans are accompanied by directors’ guarantees and all borrowers are verified by an independent identification service. Term of the loans is 3-5 years.

All loans are separately sold into individual trusts operated by an independent trustee and notes are issued to investors by the trustee. At this time there are no backup servicer arrangements with any peer-to-peer lender other than Marketlend.

Main events to occur over the next 12 months for Marketlend is to start to build a track  record, finalise terms with a number of insurers, develop institutional investor support and penetrate into the sme finance market offering products that continuously rank no 1 on comparison websites like Mozo as our present products do.

For peer to peer lending in Australia the next 12 months will see an association established and 3-6 more peer to peer lenders operational and offering products in the loan market in a culture of anti-bank sentiment. Increased participation of investors and borrowers becoming part of the peer to peer lending community.

There is no doubt there will be successes and fails  in peer to peer lending in Australia however if all lenders join together to form a self-regulated and purposeful association, the future in peer to peer lending Australia is looking very positive. This is also reflect by the equity investment as recent as last week by Carsales.com.au buying a 20% equity stake investment at 10 Million in Ratesetter. (see related article)


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