Exciting Week for German P2P Lending Services

Positive TV coverage (see video here) on nationwide German TV on Monday during primetime caused traffic spikes at the German p2p lending services Smava and Auxmoney. The websites were partially down during Monday and Tuesday or so slow they were practicably not useable. Auxmoney reacted by temporary deactivating non-vital functions like sorting. Meanwhile stability of the web applications has been restored.

The surge in user demand led to a 20% increase in active lenders at Auxmoney and most ever parallel open loan listings (currently 332). At Smava nearly all reasonable loan listings are funded within a few days or even hours at the moment.

To encourage more loan listings Smava has upped the bonus for inviting new borrowers to 150-200 EUR (approx 200 to 275 US$) for each referral of a borrower that is success fully funded (up from 100 Euro before).

Auxmoney Adds Audio to Borrower Profile

German p2p lending service Auxmoney.com has added the option for borrowers to enhance a listing by adding an audio file. The borrower records the audio message by dialing a phone number and identifying himself by a pin supplied by Auxmoney.

Hearing the borrower describing his request creates a much more personal impression to me than only reading a text description.

To hear an audio-file created by a borrower follow this link and click on the speaker symbol (the audio is in German).

Auxmoney Screenshot June, 8th 2009; symbol for audio profile marked in red

(Source: via P2P-Kredite.com)

2nd birthday of Smava

German p2p lending service Smava.de launched two year ago. Since the launch of Smava 1350 loans were funded for a total loan volume of about 7.9 million Euro (approx. 10.7 million US$).

Lender’s viewpoint

So far lenders on Smava did well. There are approx. 2500 lenders active on Smava. Despite the credit crisis, 99% of the lenders earned a profit in 2008 (total 210,861 Euro), while the 1% who did incur a loss, lost only 60 Euro.

So far ROI in the range from 5-10% have been realistic. As of today 75 loans have defaulted, which is (in percent) more then was originally predicted. The Anleger-Pool mechanism spreads the losses of a default across all loans of a credit grade, which prevents total losses of investments. Therefore when 3 in 100 loans in credit grade X default, the lenders invested in the defaulted loans still receive 97% of the principal, while for lenders in the current loans returns are lowered by 3%.

Technically and on the process level Smava functions as promised.

Borrower’s viewpoint

Provided the borrower has a credit grade of at least ‘H’ (95% of the German population have credit grades between ‘A’ and ‘H’ so about 5% are excluded) and he has a sufficient income, chances for obtaining a loan through Smava are good. About 60 percent of the listings were funded. In February 2009 Smava raised the fees for borrowers from 1% to 2-2.5%.

Marketplace development

Smava shows continuous growth, with the volume of new loans per month approaching 1 million Euro (see chart)

(Source: smava loan stats, Wiseclerk.com, 03-26-09)

Despite extensive and positive press coverage Smava is still a niche market with less than 5000 active users. Looking at the distribution of lenders by amount invested, the top 50 Smava lenders funded about 1,690,000 Euro (or about 21% of total loan volume). Currently lenders are limited to a maximum of 100,000 Euro investment.

(Development of Smava average nominal interest rates for new loans; Source: smava loan statistic, Wiseclerk.com, 03-21-08)

I would estimate that the increased fees allow Smava to cover the variable costs. But to cover fixed operating expenses Smava needs to multiple its volume. First priority of Smava must be to accelerate growth.

A venture capitalist’s view on investing in peer to peer lending

When a VC talks about peer to peer lending he is not talking about achieving a good ROI by lending to borrowers. He is talking about the chances he sees in investing in the p2p lending company.

Paul Jozefak, Managing Partner at Neuhaus Partners, did just that as a side note in an interview he gave ReadWriteWeb. Neuhaus Partner invested in the second VC funding round of German Smava.de six month ago.

In the interview Jozefak says, that:

  1. Smava is at the right time in the right place (current economic situation)
  2. he sees an upswing in lender and borrower interest; assesses that the model has proven itself
  3. Their competitors in the US are doing quite well and he expects that Prosper will resolve it’s issues with the SEC.

I agree with the first point, but in my view it is too early to judge whether the Smava model really has proven itself (even the oldest loans are only through two thirds of their loan term). And the last point, I find an optimistic assessment of the situation. One could say that Lending Club is doing well, but Prosper and Loanio are in a situation that could at least be described as challenging.

Smava raises 4 million Euro in second VC round

Smava logoSmava.de, offering p2p lending in Germany, today successfully closed it’s second VC round. Earlybird and Neuhaus Partners invested 4 million Euro (approx 5.5 million US$). Earlybird did already invest 4 million Euro in Smava in the first round. Smava CEO Alexander Artopé announced that Smava will use the money for product development, marketing and internationalization.

Smava funded a loan volume of 535,000 Euro in September generating revenues (1percent origination fee) of 5,350 Euro plus an undisclosed amount (my estimate:<1,000 Euro) in commissions for insurance products.

The growth of the funded volumes per month can be seen in this chart.