How P2P Lending Services Collect User Feedback

P2P lending services are young and developing in an innovative environment with little established best practise examples. Every company is constantly trying to learn how to improve the experience for its users. Whether it be user interface, information pages, business model and fees – there is lots of room for incremental improvements.

P2p lending services certainly test run some things before the general public gets to use them. Examples of methods to do this are closed betas, monitored usability tests, A/B tests, ….

One of the most valuable sources of information & ideas for improvements are the users themselves. The mass of users ensures that every little step of every process gets used possible times, bugs identified and misinterpretable information questioned.

Here is a set of methods that p2p lending companies can use to collect and profit from the wealth of user experiences.

  1. Run a forum (I talked in previous articles about the advantages of p2p lending forums)
  2. Consider using a simple to use ticket system instead of user support via pure email (advantage: allows statistical analysis of user problems, handling times and outcomes)
  3. Talk to your customers. Especially right after launch, it can be extremly helpful to call lenders and borrowers and asks them how easy they found the process and if they have any suggestions for improvement
  4. Analyse you webtracking stats. Where have users abandonned steps, where do they stay long times (possibly stuck) and where do they leave the site?
  5. Use online surveys to get structured feedback from customers.

Yesterday I attended the first ‘lender conference’ of Smava in Berlin. I put ‘lender conference’ in quotation marks because that term sounds a little magniloquent and misleading for the type of event it actually was. More fitting would be a discussion with a panel of selected experienced lenders. Smava handpicked 5 of those and invited them to Berlin reimbursing travel expenses. After a short tour of the premises, processes, lender wishes and market situation were discussed in depth (see longer report at P2P-Kredite.com). The small number of participants enabled an extremly useful discussion.

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Smava Subsidized Loan Promotion Ends With Little Success

Smava in the time from September, 15th 2010 to October, 15th 2010 offered subsidized loans to new customers (borrowers). The offer was limited to loan amounts up to 2,500 Euro and only available for 36 months loan terms.

Eligible borrowers could take out a loan at an APR of 2.99%. Since lenders received “normal” rates (typically between 5 and 13% nominal depending on credit grades) Smava subsidizes the difference. Over the duration of 36 months this will cost Smava about 150 to 300 Euro per loan.

According to Wiseclerk stats about 150 loans with a total volume of 350,000 Euro closed at the reduced rate.

Reasons for this marketing promo

Smava did not comment about the motives behind this offer. While the resulting CPO of this offer is higher then with other marketing channels, Smava could have speculated that the press picks the special offer and that the traffic from the generated press coverage leads to additional loan requests that are not eligible for the offer. Furthermore the rate of 2.99% APR could place Smava prominently ranked on loan price comparison sites.

Results

In my opinion this offer had low success. Judging by economic facts it might be considered a failure. Little additional press coverage was generated by this special offer. The total loan volume funded per month did not rise compared to previous months. The offer might aid the positive image of the Smava brand though.

Smava Enters Marketing Partnership with Cortal Consors Bank

Smava has entered a marketing cooperation with Cortal Consors bank. Cortal Consors will promote Smava as a new asset class to it’s customer. Smava will pay Cortal Consors referral fees for referred lenders and borrowers.

Newsworthy is that this is the first marketing deal a bank has entered in with a p2p lending service. The implications of the deal itself are rather unspectacular as the information is buried deep inside the Cortal Consors website where few are likely to see it.

In other news Smava has redesigned the website and changed the slogan a couple of days ago. The former slogan was “Kredite von Mensch zu Mensch” which roughly translates to “Loans from human to human”. The new slogan is “Direkt Kredit” (engl. “direct loan(s)”). The motivation of this change according to Smava was to enhance the message that loans are direct, easy, and competitive. Smava says borrowers had wrong associations with the old slogan, thinking that long negotiations with individual lenders would be necessary.

Published feedback by users (lenders) on the new slogan critisizes that the new slogan resembles those of impersonal financial institutions – an image that p2p lending services aimed to differentiate themselves from.

Happy Anniversary: 3 Years Smava Lending

Smava.de launched 3 years ago and successfully established p2p lending in Germany. Since then about 25 million Euro (approx. 34.4 million US$) loans were funded. Smava  gained nearly all positive feedback by lenders, borrowers and especially the media.

Smava will need to continue growing considerably in order to become profitable. Currently growth is limited by borrower demand. On the lender side there is much capital waiting to be invested.

One issue Smava will have to tackle in the future are the default rates that distinctly exceed originally forecasted values. So far these have not been a threat to growth because  the ‘Anleger-Pools‘ mechanism, an insurance mechanism spreading losses resulting from defaults over many lenders, prevented major losses for single lenders. In the past years nearly all lenders achieved positive ROIs.

The P2P-Kredite blog has published a longer analysis today: ‘3 Jahre Smava Kredite – eine Bilanz‘ (in German).

Smava Offers Debt Conversion

Recently p2p lending service Smava.de introduced a new offer aimed at borrowers that want to refinance a loan they have at a financial institution. If the loan request at Smava is funded by lenders, Smava will deal with the financial institution directly acting upon a certificate of authority signed by the borrower.

The loan amount of the new loan is not paid out to the borrower – instead it is directly transferred to the financial institution paying off the previous loan.

There is no extra charge for this service (the normal loan fees apply). Smava makes it easy for the borrower to replace conventional bank loans by peer-to-peer loans.

(Source: P2p-Kredite.com)

Smava Funds More Than 1M Euro Loans in June

P2p lending site Smava.de for the first time reached more than 1 million Euro (approx. 1.4 million US$) loan volume funded in one month. One factor contributing to this is that Smava is in the top 10 rankings for German Google search results for the keywords kredit (engl. loan) and kredite (engl. loans) since the end of May. I find it interesting that there is not one single bank site in the top ten for these search results.

Furthermore Smava profited form TV exposure, which also helped its competitor Auxmoney to achieve a record month with approx. 130,000 Euro loan volume.

In international comparison by p2p lending loan volume funded per month, Smava is in the top 5 behind Virgin Money, Kiva, Zopa UK and Lending Club.


(Source: Smava p2p lending stats; A-H are credit grades)

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).

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.de raises fees

In Germany p2p lending service Smava.de will increase its fees in February. Smava management said the fee increase is necessary to build a sustainable business and points out that now 20 months after the launch the value proposition of Smava has been verified. Median ROI is given as 9.4% with 90 percent of lenders (best and worst 5% cut off) earning between 4.7% and 12.9% ROI per year.

Old fee structure:

Lenders: no fees
Borrowers: 1% of the loan amount

New fee structure:

Lenders: 4 Euro (approx 5.30 US$) for each successful bid
Borrowers:

  • 2% of the loan amount, minimum 40 Euro, for 36 months loans
  • 2.5% of the loan amount, minimum 60 Euro, for 60 months loans

This increase will more than triple Smava’s revenues from 8,000 Euro per month to 27,700 Euro per month (estimate based on 800,000 Euro loan volume per month; 5,500 Euro average loan amount; average bid amount 330 Euro; 50% of loans for each loan duration).

While the fee height is tolerable for most lenders, I am somewhat sceptical whether Smava is attractive enough for borrowers under the new fee schedule and will be able to continue its required growth.