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rmbbrave
18-11-2007, 07:17 PM
A borrower or a lender be
Borrowers are about to get an alternative to the cap-in-hand visit to the bank manager. Rob Stock reports on the arrival of social lending.

Kiwi investors will soon be invited to follow in the footsteps of Britons and Americans lending money to perfect strangers over the internet.

Although that may sound like taking a risk with your hard-earned savings, young entrepreneurs Ben Milsom and Glenn Riddell are determined to convince investors here otherwise.

Early next year, the pair, both students at Auckland University, will launch Nexx, an online peer-to-peer social lending service which aims to bring lenders and borrowers together a sort of TradeMe for debt finance.

Social lending is all about breaking the stranglehold big organisations have on lending, and Milsom and Riddell say the track records of similar operations overseas, such as Prosper in the US and Zopa in Britain, give them heart that New Zealanders will embrace it.

Currently, investors wanting to lend their money out have little choice but to use a middleman such as a bank or finance company. But while banks and finance companies might be making loans at rates of 20% or more, they will be paying investors in their term investments and on-call accounts only 6-12%.

If those middlemen can be cut out, both investors and borrowers can get a fairer deal, Milsom and Riddell say.

Milsom says: "Personal finance is really, really expensive. Typical interest rates are between 17 and 25%, and that's before you add on top the finance company fees about 2-3% extra.

"That might not sound a lot, but for someone borrowing $5000 for 12 months at a typical rate of 22%, that's $117.31 per week, or 15% of the weekly income for someone on the average wage of $40,000.

"Things aren't much better for investors. They face a term deposit and debenture market full of fat, misrepresenting middlemen in the guise of finance companies. These companies issue debentures at rates averaging only 9.5%, barely above the risk-free bank term deposit rate of 8.6%. The return being paid to debenture holders in no way reflects the risk they are assuming.

"Our value proposition comes from removing the middle people and offering a better deal to both investors and borrowers."

By contrast to those fat lending fees and lender margins, Nexx plans to charge 0.5% of the loan amount from both borrower and lender.

Services such as Prosper and Zopa, and soon Nexx, work by allowing borrowers to post requests for funding and the reasons why they want it (along with photos). But before any request hits the screen, borrowers are screened, and those with criminal convictions, bankruptcies and the most awful credit records are blackballed.

Personal data such as borrowers' names and addresses are collected and checked, and a credit check is carried out, after which each borrower is assigned a credit grade of A, B, C, D, E or HR (higher risk).

These grades provide a guide to lenders as to what interest they should demand.

Lenders then make offers, but are encouraged to spread their money around. Someone with $5000 to lend might split it into $200 chunks and lend it to 25 borrowers. Loans can consist of dozens of small loans.

Some social lenders team up to spread their risk even further, giving their clubs names, and adopting social agendas. Clubs on Prosper include Pay Day Loan Terminators (enemies of pay day lenders), Rich Uncle (for loans to change your life) and For a Nurse (all nurses), and Nexx expects to see the same trend emerge here.

Investors' returns are taxed as income.

The track records of Prosper and Zopa show defaults on social lending are remarkably low, say the Nexx team, who have just completed a $100,000 first round of angel funding, and are about to embark on a second.

Milsom says the likes of Prosper and Zopa have very good payment histories, with losses of around 0.2% a year.

Social lending is no soft touch, though. Milsom says Nexx will look to periodically package up defaulted debt and sell it to collection companies.

There's no scope for lenders to take debt collecting into their own hands. Nexx will not share borrowers' details with them.

The pair are coy about how big their service can become, but with a personal finance market of $13.4 billion, there's scope for social lending to thrive. There are signs some lenders are already taking them seriously. One of the high street banks had been sniffing around, the pair say, though they won't name it.

Nexx is based in the Icehouse business incubator, having won $20,000 of seed funding and a nine-month residency after being named winner of the Spark $40K Challenge at the University of Auckland Business School.

HOW IT COULD WORK

A-grade credit rating: Applicant is an engineer with an MBA and excellent credit record looking to start a "Tropical Smoothie Franchise". He has raised $50,000 himself by extending his mortgage, but needs another $20,000. His monthly income is $4350. Monthly expenditure: $3740. He wants to borrow more cheaply than the 15% banks and finance companies might charge him. The likely bid range from Nexx lenders would be 10-13%. Lenders would get a rate around 0.5 to 3.5 percentage points higher than they'd get from a finance company debenture, or the 8% from a bank term deposit. B-grade rating: Applicants recently had their first child, and mother suffered unexpected medical problems which insurance did not cover. Father was laid-off from work (has since found another job). That led to them building up $12,000 of debt, which they now want to consolidate. Their monthly income is $2100. Monthly expenses are $1710. The likely bid range from Nexx lenders would be 13%-15%, but the couple would pay up to 20% to banks or finance companies. Source: Nexx

rmbbrave
18-11-2007, 07:29 PM
U.S.A.
http://www.prosper.com/

England
http://www.zopa.com/ZopaWeb/

Mick100
18-11-2007, 10:19 PM
I assume these guys are acting as brokers - not intermediaries
ie, the lender lends directly to the borrower and nexx collects a brokerage commission - good business for nexx - collect the brokerage without taking on any of the risk

Just been swatting up on adverse selction and moral hazard so I wouldn't be a starter to get involved in this sort of thing unless I was a borrower of course.
.

zyreon
18-11-2007, 11:04 PM
i find it a fascinating concept, though i would probably prefer to use a more established provider who has a tried and tested means of 'syndicating' the loans, bidding etc and a decent credit scoring system, security registering and collections methods (as well as fraud prevention measures etc). but i guess if these guys can put together a strong enough concept and system it may be worth a look -. I heard about this concept a few months back, i think there will be an aussie one up by year end if not already.
Certainly a novel take on financial (dis)intermediation, and could be kinda neat managing your own loan book.

rmbbrave
19-11-2007, 02:41 AM
i find it a fascinating concept, though i would probably prefer to use a more established provider who has a tried and tested means of 'syndicating' the loans, bidding etc and a decent credit scoring system, security registering and collections methods (as well as fraud prevention measures etc). but i guess if these guys can put together a strong enough concept and system it may be worth a look -. I heard about this concept a few months back, i think there will be an aussie one up by year end if not already.
Certainly a novel take on financial (dis)intermediation, and could be kinda neat managing your own loan book.

Yeah, I thought it'd be fun to have my own loan book too.

zyreon
19-11-2007, 07:13 AM
Question is could you borrow enough money on there at a low enough rate to then on lend it and collect the net interest margin. why only perform the lending function if you can do the full intermediation...
On that matter, I wonder how much use these kind of things would get from finance companies and the like.

rmbbrave
19-11-2007, 11:39 AM
Question is could you borrow enough money on there at a low enough rate to then on lend it and collect the net interest margin. why only perform the lending function if you can do the full intermediation...
On that matter, I wonder how much use these kind of things would get from finance companies and the like.

You probably could if you got yourself an A credit rating and lent the money out to lenders with a C credit rating.

I thought it would be a great way to educate your kids though.

- teach them the power of compound interest
- making judgements about peoples reasons for borrowing and peolpe per se.
- a bit of accounting as they run book.

Unlike shares where you have to buy parcels worth thousands, loans can be much smaller $50 to $100 per person.

milsomb
29-12-2007, 02:55 PM
Hey Guys,

Great to see you're interested in some of the things we're doing at Nexx. I thought I would join in the discussion you're having above to see if I can answer any questions you might have on what we're doing and how it works - so if you're curious, fire away.

One of the things that caught my eye above is that you guys (Mick100, rmbbrave, zyreon) are talking about features of a loan marketplace that really appeal to you - return rates, the ability to make credit decisions yourself (run your own loan book), teach your kids about finance. One of the things that we've noticed about interest in p2p finance both here in New Zealand and internationally is that there is a huge variety of reasons people are drawn to the concept of a peer-to-peer financing system from an investment perspective - it might be as part of their overall investment strategy to leverage high returns, it might be community involvement, it might just be 'fun' and being able to evaluate and 'play the market' better than others to get good returns on funds invested.

I'd be keen to hear from others what bits of a p2p system like Nexx's appeal to them - we want this system to be something that appeals to lots of New Zealanders, so the more we can talk to people who might use the platform the better the system will be.

I'm available here on the forum, or you can email me at: ben at nexx dot co dot nz.

Ben Milsom
COO Nexx New Zealand Limited

Radar
29-12-2007, 04:35 PM
Hey Guys,

Great to see you're interested in some of the things we're doing at Nexx. I thought I would join in the discussion you're having above to see if I can answer any questions you might have on what we're doing and how it works - so if you're curious, fire away.

One of the things that caught my eye above is that you guys (Mick100, rmbbrave, zyreon) are talking about features of a loan marketplace that really appeal to you - return rates, the ability to make credit decisions yourself (run your own loan book), teach your kids about finance. One of the things that we've noticed about interest in p2p finance both here in New Zealand and internationally is that there is a huge variety of reasons people are drawn to the concept of a peer-to-peer financing system from an investment perspective - it might be as part of their overall investment strategy to leverage high returns, it might be community involvement, it might just be 'fun' and being able to evaluate and 'play the market' better than others to get good returns on funds invested.

I'd be keen to hear from others what bits of a p2p system like Nexx's appeal to them - we want this system to be something that appeals to lots of New Zealanders, so the more we can talk to people who might use the platform the better the system will be.

I'm available here on the forum, or you can email me at: ben at nexx dot co dot nz.

Ben Milsom
COO Nexx New Zealand Limited

Love the concept, how about adding p2p for smaller startup's looking for equity partners?

What kind of people do you expect to use nexx for lending? those that can't get a loan from cash converters? or are you expecting businesses to jump in when banks have flatly refused?

What credit checking facilities are in place for lenders / what information will be available about borrowers?

Cheers

lakedaemonian
30-12-2007, 01:38 PM
Hey Guys,

Great to see you're interested in some of the things we're doing at Nexx. I thought I would join in the discussion you're having above to see if I can answer any questions you might have on what we're doing and how it works - so if you're curious, fire away.

One of the things that caught my eye above is that you guys (Mick100, rmbbrave, zyreon) are talking about features of a loan marketplace that really appeal to you - return rates, the ability to make credit decisions yourself (run your own loan book), teach your kids about finance. One of the things that we've noticed about interest in p2p finance both here in New Zealand and internationally is that there is a huge variety of reasons people are drawn to the concept of a peer-to-peer financing system from an investment perspective - it might be as part of their overall investment strategy to leverage high returns, it might be community involvement, it might just be 'fun' and being able to evaluate and 'play the market' better than others to get good returns on funds invested.

I'd be keen to hear from others what bits of a p2p system like Nexx's appeal to them - we want this system to be something that appeals to lots of New Zealanders, so the more we can talk to people who might use the platform the better the system will be.

I'm available here on the forum, or you can email me at: ben at nexx dot co dot nz.

Ben Milsom
COO Nexx New Zealand Limited

Hi Ben,

It's great to see you taking such a personal interest in online discussions regarding your company.

Some questions I have are:

What "niche" does Nexx intend to fill?

P2P as with Posper.com?

B2P?

P2B?

B2B?

or all?!

How does Nexx intend to handle credit scoring of borrowers?

It's my opinion that credit scoring is quite simplistic in NZ compared to peer systems in the
US for example....I'm aware of some finance players(like mtf and GE) with reasonably robust and accurate credit scoring models here....but relying on Baycorp/Veda may be insufficient in my opinion and poses a serious challenge to your business unless you've found an effective solution.


Until Nexx develops it's own proprietary credit scoring will it not be a bit of a crapshoot?


Does Nexx intend to nurture/develop large lenders along the lines of Ebay/trademe store sellers?

Does Nexx intend to operate any "roadshows" along the lines of what Ebay did/does to professionalize it's seller base?

I would think roadshow training for potential lenders in the 6 major population sellers could generate some quick sense of community.

I can see how Nexx could generate positive PR when the ineviable case of malignant loansharking makes it into mass media, but could also potenially be hurt by legislation intended to regulate loan sharks.

Does Nexx intend to place loan caps in place( $ and %) as part of a comprehensive plan to reduce money laundering/fraud opportunity?

Will Nexx include the following functions/feaures:

message boards

references/endorsements by other members(by veteran borrowers/lenders only)

lending groups

How will Nexx monetize traffic/transactions?

credit checks, PPSA fees?

Borrow AND lending side fees?

Late fees?

Secondary market?

Long term I could even see Nexx cards competing with the likes of GE money cards.

Huge potential. It must be a very exciting time for you and your team

Last question....how does one invest in Nexx now? ;) no joke!

Radar
31-12-2007, 12:44 AM
Love the concept, how about adding p2p for smaller startup's looking for equity partners?

What kind of people do you expect to use nexx for lending? those that can't get a loan from cash converters? or are you expecting businesses to jump in when banks have flatly refused?

What credit checking facilities are in place for lenders / what information will be available about borrowers?

Cheers

duh, try reading the first post Radar :rolleyes:

milsomb
08-01-2008, 11:16 AM
Love the concept, how about adding p2p for smaller startup's looking for equity partners?



We love the idea of doing equity based investment for smaller companies and we can see a place for it in New Zealand. Legally its a tricky area, but its definitely something we're looking at closer. Alternative investment products like these are part of the roadmap for Nexx, but we're not quite willing to say what those are just yet.




What kind of people do you expect to use nexx for lending? those that can't get a loan from cash converters? or are you expecting businesses to jump in when banks have flatly refused?


One of the most interesting things for us about p2p lending that we've seen so far is the breadth of people that it draws as customers. Just looking at prosper.com or zopa.co.uk (or even boober.nl or lendingclub.com) shows a huge variety of people borrowing and lending for vastly different reasons. The groups you mention above are certainly ones that we would expect to want to use the site. For us p2p lending is all about the community, so we'll be focusing on groups that really bring value to the platform. Having 'F' grade borrowers only (even if it is at 30% apr) isn't a great way to get repeat 'lenders' involved in the platform, but neither is it appealing to have very small loans at low interest rates (even if they are 'A+' graded) because competition for investment products is strong at that end of the market. We'll be looking to a number of groups to build a platform with opportunities at all levels of the debt market - from larger, lower returning business loans to higher returning, risker personal loans.

milsomb
08-01-2008, 12:39 PM
Hi Ben,

It's great to see you taking such a personal interest in online discussions regarding your company.

Some questions I have are:

What "niche" does Nexx intend to fill?

P2P as with Prosper.com?B2P?P2B?B2B?or all?!

See some comments from the reply to Radar's post, but really any of the groups that you look at above are groups that Nexx is looking at as market participants.

We're looking to provide a marketplace that allows all kinds of funding options to be available to the market. Whether a business (finance orientated or otherwise) or an individual lends or borrows through the Nexx platform is really immaterial to how the overall platform works.

That being said, we're certainly working to make sure that particular needs of the above groups (business and consumers) are being met to make the platform one that both borrowers and lenders can get good value from.

Nexx is offering a choice - a choice to borrowers where they are unable to get finance from affordable sources, or are looking for finance that is better priced to the risk they actually represent. We're offering a choice to investors who want to see risk more adequately priced, and who want to be able to have real transparency and ability to diversify over a large number of financial opportunities. A choice to people who don't want institutional risk or 'unusual lending activities' to affect their investments in the actual users of the finance they're providing.


How does Nexx intend to handle credit scoring of borrowers?

It's my opinion that credit scoring is quite simplistic in NZ compared to peer systems in the
US for example....I'm aware of some finance players(like mtf and GE) with reasonably robust and accurate credit scoring models here....but relying on Baycorp/Veda may be insufficient in my opinion and poses a serious challenge to your business unless you've found an effective solution.
Until Nexx develops it's own proprietary credit scoring will it not be a bit of a crapshoot?

You're right when you say that we don't have as much information in NZ and Australian credit scoring systems as there is in a FICO score in the US, but that doesn't mean that the information we have is ineffective. The biggest difference is that in New Zealand we have a negative credit scoring system (whats wrong with your credit history) as opposed to a positive system (measures both strengths and weaknesses). That being said, the credit scoring system that exists here provided by people like Veda Advantage and Dun and Bradstreet have been used by finance companies and banks for a long time and work well for them. One of the reasons it works well is that the scoring systems in New Zealand work on a probability basis - how likely or unlikely a person is to default on a debt over a period of time. These scores aren't built in isolation either, using information from credit providers who use the scores and statistical sources to constantly refine and build upon historical data to improve the accuracy of the data.

As Nexx builds a history of transactions, the accuracy of how scores correlate with the online borrowing customer will improve (especially at the margins), but we feel confident that information provided for us by Veda provides a good yard-stick as to the reliability of a particular borrower.

We're also working to supplement this data with information that will help participants in the Nexx Platform judge creditworthiness at a closer level - verifying income levels, current liabilities, homeownership status etc.




Does Nexx intend to nurture/develop large lenders along the lines of Ebay/trademe store sellers?


For a platform like Nexx (or any finance company for that matter) to work, you have to attract a good source of capital - the more high-power users we have lending through the Nexx platform, the greater supply of capital we have to offer to borrowers, and consequently the better quality of borrowers we have to offer lenders.

One of the things that has been missing from other p2p platforms is a good toolset to aid just the people you're talking about - the 'power sellers'. One of the things we're putting a lot of work into is making the platform attractive for people who see the Nexx marketplace as a trading platform who want to manage large portfolios or pursue particularly aggressive lending strategies. We'll be doing this through a number of different mechanisms, from improved information services and large lender discounts to listening carefully to people just like yourselves as to what you want to see on a platform, which bits are working and which bits aren't.




Does Nexx intend to operate any "roadshows" along the lines of what Ebay did/does to professionalize it's seller base?

I would think roadshow training for potential lenders in the 6 major population sellers could generate some quick sense of community.

I really like this idea, its one thats worked well for Xero (another NZ online startup). Prosper has its annual ProsperDays Conference which brings together the Prosper team, investment experts and prominent community members and this works really well for them also.

Its definitely something we're looking into - the more eyes we can get Nexx in front of the better and being able to meet and understand the user community will help us make this a marketplace that delivers real value to you.




I can see how Nexx could generate positive PR when the ineviable case of malignant loansharking makes it into mass media, but could also potenially be hurt by legislation intended to regulate loan sharks.

Does Nexx intend to place loan caps in place( $ and %) as part of a comprehensive plan to reduce money laundering/fraud opportunity?


Some of the (well deserved) criticisms of loan-sharking, both in its informal and formal guises are starting to arise already - see the case of the Christchurch casino loan sharking allegations of just last year. This combined with the recent finance company collapses are bringing peoples attention to the need for transparency and flexibility in financial institutions, and we reckon Nexx goes a long way to improving this.

Nexx will be fully Securities Act and CCCFA compliant, and with the combination of lower borrowing rates and no early repayment penalties, we think that borrowers will get a fairer deal with us than they would with a loan shark or similar (assuming the market has an appetite for these types of borrower).

We do have caps on both $ and interest rates (lower and upper limits) to limit fraud and money laundering activities. In addition to this, we also have a cap on the percentage of a total loan that a lender can fulfill. We do this to force diversification, and to increase market competition for good quality borrowers. This may only be present in the early stages of the Nexx platform, but we think its necessary to help promote adequate returns and accurate pricing.



Will Nexx include the following functions/feaures:

message boards

Yes


references/endorsements by other members(by veteran borrowers/lenders only)

We're still evaluating this. Certainly we have a feedback rating system (like other online auctions) but in terms of 3rd party references and endorsements we're still on the fence. While a good idea, the potential for abuse or false endorsement is high. We're working on this one.

lending groups

We will have lending groups. Borrowing 'support' groups are another option we're looking at.


How will Nexx monetize traffic/transactions?
credit checks, PPSA fees?
Borrow AND lending side fees?
Late fees?

We will have fees for the above. Credit check and PPSR will be just cost covering fee's (we pass the cost of these on to the end user). There will be both borrowers and lenders fees.
Late fees will be charged after a 24 hour grace period.


Secondary market?

The secondary market was something prosper.com tried and couldnt get to work, but they're apparently going to have another go at it in the future. We've got some really exciting ideas about secondary markets, but they're not ready for public release yet - stay tuned though.



Long term I could even see Nexx cards competing with the likes of GE money cards.

Again, this is an idea we really like.



Huge potential. It must be a very exciting time for you and your team

Last question....how does one invest in Nexx now? ;) no joke!
[/QUOTE]
Nexx is made up of a great team of enthusiastic guys who are all excited about bringing this idea to New Zealand. We've got great investors, advisers and partners which make the process just all that much better.

As for investment in Nexx, we're unable to offer investment opportunities to the public. If you like the idea behind Nexx then the best way to help our company and to get a good return on your investment is to lend out through the platform when we go live. The more borrowers and lenders we have, the better the experience for all.

Thanks for the great questions, feel free to ask more, I'll answer them where I can!

Ben Milsom

COO
Nexx New Zealand Limited
nexx.co.nz

Dont forget to signup on the website - www.nexx.co.nz for updates and the chance to enter our beta tester program!

Radar
08-01-2008, 03:36 PM
Nexx is made up of a great team of enthusiastic guys who are all excited about bringing this idea to New Zealand. We've got great investors, advisers and partners which make the process just all that much better.

As for investment in Nexx, we're unable to offer investment opportunities to the public.

Thanks for the attention to detail in your replies, it'll be a big success, where theres New Zealander's, theres plenty of lending opportunities ;)

wns
12-01-2008, 07:24 PM
Last question....how does one invest in Nexx now? ;) no joke!

Hi LD,

I googled "peer to peer lending australia" and found a number of companies including igrin.com.au and peermint.com

peermint are setting up operations in Canada, Australia and NZ.

If you go to www.peermint.com/about.html it looks like its possible to invest in the company itself.

There's also a company in the US called fygo.com

Its quite possible that the likes of google, ebay etc will get in on the act as well.

Its an interesting concept.

lakedaemonian
16-01-2008, 11:40 AM
Hi LD,

I googled "peer to peer lending australia" and found a number of companies including igrin.com.au and peermint.com

peermint are setting up operations in Canada, Australia and NZ.

If you go to www.peermint.com/about.html it looks like its possible to invest in the company itself.

There's also a company in the US called fygo.com

Its quite possible that the likes of google, ebay etc will get in on the act as well.

Its an interesting concept.


Cheers mate!

rmbbrave
28-05-2008, 04:35 PM
Still not up and running yet.

I wonder why.

lakedaemonian
29-05-2008, 01:10 PM
Still not up and running yet.

I wonder why.

I've been following Propser.com, they seem to be doing well, but I'm guessing the "ramp up" to a sustainable business model is taking a good bit longer than anticipated.

Trying to extrapolate a best guess revenue figure from Prosper.com based on $117 million in loans since inception(2 years and change) I come up with about $3-5 million in loan revenue since inception. I could be completely off the mark, but I'm thinking they have a good few more years running in the red until they achieve sufficient scale to make money.

I'm thinking an NZ focused internet business like Nexx would be hard pressed to achieve low 6 figure revenue in 24 months if they track Prosper's growth curve. I'd be thinking approximately 4-5 years minimum to breakeven from launch.

Of course continuing credit/liquidity destruction with rising consumer loan interest rates could accelerate the chance of profitability for the likes of Prosper and Nexx.

Personally, I'm thinking a "home grown" NZ version of Craigslist has the most merit as the next big driver of Kiwi web traffic, as Craigslist for NZ reminds me a bit of Ebay.co.nz...nothing but echo........people strongly prefer a local platform for auctions.

milsomb
09-06-2008, 04:09 PM
Hey guys,

Thought I would check back into the forum to see if there was any more chatter about Social Lending - saw a couple of posts since I last looked.

As rmbbrave noted, we're not up and running yet (at least publicly) - we're waiting for regulatory sign off before we go public with the website, and its taking a little longer than we'd hoped - its a new type of structure in the NZ regulatory environment, so people are looking at it closely.

We're hoping for some news in the next couple of weeks around this, and we'll be able to fling the doors open and let people in. In the mean time, we've completed a whole new version of the website, with a whole new look and feel, and including a lot of changes that our internal beta testers suggested.


lakedaemonian - your analysis about Prosper is probably about right, but look at their current growth rate - their loanbook has risen to $140m since your post, and remember with all loans having 3 year terms, they are essentially gaining an annuity income, with most costs being incurred when the loan listing process is completed, and an automated process taking over from there. A better example of a company that really had the afterburners on before they suspended applications for a US SEC filing, was LendingClub - they were growing at about $5m in loans per month, despite being much younger and less well known than Prosper.

There's lots of indicators to suggest that p2p might also have a faster adoption rate in NZ - kiwis like the internet, and they 'get' the disintermediation thing. Trademe is 30% in New Zealand than Ebay is in the US. We have the same percentage of our population in social networks as the US, but we're growing five times faster. This coupled with our very high internet banking usage (65% vs the US's 18%) means we have a market thats more 'ready' for p2p, and thats before you consider our higher interest rate.

lakedaemonian
10-06-2008, 12:12 PM
lakedaemonian - your analysis about Prosper is probably about right, but look at their current growth rate - their loanbook has risen to $140m since your post, and remember with all loans having 3 year terms, they are essentially gaining an annuity income, with most costs being incurred when the loan listing process is completed, and an automated process taking over from there. A better example of a company that really had the afterburners on before they suspended applications for a US SEC filing, was LendingClub - they were growing at about $5m in loans per month, despite being much younger and less well known than Prosper.

I hear what you are saying.....and I agree the potential is STAGGERING.......but having been involved with a major player in Internet 1.0, I know first-hand how long it can take for excellent concepts to ACTUALLY turn into reality....I believe in the concept...I just think it will take longer than accepted for the gross profits to exceed start-up expenses. I do acknowledge the annuity-like income streams.....should make for some pretty smmoth and accurate revenue projections.

There's lots of indicators to suggest that p2p might also have a faster adoption rate in NZ - kiwis like the internet, and they 'get' the disintermediation thing. Trademe is 30% in New Zealand than Ebay is in the US. We have the same percentage of our population in social networks as the US, but we're growing five times faster. This coupled with our very high internet banking usage (65% vs the US's 18%) means we have a market thats more 'ready' for p2p, and thats before you consider our higher interest rate.

Yeah....I agree with the high comfort level of New Zealanders with the internet.

I also think that Ebay's experience in NZ in competing against Trademe is a great example of how local(or in Trademe's case, formerly local) internet companies can create barriers to entry that would have Warren Buffett and Charlie Munger drooling.

I would think the high regulatory hurdles you're dealing with at the moment would provide a barrier to entry against another local competing start-up and the fact that the other large players(Prosper, et al) are like Ebay in 1998...just getting rolling, trying to handle the growth, and not likely to be able to effectively go international for some time.

The only downside I can think of related to my last post is that as the founder of the industry is New Zealand, while you will be entitled to "founders profit margins" if ytou execute successfully, you also have the very challenging and expensive job of having to educate the NZ marketplace about your entirely new way to borrow and lend.

How does your team view the gloomy business climate that we are entering and likely to be in for some time?

Do you see it as a potential hindrance or possibly a potential tailwind in light of the many high profile finance companies collapsing?

I could see being an active/semi-active lender on Nexx being an alternative to the stodgy, and now perceived risky, finance company debentures.

In any case...good luck with your venture.

milsomb
11-06-2008, 02:09 PM
Its true, the educational part of 'creating the market' will be a long road - and we agree with you that things like this take time to realise their potential. First to market wins though, so have to take the risk.

In terms of the gloomy business climate, it certainly weighs on how we position Nexx and whose 'pain' in the market it will alleviate first, but as one of our investors says: there's only one direction to go from the bottom. For us we're working to get to market and then hold on for the rest of the current cycle, while taking some of the opportunities that come out of it - with a tightened credit market and the ability to make credit cheaper there is potential for stronger demand for credit, especially given that there are fewer players around in the finance company market after the last 18 months. In terms of investors, we think that the last 18 months of turbulence have a lot of people reconsidering risk/reward, transparency and investment control - all things that Nexx can differentiate itself on from other forms of investment.

So, we see it as a bit of a tailwind actually.

I think your comment about being semi-active as regards a trading strategy is an interesting one - its one of the lender 'needs' we've been focusing on - that not everyone is going to have the time or inclination to sift through many listings to find listings that exactly match their investment interests. We've got a few ideas and new features here - but would love to hear from other trader types and financially savvy about how this might manifest itself - any ideas?

Thanks for the good wishes. If people want to be kept up to date, we'll come back here and let people know things are going on, but we've also got our mailing list that you can join at www.nexx.co.nz, if people haven't already.