Hi unhuman,
The borrower side is not an issue at all. We can dial that up and down almost at will. We're being careful to roughly match borrower and investor volumes. Borrowers typically need money fast and investors are slow to invest.
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Our fee is a flat $250 for unsecured, same as banks.
Compare that to Harmoney who for a B5 grade loan charge 5.00% of the amount borrowed. On a $20,000 loan that would be $1,000. My view is that fees this high are a breach of CCCFA. Time will tell and it is being looked at by ComCom. Either way I think the fees are high, and in fact higher than even finance companies can legally charge.
I think the real benefit of P2P is to be able to look a little bit more outside the box. There are plenty of good borrowers who don't tick all the bank boxes all of the time.
I'm back : ) Just had to make it a bit clearer who I am apparently. Anyway put up a small bio so you know a bit more about me.
You'll have to jump back to page 2 to see my earlier posts which have made it back. I won't repeat here.
So for those of you fascinated by our space you have some very different approaches in market and some fun times ahead trying to make sense of it all.
Harmoney and LendMe are going down the U.S. approach of fractioning / market based approach which typically involves investment banks in the background. Will be interesting to see how LendMe goes without a bank lender behind them initially.
We're going down the U.K. approach of reserving and we're taking it a step further. We are ruling out putting a bank behind the platform. We're confident that people centricity needs to be the driving force behind true disruption. Our approach wont be for those of you who like messing around in spreadsheets for fun but it will appeal to investors wanting it kept easy.
Just remember this sector is in its infancy. As "big" as the sector is, it is tiny in the context of the industry. The consumer finance / high LVR market in NZ is $30 billion. Winners and losers wont be decided for a few years yet.
So how we are different:
1. We are going into this with the intent and goal of not losing 1 cent of investor money - ever. Rate Setter has achieved that in the UK using the same approach that we are taking. Our reputation will hang on our ability to manage the risk within the Reserve Fund and we will publicly disclose everything. That means our interests are aligned with investors and we will rigorously work on credit quality and arrears. In fact as we are seeding the Reserve Fund so we will lose our money first before an investor loses 1 cent. The more lending that is done the more seeding we need to do.
... Interestingly a by-product of this is we have no desire to grow too quickly. We are more interested in operational effectiveness and building scaleable systems and sustainable revenues.
... we will publicly report arrears from day-1 (none yet obviously.) I'm surprised that we have no public disclosure (that I'm aware of) in terms of Harmoney's credit performance. I only see anecdotal evidence from various investor portfolios and some of the loans that are trying to refinance through us at the moment. I'd like to see the industry provide transparency around credit performance and loss rates.
2. Lower borrower fees. Everyone seems to be missing the 5.00% upfront fee (B grade loan) with Harmoney and it looks like LendMe is going down the same path. These are high fees relative to where the bank market is at. If you believe in arbitrage then surely it becomes obvious that the good quality lending gradually flows to the competitive end of the pricing spectrum. In my mind this type of pricing is not sustainable in the long-run if you want to play at the quality end of the market. How does this fit with CCCFA? Guess we'll find out eventually.
3. Systems. You'll be please to know that if a borrower wants a top up we don't need to cancel the existing loan and penalise investors. Top ups are done as new loans - simple. We don't charge a percentage of the amount repaid and do a simple margin. If a loan does repay early we wont ping you with a big charge in fact there's no cost other than the inconvenience of having to reinvest. There's lots of other system differences that will become more obvious next year when we turn up the dial.
What you'll start to see:
We've got a lot more stats and better presentation of those statistics going into the platform over the next two weeks. We want to give more visibility to what's in the system. We recognise that we need to give more clarity around some aspects of the bidding process and the market loans available and bidding. A couple of the things we have to do (like give you the option to invest secured or unsecured) are quirks of the regulations we operate under. In a perfect world we'd be just doing bids and the marketplace loans wouldn't exist separately. We realise this is confusing.
When there is more liquidity in the platform (and we make a couple more IT tweaks) we'll get this nailed down. We want to make investing as easy and seamless as possible.
Next year .... secondary market, interest on the Call Account.
Cheers, JB
Hi JB
Good to see you back.
Just wondering why you have locked the maximum interest rate for new orders to 8% when the current average for 2year loans is 8.78% and even the 5 year average which has dropped quite a bit since the 8% cap was put in place is will at 8.08%. Previously you have indicated that bids can be up to o.5% ABOVE average.
Combining this with the details of the loans you are offering back to the market would tend to indicate the maximum should currently be set to between 8.5%-9℅
I would suggest the reason you are short of investors and needing to fund the loans yourself is because you are trying to drag the rates down below what investors are comftable with/expect.
I like you do think that nz p2p interest rates will drop over time but I don't think dragging the market down kicking and screaming is the way to do it. Particularly given by the sounds of it you have plenty of borrowers and not enough investors.
Hi Humvee
The $50 payments went through last night so have been honoured to everyone that invested over $1,000 in the platform of which there were a number. I'd have to check whether you're in there. Imagine not but happy to throw you the $50 given you did try as you say.
Humvee,
There's no issue with the rate or return. In fact the feedback from investors generally is that the rates are too good to be true. There is over $60 billion of money sitting in retail banks at rates below 3.50%.
The issue is generally apathy - no urgency and education. It will take a while for investors to grasp the Reserve Fund. The obvious inference at this stage is that $100k of reserves is not enough to cover the perceived risk. This will change over time as the reserves grow and we report around the level of arrears. At what level of Reserves do investors perceptions change - $500k? $1m? The point is, it is a number.
There is no shortage of funds for 2 years. In fact we have over supply at that term. No borrowers there as most are going for 5 years and the average loan size is quite high. The 9% money that went out at 2 years was an outlier so misleading. Its why we had to charge the bidding process towards a moving average so we don't get wild swings in rates driven by small rouge bids whilst the platform is still young.
The rate a borrower gets is dictated by the highest accepted bid rate. All investors in a loan get the same rate. For a $10k loan if $8,000 of funding was offered up at 7.50% and $2k was offered up at 8.50% then all investors get the 8.50%. In other words all investors get the benefit of the highest accepted rate.
We don't allow different rates to exist on the same loan as this would get incredibly messy later on. The benefit is that we take a margin rather than a percentage of the repayment (which is computationally much harder to do) but investors don't get pinged on early repayments. Big issue for investors that most don't even realise happens on other platforms. It also means we can introduce a secondary market more easily.
We are a platform. Our ethos is to create a people-centric platform that is safe and genuinely fair. The changes we are making to how the market rate is set was to eliminate excessive gaming when there is a lack of liquidity. That wont be for everyone on this forum where arbitrage is a sport. Over time, and reasonably quickly, it will deliver consistent reliable returns.
A ShareTrader emailed me directly asking about the Reserving and how much of the Borrower Payment goes up to the Reserve Fun, so will briefly cover-off here.
Roughly 3.50% of the rate (26% of gross interest) is paid from the borrower up to the Reserve Fund. Expected losses are dependent on risk grade but running at around 1.20% so we are reserving well above expected credit losses.
For the first year we are maintaining the Fund at 4.00% to ensure it builds up to a respectable balance. If we get to $30m of lending then that will be $1.2m of reserves. Any losses in the first year we effectively take the hit on as we maintain it at 4.00%. After that the borrower contributions and low default rates will continue to grow the reserves on or around the 4.00% mark and that's the level we're targeting to keep reserves at. During periods of high growth particularly early on it might dip below this level and we'll also get some seasonal spikes with short-term arrears.
If the Reserve Fund was depleted (obviously not expected) then we can solcialise any further losses by shaving the investor interest rate on all loans and diverting that up to the Reserve Fund.
If we built up too much Reserves (exceed 4.00%) then we can lower the borrower credit spread. I'm inclined not to do that for a while as we want to be conservative leading into a possible marketing correction sometime in the next 2-3 years.
I would like to deposit $100 a fortnight regularly into my squirrel account.
Is this possible as it mentioned minimum $500.
Also if I did these regular deposits how would I use the funds? Can I order and invest small amounts or would I need to wait and invest larger?