Harmoney

[icyfire]

The only question was whether or not Harmoney's lending should fall under the Credit Contracts and Consumer Finance Act which it clearly should. I think the Commerce Commission shall have their way with Harmoney.

ANZ charges a one off loan approval fee of $250 and $150 for topping up an existing loan while Harmoney charge $500 for each fee. Are harmoney's loan application and topping-up processes that much more expensive when it's all done online? I'm all for Harmoney building a sustainable and profitable business but they are starting to get pretty greedy IMO.

[Investor]

ANZ charges a one off loan approval fee of $250 and $150 for topping up an existing loan while Harmoney charge $500 for each fee. Are harmoney's loan application and topping-up processes that much more expensive when it's all done online? I'm all for Harmoney building a sustainable and profitable business but they are starting to get pretty greedy IMO.

Harmoney certainly have lower operating costs given the process is (seemingly) largely automated. The 'platform fee' is definitely excessive and not reflective of direct costs incurred when providing lending to an individual. I hope that the Commerce Commission aren't successful with their idea of Harmoney reimbursing borrowers who have paid the platform fee thus far as that could be an expensive exercise for all.

[myles]

Harmoney are currently running at a loss...

Ignoring the changes over the last three years - if each of the 30,000 loans contributed $500 to Harmoney, that's $15,000,000, which is only $5,000,000 per year (ignoring startup costs). I can only guess that they would have in excess of 30 employees, plus the cost of building/work space/equipment, plus the cost of the platform development, maintenance etc (which would not be cheap), plus marketing (those TV ads etc. do not come cheap) etc, etc, etc...

If they didn't charge $500 per loan, they would have to charge more in fees (and yes I realise fees weren't included in the above) - guess who pays the fees???

It's clear that some here have absolutely no clue what costs are likely involved in the operation of Harmoney - me included, but with my background I have a bit more of a clue than most

[myles]

From the Harmoney Linkedin page - 51-200 employees...

From Wikipedia (assuming it's accurate):

In June 2016, Harmoney announced that it had generated 8.6 million in revenue for its first full year of operation.[15] This was a loss of $14.2m for the full year, as it continues to invest and grow staff numbers.

So the running cost for 2016 was $22.8 Million...

Lots of info about running costs found here. $500 doesn't sound like so much?

[leesal]

Heartland Bank Limited Notes Offer

Heartland Bank Limited is making an offer of up to $100 million worth of unsecured, unsubordinated, medium term fixed rate notes with the ability to accept up to $50 million worth of oversubscriptions.

wonder if it will return over 6.99%.

There is a breakdown of Harmoney's loss, of which the largest items were 8.1 of Marketing, 6.3 Staff and 2.1 IT costs (14.5). The large portion of the other costs could be non-recurring items.

Many of those costs should be fixed, so Harmoney should be profitable once it achieves scale. Variable costs such as arrangements with TP lenders will be the interesting part to know

On this there would be a breakeven point, of a certain number of loans.

[leesal]

From the Harmoney Linkedin page - 51-200 employees...

From Wikipedia (assuming it's accurate):

In June 2016, Harmoney announced that it had generated 8.6 million in revenue for its first full year of operation.[15] This was a loss of $14.2m for the full year, as it continues to invest and grow staff numbers.

So the running cost for 2016 was $22.8 Million...

Lots of info about running costs found here. $500 doesn't sound like so much?

Harmoney wrote 12,000 loans in that period - and generated 6.3 million in arrangement fee.

Thing is it only wrote 12,500 loans for 12 months ended Mar17. But had 36m of interest paid. Under the new fee model that would have generated 6.5m in fee and 5m in interest cost. Harmoney needs double that to generate a sufficient return for its shareholders.

Problem for Harmoney, is the NZ market has limited scale, its going to struggle to get beyond a certain ceiling in loan #s. If forced to reduce fee to $350, it'd need a 40% hike in lender fees to achieve same revenue, assuming no extra loans.

Issue for lenders, is Harmoney has huge incentives to rewrite loans. Not only for the rewrite fee, but interest in the first year of a loan is considerably more (60% of repayments in a 5 year D grade loan, then 40% in year 3, and plummeting to 10% if makes to year 5!).

[icyfire]

Harmoney are currently running at a loss... (those TV ads etc. do not come cheap) etc, etc, etc...

Harmoney spends millions of dollars a year on marketing campaigns but that's not a good reason for being allowed to charge borrowers excessive fees. If Harmoney reduced their marketing budget they would probably be a lot closer to becoming profitable.

[myles]

Harmoney spends millions of dollars a year on marketing campaigns but that's not a good reason for being allowed to charge borrowers excessive fees. If Harmoney reduced their marketing budget they would probably be a lot closer to becoming profitable.

I suspect they would go broke as they wouldn't have new loans...

[myles]

Problem for Harmoney, is the NZ market has limited scale

Probably why they've reached over to Australia hey? Wholesale investment only at the moment - from memory you needed 2 or 20 million to get in the door?

Issue for lenders, is Harmoney has huge incentives to rewrite loans. Not only for the rewrite fee, but interest in the first year of a loan is considerably more (60% of repayments in a 5 year D grade loan, then 40% in year 3, and plummeting to 10% if makes to year 5!).

Not silly are they But they do make more money on fees from interest than the loan fee on a typical loan, but it is over time and is reducing as you point out.

[SilverBack]

That may apply across all of your loans, but I doubt it applies to individual grades of loans i.e. I suspect it would be MUCH less for A Grade loans and MUCH more for F Grade loans?

Hi Myles,
No, my figures show that the 5%, more or less, applies across all grades.