Hey Icyfire

Squirrel Money is primarily a banking technology play. We have built a platform that can do secured and unsecured lending, term deposits and call accounts. We put in a secondary market, an App, auto-invest etc. I think we are innovating faster than the rest of the market. The entire platform has a value under $500k on the books so we haven't even over capitalised. (We've slowed development a bit as we are currently build an epic mortgage platform for our broker business.)

We only need 3 people to run the entire platform and even that has spare capacity. If we were to simply look at marginal operating costs (excluding marketing) we are profitable already at $7m of FUM. $30m is the level that it truly washes its face including marketing and share of company overheads. Contrast that with Harmoney that has lost over $22m and has high operating expenses.

We are pursuing very different strategies.

My view is that the economics of P2P are rightfully tight. We need to build a sustainable and economically viable long-term proposition and we need to be lean.

In terms of income we earn a 2% margin and some fee income. Personal loans repay quickly with a run-off rate of close to 30% per year. So the margin income is about $700 over the life of a loan plus an upfront fee of $250 for us. So lifetime value of $950 maybe more if they borrow again and again. That's not a lot to play with in our space and we'll always find ourselves outbid in traditional media. Compare this with a finance company that earns 10% margins and has a lifetime value of $3,500. We cannot afford to spend big $$ of advertising especially with loans that run-off at 30%.

The challenge with having a $300m personal loan book is that you need to write about $90m a year just to stand still. That creates a bit of a noose - if we spend lots on marketing we have to keep spending lots on marketing to maintain momentum.

As it stands we charge borrowers an establishment fee of $250 for unsecured loans versus Harmoney at $500. Our borrower rates on average are about 4% lower which will be partially a reflection of lower risk borrowers and partly that we want to offer consistently better pricing. We think borrowers with good credit are better-off on our platform and its sustainable. We don't have lots of budget to push that message but we figure word will gradually get out and we're happy to wait, learn and build momentum.

Cheers, JB