Squirrel Money P2P

**icyfire** · 16-02-2017, 12:17 PM

Originally Posted by Kelvin

Squirrel shareholder update says they are looking to reach a $30m loan book for the platform to break even.

A long way to go from the current $6m loans and with investors not keeping up with borrower activity recently

Growing organically takes time and perhaps they need to invest a bit more into marketing the platform. I personally prefer to invest into SM nowadays. Slightly lower returns but much less time consuming and much safer investment.

**lawson** · 22-02-2017, 10:14 PM

I have been very happy with my little sojourn into Squirrel Money so far but because I don't know how to estimate the risk I have limited the funds I have invested to date. I am thinking of increasing it tho and wondered if anyone else could venture an opinion on how you personally view the risk profile? I know Icyfire has indicated above that SM is a much safer investment than other P2P lenders but just how safe over 3 to 5 years do you think the investments are? Especially given the 4% reserve was only for year 1. I'm doing the indecision dance at present. Thanks in advance for any thoughts and apologies for the uninformed question I'm a novice investor.

**icyfire** · 23-02-2017, 11:02 AM

Originally Posted by lawson

I have been very happy with my little sojourn into Squirrel Money so far but because I don't know how to estimate the risk I have limited the funds I have invested to date. I am thinking of increasing it tho and wondered if anyone else could venture an opinion on how you personally view the risk profile? I know Icyfire has indicated above that SM is a much safer investment than other P2P lenders but just how safe over 3 to 5 years do you think the investments are? Especially given the 4% reserve was only for year 1. I'm doing the indecision dance at present. Thanks in advance for any thoughts and apologies for the uninformed question I'm a novice investor.

Have a look at "What happens if the Reserve Fund runs out?"

**JB@Squirrel** · 03-03-2017, 11:16 PM

Hey Lawson,

Whilst the market is small our Reserve Fund will be a bit volatile that's why we seeded it with $200k to start with (of our own money.)

At a marginal level we still provision at 1.5 times expected losses so it should gradually increase albeit as a % it will drop.

The key thing is that if the reserve fund runs out we can socialise the loss across all investors by shaving their interest rate to replenish the fund. So if the fund has 3% actual cash in it (plus we put in 2% per year) then we have 5% reserves available over a year. If losses ran up to 10% then we would shave investor returns by 5%. In this scenario capital is still protected but returns would drop from 8%-9% to 3%-4%. Socialisation provides the maximum diversification benefit as it's sort of like an insurance policy shared across the investors.

We could debate whether 10% is realistic. My view is it is an extremely high loss rate for good quality credit borrowers. Read the investor booklet for details on all of this.

We essentially run the same reserve fund model as RateSetter and Zopa in the UK. Neither of these guys have lost 1 penny under this model even post GFC. To date (and accept its still early) we have not missed one repayment to investors, not even by a day.

Cheers, JB

**JB@Squirrel** · 03-03-2017, 10:59 PM

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

**lawson** · 03-03-2017, 11:24 PM

Thanks for the info JB@Squirrel and icyfyre.

**RGR367** · 28-03-2017, 01:53 PM

It's been a dry 2 week on the lending front. My funds still sitting waiting for borrowers (on 2,3 or 5 year loans). What about the others on the other P2P platforms? Haven't you noticed a slowdown of intake on your funds?

**Saamee** · 28-03-2017, 02:07 PM

Originally Posted by RGR367

It's been a dry 2 week on the lending front. My funds still sitting waiting for borrowers (on 2,3 or 5 year loans). What about the others on the other P2P platforms? Haven't you noticed a slowdown of intake on your funds?

@Squirrel - Yes the pendulum has swung to many Investors and not enough Borrowers

@Lending Crowd last was was a massive week with many Large loans - waiting to see about this week!