Squirrel Money P2P

[humvee]

A newsletter just went out today, there are a few things in in im not so sure are good for investors - it sounds like they are going to artificially force interest rates for investors down - if this happens im out

"When there aren’t enough Investor bids in the Marketplace at a price that will allow a loan to settle we step in and fund the gap. "

"We’re making a small change to the the rates you can bid which will be active by the end of this week. "

"To resolve the issue of large rate fluctuations we're seeing, we're going to set a market clearing rate. Investor bids can only be placed 0.50% above or below this rate. The market clearing rate will increase or decrease gradually depending on the direction of bidding so rates will still move up and down but without getting influenced by outlier bids.

The benefit will be more competitive rates for creditworthy Borrowers (so they take up the loans) and more investment opportunities. The market rate for investors is going to be initially set at 8.00% which is where loans are currently being matched."

The interest rates and ease of set up are the main attractions for P2P.

Website looks to be fixed now, placed an investment order for a secured loan. Lets see how long it takes to fill.

Does anyone know if there ahs been any marketing by Squirrel?

[humvee]

They have changed it already

Minimum rate is 6%, maximum rate is 9%

A newsletter just went out today, there are a few things in in im not so sure are good for investors - it sounds like they are going to artificially force interest rates for investors down - if this happens im out

"When there aren’t enough Investor bids in the Marketplace at a price that will allow a loan to settle we step in and fund the gap. "

"We’re making a small change to the the rates you can bid which will be active by the end of this week. "

"To resolve the issue of large rate fluctuations we're seeing, we're going to set a market clearing rate. Investor bids can only be placed 0.50% above or below this rate. The market clearing rate will increase or decrease gradually depending on the direction of bidding so rates will still move up and down but without getting influenced by outlier bids.

The benefit will be more competitive rates for creditworthy Borrowers (so they take up the loans) and more investment opportunities. The market rate for investors is going to be initially set at 8.00% which is where loans are currently being matched."

[humvee]

They have changed it already

Minimum rate is 6%, maximum rate is 9%

Im getting very close to walking away from squirrel.

Not only have they reduced the maximum interest rate for investors from the still advertised 12% to 9% - but when as a result of the reduced rate cannot get investors to in invest they are biding against investers at the lower rate then selling them back to investors at this reduced rate of return - making it look like this is the market is at when its not.

In the process of doing this they are preventing users from using fictionalization, I emailed them to ask why my 9% investment order had not been matched to any of the loans available at 9% on the market place currently. I don't have time to paraphrase so im just going to just copy paste below - they should not object since they seem to make it very clear that they believe that what is going on has been widely published already...... While i accept it has been published suspect alot of investors have not added all the little bits together to see the problems in the full picture.

Me: "HiCould you please check why my other order @9% for 2 years had not matched to either of the 2 x 2 year secured loans shown as available currently.
I then canceled and recreated the order by clicking on one of those 2 loans...... but still it did not appear to match up."

squirrel: "Hi Warwick, apologies there maybe some confusion about taking up those investments which we will put up some text around soon.
Those are investments which you need to fully fund if you are to take them. We can see you still have some other orders waiting to be filled – if you cancelled your orders you should have enough to fully fund that one available for $2k at 9%."

Me: "I thought the point was to be able to split across multiple loans to reduce risk. I was only looking to invest $500 in each loan or to each person.Will i still be able to take $500 of one of those loans when the remainder is filled?"

squirrel:"Hi Warwick I think we have discussed previously that our Loan Shield product actually helps reduce risk anyway so it doesn’t really matter whether all your money is in one loan and the borrower misses a payment or if its split into 5 loans and one borrower misses a repayment. There have been numerous newsletters sent out over the last few weeks to investors as well explaining this.


You have split your investments into $500 into each loan which is fine, as you will end up investing in separate loans however those ‘ready to go’ investments you can see on your dashboard need to be funded fully by a single user in order to be taken.


The loan itself already has been fully funded by Squirrel Money already as we have limited funds and are able to provide some liquidity on the platform, and already broken down into these smaller ‘chunks’. At this stage we cannot split these down further as we are also trying to encourage investors to invest larger amounts rather than smaller as that means their money isn’t sitting around doing nothing in the short term."

[JB@Squirrel]

Hi Humvee,

We know we still have a bit of work to tidy up the bidding process. Its mostly sorted now with some good changes going through this week. We're now focusing on getting more information to investors as they are bidding so they have good visibility of what is available in the platform. This will be up in the next two weeks.

To be clear - we only fund loans in the platform when there is insufficient investor funds and we fund at the highest rate which is the upper end of the market price. We then pass those directly back to the market for investors to buy.

In your case above you were still in this fractioning mindset. You put two separate orders in for $500. If there were two 2 year loan awaiting rates then this would have worked fine. But there wasn't.

We'd already settled this loan at 9.00% and made it available back to the market. When we settle a loan and pass it back it needs to be funded in totality as we can't continue to split a loan in our system once it has settled.

We know we need to continue to improve how we present this to avoid any confusion so any feedback is appreciated.

Cheers, JB

[humvee]

Hi Humvee,

We know we still have a bit of work to tidy up the bidding process. Its mostly sorted now with some good changes going through this week. We're now focusing on getting more information to investors as they are bidding so they have good visibility of what is available in the platform. This will be up in the next two weeks.

To be clear - we only fund loans in the platform when there is insufficient investor funds and we fund at the highest rate which is the upper end of the market price. We then pass those directly back to the market for investors to buy.

In your case above you were still in this fractioning mindset. You put two separate orders in for $500. If there were two 2 year loan awaiting rates then this would have worked fine. But there wasn't.

We'd already settled this loan at 9.00% and made it available back to the market. When we settle a loan and pass it back it needs to be funded in totality as we can't continue to split a loan in our system once it has settled.

We know we need to continue to improve how we present this to avoid any confusion so any feedback is appreciated.

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.

[JB@Squirrel]

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.

[JB@Squirrel]

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.

[Baa_Baa]

I just want to say that I think this is a terrific example of a pro-active approach to informing investors having JB@Squirrel directly involved in the forum, taking feedback, offering suggestions, informing on future features and updates to the platform. I wish every company took as much care to keep in touch with their investors. If I'm not mistaken, JB@Squirrel might be the only one who bothers to engage their investors in this way .. well done, superb effort.