Peer to Peer (P2P) lending and investing is rapidly expanding in Australia, with digital disruptors tipped to take billions off the banks. We caught up with Matthew Santosa, Head of Corporate Development and Marketing at online marketplace MoneyPlace for some further insights.
Q: Why can P2P provide a better solution to the borrower?
A: Peer-to-peer lenders each have different propositions for borrowers.
MoneyPlace is built for the modern, sharing economy. Our process in getting to where we are today involved starting with a blank whiteboard over 18 months ago and redesigning the entire end-to-end experience for borrowers. We’ve also procured the latest data to help assess borrowers, obtained the latest technology to assess borrowers more quickly and accurately, and made personal loans more affordable and accessible.
Unfortunately, the cost of maintaining extensive branch networks and legacy IT systems means that many traditional lenders are now suffering from chronic underinvestment in new technology. MoneyPlace is able to benefit from new technologies because we′re an agile, experienced team that can develop, test, learn and implement new ideas quickly without the same peripheral distractions.
Ultimately, our technology and experience has enabled us to speed up the approval process, our lower cost base has translated to more affordable loans, and our blank sheet approach to design has allowed us to create a whole new user experience.
Q: Can borrowers expect better priced loans than through traditional lenders?
A: Yes. MoneyPlace eliminates the ‘one size fits all′ interest rate that is generally imposed by traditional lenders for personal loans. Under the traditional approach, borrowers with a great credit history are charged the same rate as a borrower with a poor credit history. This didn′t sit well with us and so the idea of risk-based pricing became very attractive as many borrowers can now get a better interest rate with MoneyPlace – in some cases up to 5-6% cheaper for a personal loan and 10-12% cheaper for a credit card.
Q: Does P2P lending provide access to people who otherwise could not get a loan?
A: Yes. As long as a customer is creditworthy and can afford a loan, borrowers will be able to obtain credit from MoneyPlace. Traditional lenders still decline many creditworthy borrowers simply because they don′t have a long credit history with a credit bureau. By looking at different sources of data, we can still determine the creditworthiness of borrowers that have ′thin′ or inactive credit files.
We think there is a price point for every creditworthy borrower. Although the least risky borrowers are charged the lowest rate, it means that even the riskier, but still creditworthy borrowers are able to access credit at a fair and reasonable price.
Q: What is the approval process for a loan? How long does it take? Is it faster than traditional lenders?
A: We have a quick and simple application process which is underpinned by an intuitive workflow, and an automated decision process. Most customers will be able to receive an approval within 12 mins, with funding the next business day.
Q: With positive credit reporting yet to become fully operational, how do you risk assess and risk rate borrowers?
A: MoneyPlace uses additional data sources to supplement existing credit reporting data in order to determine an overall level of risk. We have some fantastic partners that help us look at things such as bank account usage or a borrower′s social media footprint. These data points all help us understand our customers better. We also look at a borrower′s ability to make payments on services such as utilities and phone plans.
Q: Why can P2P investment provide a better solution for lenders?
A: Many investors look to either property investment or equities to build their wealth, but each of these options have their shortcomings. The high level of foreign investment combined with existing competition from domestic investors both give concern to property affordability. Whilst the volatility of stocks are simply too risky an option for many investors.
MoneyPlace investors can expect to earn an annualised net return of between 7-15%, which is a very compelling investment option. Borrowers repay our investors either fortnightly or monthly, which investors can either withdraw funds or reinvest into new loans. We also have a low entry point for our investors who only need $2,500 to invest with us. When compared to a 20% equity contribution to buy an investment property, we think our proposition is very attractive.
Q: How do you manage the investment risk for lenders?
A: Loan diversification is a key principle in preserving capital for our investors. We use loan fractionalisation to split loans into small fractions, so we can reduce the size of exposures to individual loans, whilst spreading investment funds over many different loans. This fractionalised and portfolio level approach minimises the impact of loan defaults, as opposed to investments in ′whole loans’.
Q: What risk profile of investor is suited to P2P lending?
A: We encourage investors with different risk tolerances to invest with MoneyPlace. In fact, by nominating a risk tolerance, we are able to match the right types of loans to investors. This means that if an investor has a conservative appetite, we match them with the least risky borrowers. Conversely we match more risky loans to those investors with a higher tolerance. Although we will initially be working with wholesale investors only, we plan to open the platform up to retail investors as soon as possible.