German Smava, launched 2007, yesterday announced that it will offer more products and evolve into a marketplace where borrowers seeking loans get multiple offers. The site logo and layout have been redesigned to reflect this change. Smava said p2p loans will be continued to be on offer and the new products (bank loans) added will give the borrower more choices.

My take on this – what does Smava achieve with this change?

Smava’s new loan volume was static since mid-2010. With the current change Smava:

1. can increase revenues. Since borrowers can be offered more loan terms and get multiple offers from banks, the probability of a sale increases. That bank loans need less explanations than innovative p2p loans further spurs this. Smava earns lead and sales commissions from the banks.
2. can justify high marketing costs to acquire the borrowers better now as the resulting traffic is more efficiently monetized. Unlike before Smava no longer needs to balance demand and supply (borrower growth versus lender growth) but instead can totally focus on marketing to borrowers.
3. decreases costs, as the intense vetting of loan applications (of which about 90% were rejected) is no longer necessary in most cases, since the bank does it for the referred applications

Why does Smava still keep p2p lending?

The question is not if Smava will continue p2p lending (the announcement said they will), but rather if Smava will continue development on that offer. That is unlikely since little happened in the last years. My assumption is that Smava keeps p2p lending on offer mostly for PR and marketing purposes.It allows Smava to position itself as different to loan brokers and loan comparison sites and keep a little of the image of financial innovation attached to the site.

Roundup of my review of Smava’s business model change

Smava was not growing – a situation that is not good for a 5+ years old startup that received lots of venture capital.* In this situation the change was consequent as it will increase the operating efficiency of Smava. But Smava is turning away for good from the model they started with. A startup that wanted to change the financial world (with a bit of bank critical sentiment) evolves into a company that only in its external communication is different from loan broking/loan comparison sites and whose business model is to act as an online sales channel for bank products.

*EDIT to add: Last Smava accounts available to P2P-Banking.com show that Smava finished the year 2010 with a loss of 1.75 million EUR (approx. 2.3M US$). This is only slighty better than the result for 2009 which showed a loss of 2.1M EUR.