Canadian P2P Lending company CommunityLend has launched new site: FinanceIt. FinanceIt allows Canadian businesses to provide their own in-house financing directly to their customers. Initially FinanceIt targets home improvement vendors, a line of business in which FinanceIt says Canadians finance 51 cents on every dollar spent.
Features of FinanceIt include:
- A complete lending platform, including ID verification, credit review, EFT, and collections
- Instant approvals that are valid for 90 days
- Automated legal documentation
- Works on iPad and other mobile devices
- Funds are deposited into our partner’s bank account
- No fees of any kind
This is a highly relevant development for p2p lending. If successful, CommunityLend will achieve four goals:
- Increase loan demand while at the same time cutting marketing expenses/efforts to reach potential borrowers
The promotion of the loan offers will be in fact done for free by the business that offers the financing for its goods - Build strong business relationships to vendors, which can be broadened should CommunityLend develop more p2p banking products aimed at businesses in the future
- Identify borrowers in person (at the store)
While I cannot judge how crucial this is in the Canadian market, it would be very useful in some other markets for p2p lending services to have - Validate the purpose the loan is taken out for
Usually in p2p lending unsecured loans can be used for any purpose the borrower wants. While some sites ask the borrower to describe the loan purpose in the listing this is never tracked or validated for it would be time-consuming and costly – just not worth the effort.
In a financing solution it is obvious what the loan will be used for. How is this information valuable? Communitylend will have very good data on how default rates differ depending on the loan purpose allowing them in mid-term to improve the pricing of the credit risk into the offered interest rate.
I believe this is a major step for p2p lending coming out of a single product niche (unsecured loans) into a broader p2p banking approach. And banks should watch out. Offering financing solutions to businesses is a core product for some banks.
P2P lending marketplaces in other countries should explore if offering loan financing to businesses is a viable route for them to grow too. In fact I know one p2p lending company that already has similar plans in the working and will start financing in 2011.
If you are a Canadian business testing FinanceIt I would like to talk to you to hear your first-hand experiences in setting up and using FinanceIt. Please do contact me. I would like to write a review of how good this offer works in day to day operations.
I really appreciate you taking the time to report on our developments. We agree this is consequential for P2P Lending as the model seeks better and effective ways to scale up and scale rapidly. There are two key points that you draw out, and that are crucial – that is customer identification and loan purpose.
We are still performing electronic validations of identity, but little can substitute for that final validation in person through our qualified and approved dealer network. In fact we have re-written our application flow based on the introduction of dealers and based on our learning over the last few months.
The loan purpose is something I and all of us as CommunityLend believe is part of a need for a revival of basic banking 101. There has been a seismic shift in Canada from amortized loans with a defined purpose and term to one of open-ended lines of credit and credit cards. We believe it is no co-incidence that now we see the Bank of Canada commenting on the rise of open ended variable interest debt. To illustrate the shift in Canada, Lines of credit grew 78% over the last 3 years, while mortgages grew by 19%.
It is not that we see that as bad for everyone, but there are more appropriate products for many people.
Anyhow on the larger point, yes we believe this is significant development for P2P Lending and the introduction of a ‘B’ element alongside the ‘P’ will be good for all concerned while retaining the benefits of elimination of expensive middlemen.