CommunityLend has closed a 1.5 million CAN$ private placement from several individual angel investors and an institutional investment fund. The proceeds of this private placement will go to scaling up loan origination, loan adjudication, and loan servicing operations, the company says, continuing:
This investment comes on the heels of a successful year since our launch as Canada’s 1st (and only) online consumer loan marketplace by CommunityLend Inc. Monthly loan volume has more than doubled each of the last 3 months and we are projecting this pace of growth to continue throughout 2011.
With the introduction of p2p lending some lenders wrote that the concept enabled everyone to feel as banker.
Now, newly launched Crowdcube.com enables any UK resident to feel as venture capitalist for a financial commitment as low as 10 GBP. Investors can browse pitches which usually include business plans and financial projections and sometimes even video pitches.
In return for the investment, investors get shares of the company. For example entrepreneur Daniel Vinson wants to raise 50,000 GBP. He is offering 49% equity in return, meaning investors roughly get 1% shares in return for 1,000 GBP investment. So far 11 investors have pledged 1,200 GBP.
There are 6 entrepreneurs pitching for funding at the moment. Interested investors can answer questions and for some businesses a lively discussion has started.
Crowdcube, founded by Darren Westlake and Luke Lang, launched 2 weeks ago. Crowdcube’s business model is to offer a platform to match entrepreneurs with peer investors and business angels. Costs for entrepreneurs are a success fee of 5% of the funding amount plus legal fees of 1750 GBP for completion of each company investment. For a limited period they are waiving the 250 GBP listing fee to register as an entrepreneur and add a pitch.
Investors are charged a processing fee by Crowdcube for each transaction equal to the sum of 0.20 GBP plus 4% of the value of the transaction.Continue reading →
Multi-sided platform are platforms that need to attract two or more customer groups in order to create value. They interconnect these groups serving as intermediary setting the rules. The platform need to achieve satisfactory results for both/all sides.
One example are video game console manufactures. The product will only attract enough buyers if enough games are at available. Developers on the other hand will prefer those manufactures, that already sold large numbers of consoles and thereby offer a large potential of customers.
Another example is Google. One customer group are the users. The value proposition here is ‘free search’. With the huge audience Google has and the algorithms for matching, Google can offer targeted ads to advertisers.
So Google gives away search for free, in order to make profit from charging advertisers. In this case there was not much alternative in deciding which customer segment to charge. But sometimes both customer segments are charged and it is hard to decide which side to charge (more).
P2P Lending services are obviously multi-sided platforms, too. They need to match borrowers and lenders. Ideally there will be roughly the same level of demand as of supply of capital.
The current situation is that most p2p lending services charge borrowers more fees than lenders.
Possible causes for this are:
At the inception of p2p lending services, opinion was that it is harder to convenience lenders to trust this unproven model and unknown new company running the service – therefore lenders were charged nothing or little to not build entrance barriers
Orientation on established models for loans – banks charge borrowers fees too, therefore borrowers will accept these as usual
Cost-bast pricing: In vetting a borrower the service will incur costs, whereas a new bid by a lender will incur close to zero costs as it can be processed automatically. Even higher than the vetting costs are the customer acquisition (marketing) costs to obtain borrowers.
Now years after launch, most p2p lending service are “short” of (good) borrowers. Their lenders have a surplus of capital that could be lend out, would there be more loan applications on the platform. And typically customer acquisition costs are much higher for winning new borrowers than for winning new lenders. Furthermore borrowers must be acquired over and over again, whereas lenders remain customers for longer periods of time and reinvest capital.
The logical consequence would be for the p2p lending marketplace to change the pricing. By charging borrowers less and charging lenders more, the value proposition to borrowers would be lower APRs, attracting more borrowers.
A counter-argument voiced against this, is that pricing would not change, because lenders would just raise the interest rates they offer to cover the higher fees. This will happen to some degree, but I think how much is dependent on the model the p2p lending marketplace works. In a market place where lenders do set interest rates themselves (e.g. Ratesetter) this will in my opinion be likelier than in a markplace where the operator sets the interest rates (e.g. Lending Club) or where the initial rate is set by the borrower (e.g. Smava) and can possibly be bidden down (e.g. Isepankur). Furthermore even if costs for borrowers overall would not change, the marketing-message could – ‘fee-free loans’ will be more appealing.
This change would need to be a gradual shift as existing lenders are accustomed to current prices and will resent higher fees. For the p2p lending service the effect per loan could be neutral. The amount of fees earned per loan would stay the same, just the proportion of the parts payed by lenders vs. borrowers would change.Continue reading →
… Creditease.cn in China. Founded in 2006, Creditease has grown strongly and now has 2,200 employees in 20 cities. The new loan volume originated each month is about 25 million US$.
Only the lender offer is available online. The borrower application is mainly an offline process, with all borrowers subject to a 30 minute personal interview. After background checks about 20% of applications succeed. According to the company, the historical default rate is at a low default rate of 1%.
The maximum loan amount is 60,000 RMB (approx 9,100 US$). Figures on the fee for borrowers differ but most secondary source quote 1 to 10% of the loan amount.
Lenders don’t choose individual borrowers but rather select a term length between 3 and 12 month. Based on this selection they get interest rates between 7 and 10% p.a. Minimum investment is 100 RMB (about 15 US$). Returns are automatically reinvested. Lending is fee-free and lenders do not bear the default risk, as these are covered by Creditease’s Risk Fund.
Additionally Crediteasy has a p2p microfinance offer, where it partners with local MFIs to loan to woman in rural area. On these p2p microfinance loans lenders have the option to get 2% interest.
Founder Tang Ning, a graduate of Peking University, said in mid 2010 that he sees CreditEase in the second phase of a 3 phase development and currently the focus is to build a larger customer base. In 5 years he aims for CreditEase to be a brand name as well established as EBay.
German p2p lending Smava completed another financing round. The new capital raised comes from the VCs that already invested in earlier rounds.
Earlybird increased their investment from previously 39% of shares to now 56% and Neuhaus Partners increased their part from 12.5% of share to now 17%.
Speculation is that the high customer acquisition costs (especially for borrowers) led to the need for another financing round. Estimates put the cost for borrower acquisition as high as 500 Euro. In certain customer acquisition partnerships, Smava pays the partner up to 1.3% of the loan amount (equals 650 Euro for a borrower with the maximum loan amount of 50,000 Euro). While Smava is growing, the growth rate has in the past months stopped to accelerate and is about 2 million Euro funded loan volume per month (chart).
