Smava Subsidized Loan Promotion Ends With Little Success

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Smava in the time from September, 15th 2010 to October, 15th 2010 offered subsidized loans to new customers (borrowers). The offer was limited to loan amounts up to 2,500 Euro and only available for 36 months loan terms.

Eligible borrowers could take out a loan at an APR of 2.99%. Since lenders received “normal” rates (typically between 5 and 13% nominal depending on credit grades) Smava subsidizes the difference. Over the duration of 36 months this will cost Smava about 150 to 300 Euro per loan.

According to Wiseclerk stats about 150 loans with a total volume of 350,000 Euro closed at the reduced rate.

Reasons for this marketing promo

Smava did not comment about the motives behind this offer. While the resulting CPO of this offer is higher then with other marketing channels, Smava could have speculated that the press picks the special offer and that the traffic from the generated press coverage leads to additional loan requests that are not eligible for the offer. Furthermore the rate of 2.99% APR could place Smava prominently ranked on loan price comparison sites.

Results

In my opinion this offer had low success. Judging by economic facts it might be considered a failure. Little additional press coverage was generated by this special offer. The total loan volume funded per month did not rise compared to previous months. The offer might aid the positive image of the Smava brand though.

Kimaventures Invests in Pretdunion

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Kimaventures has announced investing in Pret d’union, a p2p lending company in France, which according to it’s website, aims to launch in 2011. Unconfirmed sources state that the funding round raised 500,000 Euro – no information which investors participated apart from Kivaventures is available.

CEO Charles Egly is a former banker at BNP Paribas. While the business model was drafted in September 2008, the company was founded in October 2009 and received regulatory approval in December 2009.

Earlier this year French p2p lending service Friendsclear raised 522,000 Euro from several investors including Arkeon Finance.

EDIT: Additional information provided by CEO Charles Egly:
– as of today, Prêt d’Union raised ca. 1 M€ from Business Angels and Kima Ventures.
– in december 2009 Prêt d’union filed a propectus to get a credit institution licence. Prêt d’Union has not yet received the licence and is still in discussion with the Bank of France.

RateSetter Brings Rolling Monthly Loans to P2P Lending

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British P2P lending site Ratesetter.com launched recently. Ratesetter uses market approach dominant in the UK (rather then individual listing).

A novel approach is the “Rolling Monthly Loan” Ratesetter introduces:

One of the two types of loan RateSetter offers. For a borrower, this is a bit like borrowing with a credit card. At the end of the month, they pay the interest and a minimum repayment amount. The balance of the loan is then rolled into a new contract (with a new lender). Lenders only lend their money for one month at a time. They lend their money again at the end of the month, but to a new borrower with a new contract.

This is an interesting concept. For lenders it solves the problem with other p2p lending markets (unless they have a secondary market) that they cannot cash early. For borrowers this comes with mixed blessings. While the rolling monthly loan comes with lower rates than a credit card, the rate will change each month (for better or worse).

I do wonder what happens should the lender demand dry out? How will Ratesetter refinance the Rolling Monthly Loans then?

Provision Fund

Ratesetter builds a fund as partial shield against bad debt:

Money invested in shares and corporate bonds isn’t covered by the Financial Services Compensation Scheme. Money lent with RateSetter isn’t either, but we’ve set up a Provision Fund to reduce the risks to lenders. Borrowers pay an amount each month into the Provision Fund based on their creditworthiness. The fund is managed by RateSetter so a lender can be compensated if their borrower doesn’t pay their loan on time. All payments from the Provision Fund to the lender are entirely discretionary – we can’t guarantee to compensate lenders from the fund and it isn’t an insurance product. If RateSetter builds up a surplus in the Provision Fund (if we’ve been overly conservative) RateSetter pays bonuses to its lenders (this is paid annually based on how much money they’ve lent over the year).

The height of the payment into this fund (called credit rate) is dependent on the credit score of the borrower. The website quotes a 1% credit rate as example. The Provision Fund by Ratesetter is the second construct to diminish risks from defaults to lenders after the Anleger-Pool concept by Smava (see articles on Anleger-Pool).

I see two downsides to the Provision Fund concept:

  1. It is (currently) not tranparent. The market view section gives no information how much money is present in the fund
  2. Should defaults rise above an expected limit the fund will be empty. While lenders with loans that defaulted first will be protected in full, the ones after could be left empty-handed. However Ratesetter could react to this scenario by raising the credit rates on the monthly rolling loans

The market view shows, that Ratesetter matched funds currently at about 6.3% APR for the rolling monthly and at 8.6% for the 36 month loans.

Ratesetter charges borrowers a 115 GBP upfront fee (for the 36 months loans); 5 GBP per month for the monthly loans and lenders 10% of the interest they earn.

The company was founded by Rhydian Lewis (CEO) and Peter Behrens (COO).