Smava.de launched 3 years ago and successfully established p2p lending in Germany. Since then about 25 million Euro (approx. 34.4 million US$) loans were funded. Smava gained nearly all positive feedback by lenders, borrowers and especially the media.
Smava will need to continue growing considerably in order to become profitable. Currently growth is limited by borrower demand. On the lender side there is much capital waiting to be invested.
One issue Smava will have to tackle in the future are the default rates that distinctly exceed originally forecasted values. So far these have not been a threat to growth because the ‘Anleger-Pools‘ mechanism, an insurance mechanism spreading losses resulting from defaults over many lenders, prevented major losses for single lenders. In the past years nearly all lenders achieved positive ROIs.
As reported in the past MYC4.com has serious operational problems making it an investment with negative ROI for the vast majority of lenders. MYC4 has taken measures to recover as much of the outstanding loan amounts as possible, but progress is very slow.
This is a quick update on the situation
Kenya / Provider Ebony: The receivership has been in place for two months now, but has recovered only a small amount. The court case against Ebony Capital Ltd. is ongoing still awaiting a ruling. (see details)
Ivory Coast / Former providers Ivoire Credit and Notre Nation The responsibility for collecting these loans has been turned over to TRIUM International in September 2009. In the 5 months since then TRIUM International collected 17,848 Euro. TRIUM has asked to be relieved of the contract as soon as possible (see details)
Senegal / Provider Birima Repayments have been delayed. Birima cites technical problems and a bad economic situation in Senegal.
Uganda / Provider FED/CMC FED seems to have the worst status. MYC4 reports that collections nearly stopped due to a lack of staff and working capital. Borrowers are said towithhold repayments in speculation on a collapse of FED/CMC. MYC4 has defined 10 action steps for March and April. (see details)
Most of the discussion so far was whether p2p lending is or could become disruptive – threatening the bank’s core business. So it was fast moving internet startups versus the incumbents which were often viewed as not very innovative.
As for social networks, the thoughts centered on how available social networks data could be used to improve the process of p2p lending service. See my article ‘For Debate: Can Data From Social Networks be Used to Reduce Risks in P2P Lending‘. Lending Club in fact aqknowledged in January that it already uses some social network data in it’s process.
Now there is an interesting speculation on the Finextra blog (read the comments, too) whether Facebook could compete with the banks and might enter p2p lending in this course. This is an interesting thought. But the main argument is that Facebook has a large number of users and if only a fraction of them would use financial services they could gain a huge customer base. With that argument you could argue that Facebook could compete in any industry. Just pick one you like.
And while cross border p2p lending would be fascinating the downside as we already now is that regulation differs widely between national markets. But Facebook could have the size to tackle a task like this. The real question is: Do they plan to?
First figures about lending activity on p2p lending service for student loans People Capital (related articles: People Capital) which launched earlier this month say that so far five to six students received loans for a total of 100,000 US$ from 5 lenders with another 45 students awaiting funding.
Lenders must have accredited investor status to lend. Financial institutions can sign up as lenders, too.
Back in January I received an email from a Lendingclub employee in reaction to this article, where I wrote:
“… Several .. p2p lending services show clear signs that default levels will (or have) surpassed the initially published percentages of defaults to be expected based on external data. … The one exception from the rule is Zopa UK, which successfully manages to keep defaults low…”.
The email questioned why Lending Club was not mentioned along Zopa for keeping defaults low and invited me to discuss this. On Jan. 21st I replied with the following (based on numbers which I compiled from Lendingclubstats.com – these will have changed slightly since then by now):
As sample let’s look at the loans Lending Club issued in Dec. 2007. Total loan amount is 1,322,850 US$.
The status of these is: a) Current 823,800 (62,3%) b) Fully Paid 168,150 (12,7%) c) Late 82,500 (6,2%) d) Defaulted 248,400 (18,8%)
These loans were approx. 2 years old (in January) and will run about 1 year more.
Is it a fair assumption that in Jan 2010 22% (or more) of the loans issued will have defaulted? I know I did not take the final step to split these numbers by credit grade, but if I would have done that, are you arguing that the default levels are low (or at least lower than the scoring predicted in Dec 2007)? If Dec. 2007 is for some reason a bad performing month, feel free to do the above with any other month from 2007 for the discussion and we continue with these numbers.
Though I was promised a detailed answer and I did follow-up several times, so far there has been no reply. I am not saying that Lending Club defaults are too high for lenders to make a profit. My points are:
Default levels at Lending Club are likely higher than initially expected
The published default rates on Lending Club and other p2p lending platforms are often averages in relation to all running loans (including recently funded ones). This figure is skewed, if the service is growing fast and lenders might misinterpret it. A better evaluation is based on taking a sample of older loans (e.g. based on one month of origination)
ROIs for Lending Club lenders will be, once their investments mature, likely lower than the average shown at the moment at the Lending Club statistic page.
