As reported earlier German p2p lending service Auxmoney completed a series A round in the end of 2012. Today the company disclosed that Union Square Ventures and Index Ventures participated in that round and invested 12 million US$. Together they hold 21,8% of the Auxmoney ownership.
Both VC have made previous investments in p2p lending companies. Union Square Ventures invested in Lending Club and Funding Circle. Index Ventures invested in Funding Circle.
CEO Raffael Johnen told P2P-Banking.com: “We are happy to have won Union Square Ventures and Index Ventures as investors. Both have comprehensive experience with online marketplaces nad their expertise will help us to accomplish our plans to grow”. Johnen plans to use the raised amount to continue development of the technology. Furthermore he want to increase the staff (currently about 30). Main goal of Aumxoney is the growth of the loan volume.
Documents available to P2P-Banking.com show that German p2p lending service Auxmoney raised a series A round in the end of 2012 from 2 companies. The new investors now hold 21.8% of the shares, the 3 founders Philip Kamp, Raffael Johnen and Philipp Kriependorf hold 40.4% of the shares and the remainder is held by various seed investors (mainly from Austria and UK). The volume of the Series A round was not disclosed. In fact the round itself was not announced in public.
Yesterday Auxmoney did change its business model. In the past Auxmoney approach was subject to continued criticism (see also), because Auxmoneys largest fee income came from listing fees that every applicant for a loan had to pay. And with 80-90% of applications not funded, many critics felt that this model was unfair to the borrowers.
New fee model
Since yesterday Auxmoney charges borrowers a transaction fee for funded loan applications, but no more listing fees. This is in line with fee structures used by most major p2p lending services. Lenders pay a 1% transaction fee on successful bids.
No more auctions
In the past Auxmoney used a mix of loan listings that closed when they reached 100% funding and loans with reverse dutch auctions. In future all loan listings run for a maximum of 20 days and close immediately when they reach 100% funding. Raffael Johnen, co-founder of Auxmoney told P2P-Banking.com: ‘Lenders told us, that when they had bidded, they wanted to be sure to have invested in the loan part and disliked when they were outbid in the course of the auction‘.
New interface
Auxmoney also redid parts of the user interface and the dashboard for lenders. Johnen promised faster and more transparent information from the collection process. Continue reading →
Auxmoney.com is the second largest (by loan volume) p2p lending service in Germany. The new loan volume per month is about 700,000 Euro (approx 900,000 US$). A recent estimate puts the monthly revenue of Auxmoney at about 57,000 Euro (approx. 74,000 US$; based on August numbers). The majority of these revenues comes from the sale of so-called ‘certificates’, which the borrower can optionally buy. Examples for certificates are credit scores, income validations or car value assessments.
The fees for the optional certificates as well as the listing fee are due in any case – regardless whether the borrower’s request for a loan is funded or not.
Effective September 1st, 2010, Auxmoney raised several fees:
Lender fee for successful bids is now 1% of bid amount – at least 1 Euro (previously there was a flat fee of 1 Euro per successful bid)
Borrower fees for successfully funded loans are now 2.95% of loan amount (previously 1.95% or 2.50% of loan amount depending on loan term)
A new rule in the terms and conditions states that the auction duration of a listing that has not completely funded after 14 days will automatically prolong as long as the listing is not funded or the maximum duration of 90 days is reached or the borrower objects to the prolongation. The borrower can object to the extension any day he wants by pressing a button in the online interface. If he does that the listing ends after 5 more days. Every additional day (!) of extension (beyond the original 14 days) the borrower is charged 1 Euro (approx. 1.28 US$). Therefore if the loan does not fund within 90 days and the borrower did not stop the listing, he is charged 76 Euro extension fee on top of the original 9.95 Euro listing fee.
With the legal construct Auxmoney has selected, the listing fee, the fees for the certificates and the extensions need not be factored into the APR that Auxmoney calculates.
Could these circumstances damage the image of p2p lending?
P2P Lending worldwide has received positive press coverage and benefits from offering an alternative to the currently ill reputed banking sector. Only occasionally are single players causing bad publicity (e.g. the high default rates of Prosper or the Boober failure). Looking at the German market, press coverage for p2p lending was nearly all positive. One exception was the warning of a well-known consumer advocacy which accused Auxmoney of using false marketing claims on its website. Auxmoney sued the publisher – the case is still ongoing.
The latest change in the fee policy of Auxmoney could lead to a negative change in the perception of p2p lending by consumers. Should internet users start to associate p2p lending with high fees that are charged even if no loan was obtained (currently on average 10-20% of all loan listing on Auxmoney are funded – see green line in this chart) then p2p lending would risk losing any competitive advantages over bank loans.
Fees at other p2p lending services have risen several times in the past too in the struggle of these marketplaces to become profitable. While these fee increases do impact the attractiveness for the users the difference is that at least the fees in most cases only apply to loan transactions on funded loans.
German p2p lending service Auxmoney.com has introduced a new feature this week. Borrowers can now offer a car as collateral for a p2p loan.
The user pays a fee of 9.95 Euro to document this in his loan listing. Pictures of the car, the model and the mileage and the estimated price a car dealer would pay for car are displayed in the listing. In this example listing, the borrower puts up his BMW as collateral. The estimated value covers 101% of the loan amount requested. In general the car can cover any percentage of the loan amount – it does not need to cover the full amount. Furthermore there is information on the type of insurance coverage.
If the loan is funded, then a contract defines the terms of the assignment as security. The borrower continues to drive the car (obviously he is not allowed to sell it without the consent of Auxmoney), but needs to deposit the certificate of ownership (motor vehicle registration certificate) at Auxmoney. This arrangement costs the borrower 2 Euro per month.
Should the borrower fail to repay the loan, then Auxmoney has the right to sell the car.
While a car as collateral does in not provide fail-safe security (many things can happen), it will be probably perceived by lenders as one feature for higher security against defaults.
This is a first for p2p lending – but soon another p2p lending service will follow. Pärtel Tomberg, CEO of Estonian p2p lending service Isepankur told P2P-Banking.com earlier this month, that Isepankur will introduce cars and real estate as collateral for p2p loans in the second half of 2010.
P2P Lending is mostly anonymous and loans are unsecured. To make the risks of lending to a stranger acceptable for lenders, p2p lending services had to provide models for the lenders to judge the dimension of the risk of not getting paid back.
The initial estimation of the risk-level could not come from the platform itself as it had no track record and could not build a model that “calculated” the level of risk involved for the lender. The consistent consequence was that nearly all p2p lenders relied on established third party providers for credit history data and credit scores. Prosper for example showed Experian data on default levels to be expected depending on credit grade.
Over the time it became obvious that the actual default levels at Prosper were much higher than the expected default levels based on Experian data. We don’t actually need to argue here what led to this (be it financial development of the economy, be it that p2p lending attracted bad risks, be it a poor validation process), but the result was that since defaults were much higher than expected, lender ROIs were much lower than expected at the time of the investment.
And this is not Prosper specific. Several other 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.
Boober failed due to default levels, on Smava levels are higher than the Schufa percentages fore-casted, same is likely for Auxmoney defaults which will be higher then Schufa and Arvato Infoscore data suggested. The one exception from the rule is Zopa UK, which successfully manages to keep defaults low, as CEO Giles Andrews rightly points out.
Auxmoney.com has added more loan term choices for it’s p2p lending borrowers to choose from on the weekend. Previously available loan terms at Auxmoney were 12, 24 and 36 months. Now any term between 12 and 60 months (in 6 month increments) can be selected.
Auxmoney achieved substantial growth rates in the second half of 2009 (see Wiseclerk statistics tracking Auxmoney loan originations per month). And this is despite the fact that Auxmoney was criticized by a renowned consumer advocacy institution for misleading marketing and unfavourable fee structures.
In international comparison of p2p lending fee structures, Auxmoney is a rare exception, as it charges many fees regardless of whether a loan request is successfully funded or not. With it’s listing fees Auxmoney generates revenues even from those customers with bad credit history that have little or no chance of getting funded by lenders.
(Source: Uses information from yesterday’s article at P2P-Kredite.com)
