Marketplace lending coming of age

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Marketplace lender SocietyOne is maintaining a steady investor return of around 8 per cent as it reports strong growth in its loan book. It is one of a small number of lenders that have emerged from the initial flurry of excitement when the alternative loan market emerged in Australia early in the decade with a solid base and paying relatively high income returns to investors.

SocietyOne has originated $350 million of loans since it launched in 2012 and has $200 million in its loan book currently – making it the biggest marketplace lender in Australia. It has originated $141 million of new loans (a mix of consumer and agribusiness loans) so far this year, compared with $139 million for the whole of 2016.

The marketplace (or peer-to-peer) lending sector is experiencing strong growth and good returns to investors based on stable credit quality. And it is starting to attract a wider range of investors.

A report on the alternative finance market in the Asia Pacific region published last month says peer-to-peer consumer lending volume in Australia grew from US$62 million in 2015 to US$158 million last year.

The report, the Second Asia Pacific Region Alternative Finance Industry Report, was put together by a range of contributors, including KPMG and Monash Business School’s Australian Centre for Financial Studies. It says the market operates within a regulatory environment that is “adequate and appropriate.”

SocietyOne chief investment officer, John Cummins, says a growing number of high net worth investors and SMSF trustees are investing in the platform, complementing the financial institutions and other large funders that have backed the company since its launch.

Cummins says SocietyOne has updated its information memorandum and will increase the minimum investment from $20,000 to $100,000, reflecting growing demand.

About 80 per cent of the company’s loans are personal loans and the rest are livestock loans to farmers.

Cummins says the delinquency rate is around 2 per cent, which is similar to the delinquency rate for big banks’ consumer loan portfolios.

“We recommend to investors that they have 200 or more loans in their portfolio to spread risk. It sounds like a lot but we do all the back end and reporting,” he says.

Marketplace lender RateSetter, which has originated more than $170 million of loans since it was launched in 2014, offers investors a choice of terms from one month to five years, with returns paid monthly.

An investor who chooses a three-year term will have their funds matched to a portfolio of three-year loans, which will be a mix of secured and unsecured loans to consumers and business.

Currently RateSetter is quoting 3.8 per cent after fees for a three-month term, 4.5 per cent for one year, 7.7 per cent for three years and 8.8 per cent for five years.

RateSetter has a provision fund, which is funded from borrower fees and used to compensate investors if a borrower defaults. RateSetter provides de-identified details of all its loans, including their repayment status, on its website.

Another marketplace lender DirectMoney, which gives investors access to loans via a pooled fund, reported that the DirectMoney Personal Fund produced a net return of 7.3 per cent for the 12 months to the end of June.

Since it was launched in 2015, the fund has produced an average return of 7.5 per cent a year.

In SocietyOne’s case investors can choose the grade and term of the loans they put in their portfolios. Cummins says new investors tend to play it safe initially, selecting high-grade, short-term loans.

A selection of loans across all the credit grades and terms will produce a return of around 8 per cent a year.

“People are very careful when they start but we are starting to see repeat business,” Cummins says.

Cummins says new lending is running at around $10 million to $15 million a month and he expects that to rise to $15 million to $20 million next year.

The company has made improvements to its service and the speed of loan approvals, and this has helped with growth in originations. It has increased the maximum loan amount on personal loans to $50,000.


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