Marketplace lending fills a market gap in Small Business finance
Marketplace lending fills a market gap in Small Business finance
Sunil Aranha, CEO ThinCats Australia – 24 April 2017
The fundamentals are clear. Small business in Australia needs finance to grow and capture market opportunities. Banks generally lend based on real estate security and small businesses run out of “real property” to offer as collateral security and can’t obtain growth finance when they need it most. There are over 2.1 million small businesses in Australia with a potential $10b per annum growth funding requirement, not being fulfilled by banks.
These are growing, bankable small companies that cannot afford and will not pay the exorbitant rates or comply with the onerous and in many instances opaque lending terms offered by many Alternative Finance short-term lenders. These “Alt Finance” lenders proliferate the market with “online” deals offering fast approval, small value loans, usually less than $50k. This is “emergency” funding and not growth finance which has been in existence since the merchants of Venice and has moved from the offline private finance world, to the online digital world over the last few years.
The driving factor behind the high interest rates of competitor “Alt finance” lenders is their high cost of capital combined with the fact that they are taking high risks, so must charge accordingly, to have sustainable businesses. The money they get to fund their loans usually comes from large financial institutions.
This is where Marketplace lending platforms come into play. The aim is to connect a community of investors (savers), usually Self-Managed Super Funds or High Net Worth investors who typically have a large amount of term deposits in banks earning extremely low rates of interest with small business borrowers who are willing and can afford to pay a higher return to these investors from a share of the profits they expect to generate by growing their revenues.
The unique aspect of marketplace lending is “fractionalisation” where many lenders participate in each loan and diversify their risk by lending small amounts to many borrowers. It presents a win-win for both groups and the sustainable “recycling” of money has a multiplier effect on economic growth, GDP and reward to society!
This new Marketplace is made possible because of access to information through advancements in technology which allows investors to directly participate in a market that has been a mainstay for bank profits over decades. Ethical marketplace lending platforms provide detailed and transparent borrower information, empowering and connecting investors (lenders) directly with worthy borrowers, via a secure online platform, with long-term growth finance periods of 2 to 5 years offered.
At ThinCats Australia, we practice these values. We are a tried and tested lending platform, with ThinCats UK our JV partner, a leader in UK marketplace lending who have over the last 7 years connected 5,885 lenders with 829 loans amounting to £230 million, an average loan size of £276k. This has generated a gross weighted average return of 11.19% p.a. to UK investors.
Here in Australia we are still young and while facing the challenge of introducing a brand new concept into this market, we have over the last two years connected around 100 High Net worth, wholesale investors (lenders) with over 45 loans to a diverse mix of borrowers, including solar energy suppliers, jet fuel wholesalers, super food manufacturers, medical, health and wellbeing service businesses and a large number of traditional wholesalers, importers and retailers.
Borrowers get to tell their story and wholesale investors make direct loans for 2 to 5 years. Investors earn the same rate of interest that borrowers pay, usually between 14% p.a. and 16% p.a. with monthly principal and interest payments – and ThinCats earn revenue by charging borrowers a fee for service.
All costs to borrowers and risks for investors are transparently stated and are aimed at empowering the community and facilitating a true SME lending marketplace.
With the continued support of new investors and small business borrowers ThinCats are fast filling this market gap and welcome new lenders and borrowers to engage with on our platform.
Why advisers should consider P2P
Why advisers should consider P2P
FT Adviser 21Apr 2017 – Kevin Caley is founder and chairman of ThinCats UK
The peer to peer industry has grown at a phenomenal rate in the last decade and many have embraced it as a welcome new channel for investors to earn healthy returns on their money.
But when it comes to recommending P2P to their clients, financial advisers still approach the sector with caution. Part of this is because it’s a new asset class seen by some as unproven. There is also the misconception that P2P is ill-prepared for an economic downturn or overly risky.
This year, most major platforms are likely to be granted FCA authorisation for their innovative finance Isa products, marking a watershed moment in terms of the sector’s growth.
With this in mind, it is clear advisers are starting to become open to the benefits P2P can offer their clients – set rates of interest, varied terms for lending, diverse portfolios of investment opportunities to spread risk, and the potential for better interest rates than with many other forms of investment.
One criticism levelled at peer to peer has been that it’s unproven and unregulated. Central to this is the concern that investments aren’t covered by the FSCS. P2P lenders make loans directly to each borrower rather than going via an intermediary, so FSCS cover isn’t relevant.
It’s worth remembering P2P loans perform differently from equities, offering fixed rates of interest, with returns not susceptible to market turbulence.
This doesn’t mean, however, that there’s no protection for investors, as each individual loan is direct and remains enforceable even if the platform fails. What’s more, P2PFA membership and FCA regulation also provide arrangements that manage an orderly run-down of loans in the unlikely event of platform failure.
With peer to peer still relatively young, some also question whether it would survive an economic downturn. But it should be noted that platforms are distinct from the performance of the loans that they offer.
They act like an agency, so even if one goes out of business, the loans remain in place. A financial crisis may also cause some borrowers to face difficulties repaying, so it’s the platform’s job to minimise the possibility of default and protect loans with security and reserve funds.
Peer to peer platforms tend to offer higher returns than other asset classes and will be viewed as more risky as a result. But it’s worth remembering P2P loans perform differently from equities, offering fixed rates of interest, with returns not susceptible to market turbulence.
Loans are based on a contract between the lender and borrower so they can deliver a predictable return. And while there is a low risk that loans may default, this is carefully protected against so as to be manageable within the advertised rates.
This year the peer to peer market is likely to be transformed by the arrival of the much-anticipated Innovative Finance Isa among the leading platforms. The IFISA market is yet to come into full effect, but when it does, the amount of P2P investors could potentially double.
While some have expressed concern about the ability of platforms to accommodate this influx, the UK’s strong regulatory framework has been working closely with the industry to ensure this transition will be smooth.
So for advisers and their clients, this tax year will present a great opportunity to earn sizeable tax-free returns, which beat rock-bottom cash Isa rates, and unlike stock and shares Isas, are protected from the rollercoaster ride the markets have become.
First rung reached by ThinCats
First rung reached by ThinCats
Monday, 28 November 2016 6:15am ” Ian Rogers – Banking Day
Four months into a partnership, peer-to-peer lender ThinCats Australia and crowdfunding property investment company DomaCom have a run on the board.
On Friday, ThinCats promoted its first loan under the alliance, a first mortgage lending on residential property. The funder put the LVR at 36 per cent on a A$212,000 interest-only loan for 24 months at 6.5 per cent.
“This is the first mortgage backed loan listed on our platform offering competitive interest rates on a low LVR property lend,” ThinCats said. DomaCom is the Investment Manager and Perpetual Trust Services is the Responsible Entity of the DomaCom Fund.
ThinCats, DomaCom join forces on loan deals
ThinCats, DomaCom join forces on loan deals
financialobserver – 1 Aug 2016
Investment platform operator DomaCom and SME peer-to-peer lender ThinCats will collaborate to provide greater scope for exposure to property and loan opportunities.
In its announcement on Friday, DomaCom – soon to be listed as a crowdfunding service – said Australia’s peer-to-peer business lending sector had benefited from the tightening of bank lending to small to medium size enterprises (SMEs).
“Our link with ThinCats will give advisers the ability to sit on both sides of a property transaction by creating leveraged book builds,” said DomaCom chief executive Arthur Naoumidis.
“This also provides the 350 lenders on the ThinCats platform the opportunity to gain exposure to property assets and the ability to lend funds at an attractive interest rate with a lower risk profile.”
He added that when targeting growth instead of income, advisers using DomaCom would have to include debt in some book builds.
Echoing the sentiment about opportunity, ThinCats chief executive Sunil Aranha said that the link with DomaCom would “allow our lenders to gain exposure to both property and new loan opportunities”.
“Lenders on our platform are now providing more than $1 million in loans per month and DomaCom will lift our lending volumes even further,” Aranha said.
Loans would be lower risk and would have to be positively geared, Naoumidis said, with an initial loan to value ratio of no more than 50 per cent.
“The default rate for the fund borrowing the money is a low 3.5 per cent above the ANZ overnight cash rate – this currently equates to 5.25 per cent per annum,” he said.
“As the cost of the facility is 0.5 per cent of the loan amount, lenders will currently receive 4.75 per cent per annum – an attractive return in this low rate environment.”
He said investors were seeking a good yield without going too far up the risk curve, meaning there would likely be strong interest in the new facility.
“This is a wonderful illustration of true disruption, with a crowd funding platform and
peer-to-peer lending platform working together to enable [self-managed superannuation funds] to benefit from gains associated with property ownership whilst earning attractive fixed income returns,” Aranha added.
ThinCats Investor Update June 2016 – Wholesale Investor
ThinCats Investor Update June 2016; Over $3m Loaned, Over 300 Registered Lenders & New Website
Wholesale Investor 7 July 2016
As our 2016 financial year draws to a close, here’s a short summary of milestones achieved along with news of some exciting times ahead as we cement our position as the leading Peer-to-Business (P2B) Lending Platform in Australia.
Over $3m (25 loans) to a diverse range of SME borrowers and a pipeline forecast to grow our loan book to over $20m (100 plus loans) within 12 months.
Over 300 registered Lenders (wholesale investors and Self-Managed Super Funds) receiving an average yield of 13.8% p.a. on loans secured by business assets, mortgages (in some instances) and personal guarantees of directors – zero default on loans since inception.
The average direct loan size per lender, per loan, is over $7k, meaning that a loan for $200k would generally be financed by up to 30 lenders, each making a direct decision to lend after evaluating all loan information, financials, and borrower credit checks, all transparently provided on the platform. It’s pure P2B lending, as ThinCats do not earn a margin spread, with lenders receiving all the interest paid by borrowers on the platform.
A number of alliances with loan referral sources, including over 100 finance brokers and accountants to refer loans, and leading edge technology providers. This enables us to automate our processes, improve credit analytics and ultimately better serving borrowers and lenders.
A $30m funding arrangement (over 2 years) to part finance selected larger loans, with our JV partners ThinCats/ESF, who enter their 6th year of operations with over $400m in loans making them a leading P2B lending platform in the UK.
A larger and stronger Australian sales, digital marketing, finance and administration team with over 100 years of combined senior banking and lending experience, positioned to meet future business growth needs.
A new website with social business channel that transparently communicates our differentiation from all other market place and non-bank lenders. Watch this space for further updates into the digital business arena.
Our values and skill sets place ThinCats in a unique position where we squarely focus on the least serviced segment of the SME borrower market, profitable SME’s looking for growth finance (loans over $100k) over longer terms (up to 60 months) at competitive rates (up to 16% p.a.). These businesses are “bankable” but cannot raise funding from their bank as they have run out of homes to offer as security.
Generally other market place and non-bank business lenders provide quick turnaround, short-term (< 12 months) small loans (under $100k) at high interest rates (up to 80% p.a.) on an unsecured basis, servicing an entirely different segment of SME borrowers.
As a final note, your support as founding customers to date has been invaluable to us and we thank you sincerely for this. We would also greatly appreciate you continuing to help us grow brand awareness of ThinCats across Australia, as a truly unique business lending platform. Our Twitter handle is @thincatsAUS and you can easily search and follow us on LinkedIn as we amplify and grow our online brand presence with a large boost planned by our new CMO starting 1 July.
P2P lender streamlines credit assessment process
P2P lender streamlines credit assessment process
Australian Broker 22 June 2016, Julia Corderoy
Peer-to-peer business lending platform, ThinCats Australia, has streamlined the assessment process with the launch of a new credit assessment tool.
Created by local company Othera, the credit assessment tool allows small companies to pre-qualify for loans on the ThinCats platform, as well as allowing its 300 peer-to-peer lenders make more informed business lending decisions.
According to John Pellew, CEO and founder of Othera, the typical pre-qualification process takes lenders anywhere from two to four hours.
“What makes Othera’s credit assessment tool unique and invaluable to lenders and borrowers is that the complex pre-qualification process has been automated with credit decisioning algorithms yet borrowers require no financial expertise to begin the online process.”
Using the platform will take less than five minutes to fill in the online form to pre-qualify for loans, with no requirements to upload documents, Pellew said. The Credit Assessment report is delivered to the lender within minutes.
The CEO of ThinCats Australia, Sunil Aranha, said the P2P platform is targeting $20 million in loans to businesses this year and the tool should accelerate its growth through a better matching process.
“The tool will attract more lenders to our platform as it improves the quality of information they base their lending decisions upon. This will make the process of lending more efficient on both sides of the transaction, which is a significant boost to small businesses in Australia,” he said.
ThinCats’ lenders will also benefit by being able to assess a borrower’s credit quality in a shorter time through Othera’s ability to directly access the potential borrower’s accounts, according to Pellew.
“Rather than relying on official credit rating reports and previous financial year’s tax returns which use historical data, lenders now have access to a Credit Assessment report that is generated from real-time accounting data,” he said.
ThinCats has funded 24 loans worth more than $3.1 million to date, at interest rates ranging from 11.5% to 15%.
ThinCats receives funding boost
ThinCats receives funding boost
Mortgage Business, 20 June 2016, Huntley Mitchell
Peer-to-peer (P2P) lender ThinCats Australia has received a significant funding commitment as it continues to grow its presence in the business lending sector.
The platform’s UK partner, ESF Capital, has agreed to provide it with $30 million in funding for small business loans over the next two years.
In just its second year of trading, ThinCats CEO Sunil Aranha said the company is targeting $20 million in loans to businesses, with a projected $100 million to be lent next year.
“We are now seeking business people who are not interested in putting their homes on the line to fund their enterprises, as most often required by the major banks,” he said.
Mr Aranha said there is a real opportunity for P2P lending in Australia due to APRA’s pressure on the major lenders and their traditional aversion to unsecured loans, “as well as [their] inability to price small business risk accurately”.
“Many banks in Australia really operate more like building societies, as they are demanding property as security, instead of backing their judgement in supporting their small business customers on the basis of their current and future trading performance,” he said.
ThinCats has funded 24 loans worth more than $3.1 million to date, at interest rates ranging from 11.5 per cent to 15 per cent.
This peer-to-peer lender is offering Shark Tank rejects an alternative path to funding
This peer-to-peer lender is offering Shark Tank rejects an alternative path to funding
Australian Anthill – 7 June 2016
Peer-to-peer business lending platform for SMB, ThinCats Australia, is offering hope to those who did not make the cut on the Shark Tank program on the Ten Network.
ThinCats Australia has provided 23 loans in just over a year of operations and CEO, Sunil Aranha, is happy to use his platform to arrange loans from $50,000 to $2 million for budding entrepreneurs with currently cash flow positive businesses.
“We are providing loans for the budding entrepreneurs at a competitive interest rate of under 16 per cent, without the need for them to sell equity as required on Shark Tank,” he said
“We are targeting $20 million in loans to businesses in our second year of trading, with a projected $100 million to be lent next year. We are now seeking business people who are not interested in putting their homes on the line to fund their enterprises, as most often required by the major banks,” he added.
“There is a real opportunity for entrepreneurs who appeared on Shark Tank to use peer-to-business lending in Australia to expand their businesses and achieve their dreams.”
Bridging the gap between lenders and borrowers
The online lending platform connects wholesale investors with small and medium sized business borrowers across Australia, capturing an ‘untapped’ customer segment not well serviced by bank and non-bank financial institutions.
Lenders benefit through higher returns and diversification through fractional lending on secured loans and borrowers have access to medium and long term finance at competitive interest rates, generally between 12 per cent and 16 per cent p.a. compared with other lenders, which are charging up to 1 per cent a day for short term loans.
ThinCats has funded loans worth more than $3 million over the last year at interest rates ranging from 11.5 per cent to 15 per cent to diverse businesses, including a stone importer for the building industry, commercial solar energy systems supplier, a nutritious superfoods manufacturer, a carpet contractor and an organic coffee distributor.
Federal Budget presents big opportunity for P2P lenders
Federal Budget presents big opportunity for P2P lenders
Australian Broker – by Julia Corderoy 9 May 2016
The superannuation shake-up in the 2016 Federal Budget presents an enormous opportunity for peer-to-peer (P2P) lenders, according to one global P2P lender.
“The clampdown on contributions and transfers to superannuation will mean lower returns for investors, however peer to business lending is an alternative to low yielding shares and bank interest,” the CEO of ThinCats Australia, Sunil Aranha, said.
Aranha says the tax cut to 27.5% for businesses with turnover of up to $10 million will also play into the hands of P2P lenders.
“I expect this measure will provide a boost to peer to business lending as the owners will be seeking to supplement the funds freed up by the tax cut with borrowings to finance more staff and equipment.”
The CEO of the Council of Small Business Australia, Peter Strong, is praising the Federal Budget for offering more opportunities to P2P lenders.
“Peer to peer lenders like ThinCats are providing a viable alternative to the banks in supporting small businesses in Australia,” Strong said.
“The Federal Budget should spur on interest amongst the 2.1 million small businesses in Australia to access this form of lending.”
ThinCats Australia expects to significantly grow the number of lenders on its platform from the current 300 over the next year as a result of the tax measures announced in the Budget.
How banks are running the economy
Alan Kohler – The Australian May 6, 2016 7:19PM
Two quite innocuous things happened on Tuesday: the federal budget and an RBA rate cut.
Neither of these events will do much good, but nor will they do much harm, which is about as much can be hoped from both politics and monetary policy these days. Even RBA Governor Glenn Stevens has been constantly talking about impotence of monetary policy, so it’s likely to be true.
Why won’t the budget or the rate cut have much impact? Because the RBA and the government don’t run the economy — the banks do, and there is something much more significant going on in banking land.
There is always a non-bank lending industry; sometimes it’s bigger and more heated than others — for example the building society boom of the late 80s and US subprime boom between 2003 and 2007. And as a property developer said to me over several glasses of wine the other night, someone always does something stupid and brings the whole party crashing down. You can count on it.
I lent some money this week to a small NSW service station business at an interest rate of 14 per cent. I’m not sure whether to be happy about this, or worried.
It was through one of the new, rapidly growing peer-to-peer lending platforms — this one is called ThinCats (in which I’m also a small investor). The business needs $300,000 for three years to buy another servo in Port Kembla and is happy to pay 14 per cent because they were knocked back by the bank and the return on that capital will be double that because it’s a good location.
So about 40 investors have offered to lend the business between $1000 and $10,000 each. We got the full financials on the business plus a Veda credit report; security is a guarantee from the business owner and a registered charge over all the assets of the business, and ThinCats’ credit team spent about a month talking to the business owners and going through the books.
So why did the bank knock them back? Because they couldn’t, or wouldn’t, put up a house as security.
And why are 40 investors — mostly self-funded retirees — happy to lend them the money without a real estate mortgage as security? Well, that’s more obvious: because the bank term deposit rate for three years is 2.7 per cent, and about to come down some more.
That’s a yield discount of 11.3 per cent for the safety of a bank, which admittedly includes a government guarantee. But 2.7 per cent versus 14 per cent? It’s a no-brainer.
A couple of other examples of what’s actually going on at the moment: I’ve been talking on and off for a while to a bloke in Townsville named Jamie McGeachie, who owns a lending business called Finance One. He raises money in a separate business called Investors Central by issuing fixed-term preference shares and lends it to people through Finance One to buy a car — after they’ve been knocked back by the bank.
The interest rates he pays to investors range from 9 to 16 per cent for between one and five-year “term deposits”. The interest rates that his borrowers pay range from 19 to 29 per cent; average loan size is $15,000.
As fast as McGeachie raises money he lends it out, because there is a huge and growing army of ordinary people with good credit histories and solid jobs who need a car, but can’t get a loan from a bank and are prepared to pay more than 20 per cent interest for a few years to get one.
Why won’t the banks lend them the money, even at those sort of interest rates? Because they can’t offer a house as security and they fail on the algorithmic credit scores. McGeachie’s default rate is 2 per cent.
I was at a property developers’ dinner last week that was put on by a lender called MaxCap, which raises money from super funds and wealthy individuals and lends it to apartment developers.
One of the principals told me about a deal they had just done that week to lend at 13 per cent interest to a developer on a loan-to-value ratio (LVR) of 60 per cent. That is, the value of the property would have to fall more than 40 per cent for MaxCap’s clients to be underwater. MaxCap’s investors are getting 12.5 per cent yield.
Why didn’t a bank snap up that deal? Because they have basically withdrawn from funding property developers … because APRA told them to.
APRA, in line with global bank regulators, has also told them to increase their capital ratios, and since the system of risk-weighting means that only a quarter of the value of a real estate mortgage is counted against capital versus 100 per cent of a loan secured only against a business, that means all lending these days is more or less confined to mortgages.
It means the banks are basically not lending to those who don’t own a house or are already fully committed on their mortgages, and those who are building houses for investors.
So they are going elsewhere and paying 10-15 per cent more in interest than the banks would charge, except they’re not.
It means the divide between the haves and have-nots (a house, that is) has never been this great, and it’s also why this week’s rate cut by the Reserve Bank will make no difference and why the government’s efforts in the budget to help small businesses and middle income earners will only scratch the surface.
Banks actually run the economy by both creating money and circulating it, not the RBA or the government, and these days banks are only serving those who have equity in real estate.
According to economist Saul Eslake, home ownership rates among households headed by people aged 25 to 55 have dropped by an average of 9 per cent since 1991.
Most dramatically, the rate of home ownership among 25-34 year olds has fallen from 61 per cent in 1981 to 47 per cent in the latest census.
That is a huge social change: in one generation the number of families starting out and having children who also own their own home has dropped from almost two-thirds to less than half, and in the past 10 years the decline is accelerating.
It means the number of young people able to get a bank loan to start or expand a business, or to get a car loan or personal loan for anything less than 15 per cent interest, has also fallen significantly.
And a lot of that change is caused by the real estate market distortion inherent in negative gearing and the capital gains tax discount, which rewards highly geared property investors at the expense of owner-occupiers, who are in turn paying higher taxes than they otherwise would be in order to fund the subsidy to property investors.
So the combination of high house prices caused, in part, by negative gearing and the capital gains discount, with the transformation of banks into little more than building societies that lend almost exclusively against real estate, is the reason growth is weak.
A small business tax break is worthwhile perhaps, and likewise an RBA rate cut, and in each case it’s really all the government and the central bank can do.
But what’s really crimping entrepreneurship and growth is the post-GFC change to banking.
It means business people looking to expand have to come to Shylocks like your correspondent.
Most don’t bother.
ThinCats at Wholesale Investor event
This is a 10 minute video of CEO Sunil Aranha’s presentation at the recent Wholesale Investor event held on 25 February 2016.
ThinCats UK – The Next Chapter
altfi – Ryan Weeks 11th February 2016
An interview with ThinCats UK and ESF Capital CEO John Mould
ESF Capital acquired a 73.4% equity stake in secured business lending platform ThinCats in early December last year. Since then, we’ve been left to wonder as to what a retooled, more institutionally geared version of the ThinCats platform might end up looking like. We need wonder no more. ESF Capital CEO John Mould – who also assumed the role of CEO at ThinCats at the time of the takeover – speaks to AltFi about the fresh shape and direction of the platform.
First, a bit of background. ESO Capital – a mothership of sorts to ESF – had been supplying lending capital to the ThinCats platform for a number of months prior to the acquisition. In February 2015 the company committed to deploying between £20m and £50m through the platform. The long-term plan had always been to acquire a controlling stake in the company. Though that box has now been ticked, John tells me that ThinCats Co-Founders Kevin Caley and Peter Brown remain shareholders, and are an important part of the company culture.
“Why ThinCats?” Was the first question I leveled at the ESF boss. Prior to ESF’s involvement, the ThinCats platform had been around for about as long as fellow SME lender Funding Circle (5 years), had breached the £100m mark in cumulative lending and had delivered a historic net return of around 9% per annum to investors. This had been achieved in spite of limited external investment. ThinCats had raised a grand total of £200k in equity money at that time – a pittance in relation to the sums secured by its P2P rivals. Funding Circle, for example, has raised $273m to date.
ESF saw ThinCats in early 2015 as the most promising “amateur” platform in the market – and as a highly attractive acquisition target. To quote John:
“As the largest lender in the secured SME space, ThinCats was leading the charge in a really interesting direction. Despite this scale ThinCats had retained the true P2P essence that so many other platforms had lost, allowing investors to pick their own loans. It stood out as a great business despite historically little investment, and one that would quickly benefit from the significant investment that ESF could make that would, in return, grow the business and help both lenders and borrowers.”
In November 2014, ThinCats signed a deal with White Label Crowdfunding – sister company to rebuildingsociety – in order to revamp the platform’s technology infrastructure. The arrival of ESF appears to have curtailed this arrangement, which seemed to be dragging on anyway. John tells me that ESF’s focus is now on the sharpening of ThinCats’ existing technology base, rather than on the licensing of external technology. The ESF team is working alongside the original architect of the ThinCats platform in order to refine various aspects of the site, and will ultimately acquire the rights to the systems. John’s approach has been to tidy up the tech in “sprints” – starting with the back-end. The first item on the agenda was to extract the entirety of ThinCats’ transactional data from the machine and to verify the accuracy of that information. The numbers were found to be accurate to within a few pence – an encouraging testament to the efficacy of the platform’s accounting systems.
In terms of the mechanics of the platform itself, much will remain unchanged. The sponsor network – which is ThinCats’ sole source of deal flow – will remain intact. Every loan that is listed on the platform has been (and will continue to be) vetted and vouched for by an accredited sponsor.
The self-selection model, whereby investors choose which loans to participate in, is also staying. John sees this as “pure” peer-to-peer – a model that the likes of Zopa and RateSetter have branched away from in recent years. The crowd decides whether to invest on a case-by-case basis. The minimum investment amount of £1,000 will continue to be enforced. John sees the typical ThinCats investor as financially savvy and relatively wealthy. We also spoke about the platform being home to a large number of P2P “enthusiasts”. Unsurprising, really, given that autonomy is being slowly stripped away from investors on rival peer-to-peer lending sites.
There will of course be tweaks to the ThinCats model. A portion of the platform’s loan book will soon be siphoned off into a new type of investor account. This account will be comprised of a diversified mix of loans, covering a range of geographies, and secured against an array of assets – not just property. The soon-to-launch account will offer ThinCats’ investors an alternative mode of accessing the platform, and passive exposure to the loan book. John feels that the product will play an important role in capturing pension money, which he believes to be something of a “final destination” for the P2P asset class.
On the evolution of the investor mix in P2P, John offered the following thoughts:
“2016 is the year the P2P asset class comes of age. Whether you’re a retail investor or an institution, you will probably have it in your investment portfolio by the end of the year. The ISA will drive this on the retail side, while institutions are now awake to the joint benefit of helping business around the country, while sourcing good quality loans.”
Broadly speaking, John identified three key sources of peer-to-peer lending investment: individual, institution and platform. These platforms – by which we refer to the likes of Hargreaves Lansdown and Tilney Bestinvest – promise to be crucial to the growth of the industry. The weight of IFA requests that will fall upon them following the advent of the Innovative Finance ISA (April 6th) will be impossible to ignore. John sees the vast majority of IFISA money flowing into P2P primarily via the various investment supermarkets. But the peer-to-peer platforms need to continue to press them and to educate them.
“Retail investors like being able to access all their assets in one place, moving easily between equities, cash and P2P investments. Platforms such as Hargreaves Lansdown and Bestinvest are the only places they can do this effectively, so will be in many ways the linchpin when the IFISA launches this year.”
There is, however, a caveat to John’s enthusiasm about these platforms. Hargreaves may well have an important role to play, but quite what that role will be is slightly muddied by its own peer-to-peer lending operation, which is still under construction.
The aggregator space is also of interest to John, but he sees the operators as fairly underdeveloped at present. We’d agree. For the aggregator model to work effectively in peer-to-peer lending, the credit processes of the many peer-to-peer solutions will have to be brought more closely into line with one another, such that risk assessment and pricing were made consistent across the board.
Branching away from ThinCats, ESF Capital defines itself as “an institutional P2P accelerator business providing strategic and operating resource, together with investment and lending capital”. In simple terms, as John put it, the company can offer peer-to-peer lending platforms equity investment, debt capital and technical expertise. That mix has, somewhat unsurprisingly, led to a great many reverse enquiries. Since the announcement of the ThinCats deal, ESF has been inundated with peer-to-peer platforms wanting to connect. Were they to acquire another platform in the UK, John tells me that it would have to be complimentary to ThinCats, rather than competitive. The European opportunity is also coming into focus, and ESF has already come close to finalising a deal on the continent.
In fact, the company’s interests extend beyond Europe. ThinCats launched an Australian business in late 2014. John tells me that ESF has decided to increase its stake in ThinCats Australia.
Finally, then, what of the year to come? Many industry observers have pinned 2016 as the year that consolidation will take hold in peer-to-peer lending. ESF helped to kick off the consolidation process by acquiring a controlling stake in ThinCats. Funding Circle arguably began that process through the acquisition of Rocket Internet baby Zencap in October last year.
But on the idea of 2016 being “the year of consolidation”, John is unconvinced:
“There won’t be any consolidation in 2016. Platforms will either grow up or die. The ones that can’t get past the regulatory hurdles or manage origination in a sustainable way will simply not survive.”
ESF Capital Takes Majority Stake in ThinCats UK
ThinCats Acquired. ESF Takes Majority Stake as New CEO Appointed
CrowdFund Insider – December 8, 2015 @ 6:24 am By JD Alois
ThinCats, a UK based peer to peer lending platform focusing on SMEs, has been acquired by European Specialty Finance (ESF) Capital.
The purchaser has taken a 73.4% of the firm. ESF’s CEO, John Mould, has been appointed as CEO of ThinCats with overall responsibility the direct lending platform.
Former CEO and founder Kevin Caley is said to remain “instrumental in the future of the business as Chairman with responsibility for innovation and Peter Brown retains his post as Finance Director”. ThinCats (the opposite of “Fat Cats” as in bankers) has originated over £140 million in P2P loans since its founding.
ESF seeks to enhance the ThinCats’ “proposition” for both lenders and borrowers through technology and marketing resources, product development, and additional staff. ESF is also providing underwriting and lending capital to accelerate loan growth.
ESF was founded in July 2015 and is described as a “P2P investment and operating business” backed by US and UK institutions. ESF is providing acceleration capital in the form of strategic and operating resource, investment capital, and speciality lending capital and is focused on the SME market in Europe.
The acquisition is intended to accelerate platform growth. ESF invests in, and underwrites the loans on, various European P2P platforms. ThinCats and ESF have been working together for a number of months and have a created a plan to accelerate ThinCats’ market presence. ThinCats’ focus on private investor funding of UK businesses will remain a cornerstone of the ongoing business. The ThinCats platform will be revamped and new products will be released to better serve the SME market.
“Over the past five years, ThinCats has become highly valued by a network of hundreds of experienced DIY investors who bring a unique ‘crowd due diligence’ to the platform in return for market-leading interest rates,” stated Caley. “This investment by ESF is the fuel we need to take the ThinCats platform up a gear, to retain and extend this core lender base and to attract a broader range of investors. It’s a big step forward for the platform, and will allow ThinCats to cement its place as one of the UK’s big four peer to peer providers.”
ESF CapitalNew CEO Mould said the ThinCats had a unique foundation along with the largest average loan size in the P2P SME sector.
“The injection of capital and expertise we are bringing to the platform from ESF will focus on strengthening these foundations, pushing loan sizes higher, and developing both products and platform to attract a wide range of investors. The peer to peer lending industry is truly coming of age, and today one of the longest of tooth gets a little sharper,” stated Mould.
ESF is taking majority and minority stakes in P2P lending platforms. ESF is working with a “range of institutional investors” on direct investment in these businesses and investment in their loan portfolios.
ThinCats was established in January 2011. The platform also operates a Joint Venture in Australia under the same brand.
ThinCats is a member of the UK P2PFA.
First Birthday wishes from ThinCats UK
Kevin Caley (MD of Thincats UK) recorded speech (4 minutes) on ThinCats Australia’s first birthday celebrated at the UK High Commission Sydney on Monday 16 November 2015.
ThinCats Australia marks one-year milestone
ThinCats Australia marks one-year milestone – Mortgage Business
Thursday, 19 November 2015 | Emma Ryan
ThinCats Australia has celebrated its first-year anniversary this week, welcoming a well-known finance commentator as a new shareholder.
With more than 250 lenders and finance brokers now on its platform, the peer-to-peer lender has arranged loans aggregating close to $2 million to date at interest rates ranging from 11.5 per cent to 14.5 per cent to diverse businesses.
“We are disrupting the business lending sector in Australia, attracting a strong line-up of lenders and brokers to our digital platform, with a strong pipeline of loans now in place for 2016,” ThinCats Australia CEO Sunil Aranha said.
Mr Aranha said the group has managed to assist SME customers who are not optimally serviced by bank and non-bank financial institutions.
“Many of the estimated 2.1 million small-to-medium businesses, whose financial needs are often ignored by the big lenders, are waking up to marketplace lending platforms as a viable and attractive alternative,” he added.
Meanwhile, Alan Kohler has been announced as a new shareholder for ThinCats Australia and said he is excited about the opportunities the role will provide him.
“I am excited to become a ThinCats Australia shareholder at a time when peer-to-peer lending is taking off in Australia,” Mr Kohler said.
“Our job is to tap into the estimated 400,000 high net worth investors, whose super funds hold around $1 trillion in investable assets looking for better returns,” he added.
“ThinCats allows lenders to spread their risk by lending to multiple businesses at a price determined by the market, providing them with access to a fixed interest asset class that has largely been the domain of the banks.”
ThinCats Australia overview with Alan Kohler
This video is an abridged version (6 minutes) of Alan Kohler’s interview of our CEO Sunil Aranha on 21 July 2015.
Why the banks just want our houses
ALAN KOHLER | 9 OCT, 5:48 PM | Business Spectator
A funny thing happened to business lending on the way from the GFC.
Australia’s banks turned into giant building societies, lending almost exclusively against residential property and rarely, if ever, making unsecured loans to businesses or people any more.
If someone asks for a business or personal loan these days, the banker asks for the house.
The result is that traditional small business lending has dried up, and with it business investment, while Australia has the highest ratio of household debt to GDP (134 per cent) in the world, since business owners have to borrow against their houses.
And, by the way, the upward pressure on values from banks has probably contributed to the over-pricing of Australian real estate.
As a result of a combination of the “risk-weighted assets” system and the credit crisis, banks have basically withdrawn from the thing they were set up to do: facilitate commerce.
For the big four banks, only 16 per cent, on average, of a real estate mortgage is counted when measuring the bank’s capital ratio. This is rising to 25 per cent next year.
But every dollar of an unsecured personal and business loans counts against capital and in some cases the risk weighting is 150 per cent.
Capital — that is, the bank owners’ money — has to be 8 per cent of assets, although mostly it’s around 10 per cent. That is, the ratio of owners money to other peoples’ money has to be no greater than 12.5 to 1 and is usually 10 to 1. The result is that for every dollar of capital, the big four banks can choose to lend $62.50 secured against real estate or $10 unsecured.
Guess what happens? It’s only natural and totally understandable. It’s true that interest rates on personal and business loans can be three times what the banks make on residential mortgages, but that still doesn’t make up the revenue.
And in any case, these days the banks are all about volume and market share.
In a way, the increase in the risk weightings of residential mortgages next year, from 16 to 25 per cent (of the asset counted against capital), imposed by the Australian Prudential Regulatory Authority and due to start from July 1 next year, will only exacerbate the problem.
That’s because analysts reckon the banks will need to raise about $24 billion in precious, expensive, new capital, which they have already started doing — including Thursday’s sale by ANZ of Esanda for $8 billion.
They will be loath to waste it on loans that count dollar for dollar against that new capital, and will be even more inclined to focus on real estate.
And by the way, the big banks might have to increase the risk weighting of their real estate mortgages to 25 per cent, but the smaller banks and non-bank authorised deposit-taking institutions are at 35 per cent for the same assets.
Why are the big ones favoured like that? Because they practice something called ‘advanced modelling’, which APRA says involves superior risk management systems.
But that represents a built-in regulatory bias towards the banking oligopoly in Australia, and makes it much harder for the smaller players to take market share off them because their interest rates have to be higher to pay for the capital.
But leaving aside that little glitch, the system of risk-weighting assets was a wonderful development for the banks when the Basel Committee invented it in 1988 — for the simple reason that it increased the assets that banks were allowed to hold for the same amount of capital.
You see, the Basel Committee didn’t decide that the weighting of secured loans should kept at a dollar for dollar and unsecured loans’ weightings increased, so banks had to cut back on them.
Oh no, secured loan weightings were reduced to less than a sixth of their real value, and unsecured loans were kept at 100 per cent, as all loans always had been.
It was just another step in the centuries long march of banks from lending only their owners’ capital to merchants on the security of nothing more than promissory notes to being highly geared (effectively lending $60 for every $1 of capital), highly profitable lenders of others peoples’ money against real estate.
Banking developed in Italy in the 13th century from the practice of issuing bills of exchange to facilitate trade.
The merchants of Venice had begun to deposit their surplus cash from doing deals with the moneychangers, who lent it on to those who were temporarily short.
Around 1800, bank capital was down to 50 per cent of assets because of the pressure on bankers to finance the wars of their sovereigns. By the end of the 19th century, bank capital, after another 100 years of wars, it was 20 per cent. There was, of course, no such thing as risk weightings; a loan was a loan.
Following the invention of central banking after the 1907 Knickerbocker Trust collapse, banks were allowed to hold less and less capital until, in the late 1980s, they hit more or less rock bottom at less than 5 per cent.
That’s when someone hit on the brilliant idea of letting them notionally reduce the value of secured loans when measuring the capital: the result was continued the process of lowering the capital – in other words increasing the gearing and therefore profits – but this time without seeming to.
The ratio of capital to assets stayed the same! It’s just that credit assets magically shrank if they were secured against land.
Fast forward to 2015, and the banks are under pressure to increase their capital because … well, they lost it all in 2008. Sorry everyone. The Australian banks didn’t lose theirs, but the rules are global now so one in, all in.
The pressure to increase capital, combined with the system of risk weightings, has fundamentally changed the nature of banking.
No longer is the credit risk assessor paramount within the bank; now the real estate valuer is king or queen. All that matters to a bank’s solvency is the LVR (loan to value ratio) not the credit score of the borrower, and the key unknown is the value.
Banks are no longer very interested in credit-worthiness, or in establishing the sustainability of small business’s cash flow. They just want the security of the entrepreneur’s house.
The result, apart from the well-documented dearth of business investment in Australia, is that two new industries are now beginning to flourish in Australia: non-bank lenders focusing on the personal loan and small business sector and venture capital.
Increasingly, entrepreneurs are being forced to raise equity capital to fund their working capital, in the absence of either a business loan or an overdraft, which means selling part of their businesses.
And that is expensive capital, both in the returns that the venture capitalists expect and in the emotional wrench of equity dilution.
So the shifts in bank regulation — more capital and the risk weighting of assets — is actually having a profound effect on the way business itself is conducted.
And the growth of peer to peer lenders like Society One, Ratesetters and ThinCats (in which I am a small investor) is a direct consequence of the banks withdrawal from unsecured lending.
There are others, like the listed DirectMoney which uses a unit trust structure, and Investors Central, which issues preference shares to fund car loans through a subsidiary, Finance One.
Perhaps at some point the banks will decide to get back into personal and business lending, and mop these new smaller players up, but for moment they’re munching on the banks’ unsecured lunch.
Bruce Billson endorses disruptive online SME lenders
Minister for Small Business Bruce Billson says the government will not stand in the way of fintech that is lifting competition in the banking sector. Chris Hopkins
Bruce Billson endorses disruptive online SME lenders
by James Eyers Aug 30 2015 at 9:07 PM, Financial Review afr.com
The Minister for Small Business Bruce Billson has backed a flurry of new online lenders targeting small and medium businesses to pressure the big banks to extend more credit to the often ignored sector.
Mr Billson gave a ringing endorsement of the fintech start-ups’ ability to stir the forces of banking competition, after the big banks were stung by criticism at the National Reform Summit last Wednesday.
Australian Chamber of Commerce and Industry chief Kate Carnell pointed to access to capital from the big banks as a hindrance holding small business back. Ms Carnell said big banks were typically requiring mortgage security to be pledged for small business loans or otherwise providing credit cards with high interest rates. Alternative funding sources such as those from crowdfunding and other online lenders must be supported by the government, she told the summit.
Mr Billson agreed.
In an interview with Fairfax Media, he said: “One of the challenges that small businesses have faced is that the traditional big banks have tended to want coverage by a house or some other personal asset or guarantee to be prepared to make a facility available.
“But we are seeing the emergence through fintech and other models of new avenues for funding whether it be P2P [peer to peer], or crowd sourced equity funding. The new participants coming in offering different kinds of financing is very welcome. It has also shaken the tree of the big banks.
“We are making sure that nothing government is doing is standing in the way of the fintech revolution and new avenues of finance that may better meet the needs of smaller enterprises.”
Mr Billson’s parliamentary colleague Arthur Sinodinos attended the launch last Tuesday night of Stone & Chalk, a fintech hub in Sydney that will house 200 entrepreneurs by the end for the year. One of them is Spotcap, an online lender based in Berlin that has raised €18 million ($28 million) of equity and debt to date and is speaking to various counterparties in Australia about establishing finance facilities in Australian dollars to fund the growth of a local loan book.
Spotcap, which has been operating for two months in Australia, is offering a six-month credit line product up to $150,000 at interest rates starting at 0.5 per cent a month and averaging 1.5 to 2 per cent a month.
THE OXYGEN OF ENTERPRISE
The application process for the cash flow loans is 100 per cent online with each credit facility risk priced using a proprietary credit algorithm. Also unlike the big banks, the credit line is completely unsecured.
“Spotcap Australia has issued more than $1 million worth of credit to SMEs in its first 60 days of operation, which has exceeded our expectations and validates to us that there is significant demand for our credit line product from small businesses in Australia” said Lachlan Heussler, the company’s managing director in Australia.
Mr Billson said fintech start-ups are bringing a newly found culture of entrepreneurship to the economy that will be crucial for its future growth.
“The disrupters have shown there are other avenues to access finance, which is the oxygen of enterprise and if you starve it off that has a real impact on growth and economic opportunities,” he said.
“Fintech is really shaking the tree. I am saying to the big banks that if they want to continue to be an ally and partner in the small business community, you need to embrace these new offerings – and some are. That is an area of contest between the new offerings and the big banks and small business can only benefit from that.”
Australia’s two million small to medium enterprises [SMEs] employ almost 70 per cent of the workforce – 4.5 million people – and account for over half of the output of the private sector, producing more than $340 billion of the nation’s economic output each year.
According to a submission to financial system inquiry by the Australian Centre for Financial Studies, banks are requiring more security on SME loans. “For younger business owners, increased reliance on collateral can present a significant barrier.”
It pointed to the rising cost of housing which meant many younger entrepreneurs didn’t have a property to pledge. It also called out the Basel banking regulations that require banks to hold more equity against business lending compared to home loans, which has resulted in the majority of big bank assets being mortgages.
HAPPY TO LEND CONDITIONAL
Ms Carnell said it was understandable that banks wanted to minimise risk and maximise return on equity but “we went through the National Reform Summit where many comments were made about generating growth and productivity and innovation – which requires entrepreneurs growing and employing. That is all true, but none of it will happen if we have an environment where small business is not able to borrow. It seems like we skirt that issue a bit. The banks say there are no problems, of course they are willing to lend. Well, they are, but only when you can offer them a house.”
She called for light touch crowdfunding legislation to be introduced soon. She also encouraged alternative lenders to talk to SMEs about their offerings.
Spotcap’s entry to the Australian small business online market market follows PayPal, Prospa, OnDeck, Kikka, Moula and ThinCats. Moula in June secured a $30 million funding deal with non-conforming lender Liberty Financial.
Mr Billson said he was disappointed that start-up entrepreneurs were not represented at the National Reform Summit last week. “I would have liked to see a greater focus on the entrepreneurial ecosystem in our economy,” he said.
“I wish there were more of the disrupters, the entrepreneurs, the enterprising men and women creating new businesses and new concepts of value for consumers, those using technology to disrupt the established economy to create the kind of enterprise culture we need for the future.
“That has got to be front and centre. We have to make sure those business ideas take hold and grow in Australia and aren’t enchanted to go to some other jurisdiction where the tax rate and policy settings might be more delightful than there are here.”
Know your ThinCats from your RateSetter: a guide to peer-to-peer lending
Know your ThinCats from your RateSetter: a guide to peer-to-peer lending
BRW – 24 August 2015 13:43
With bank deposit rates at all time lows, rates in the range of 8 per cent to 15 per cent on offer from P2P platforms certainly look attractive. However, these two are definitely not equivalent investment options.
Currently most people who lend via P2P platforms fit the sophisticated investor category (net assets of $2.5m or gross income of $250k) but providers such as RateSetter, DirectMoney and the soon-to-launch MoneyPlace accept funds from investors who don’t meet these thresholds. Whether you are a sophisticated or retail investor, you need to know exactly what you are getting into when lending via a P2P platform and what makes this challenging is that they are all different.
With RateSetter, retail investors say how much money they want to lend, what term they wish to lend for and the interest rate they are happy to receive. Then RateSetter matches the lender with borrowers. You wont know the identity of the borrower, rather you rely on RateSetter’s system that automatically matches your funds to approved borrowers. RateSetter charges a fee of 10 per cent on the interest you earn.
DirectMoney is more of a hybrid of a P2P lender and a fund investing in loans, where retail investors’ funds are pooled to finance a portfolio of loans. DirectMoney approves and funds loans and after about one month these loans are packaged up and refinanced by monies deposited in the fund by retail investors. DirectMoney charges the fund (which means the investors) a management fee of 1.925% pa plus an administration fee of 1.1% on the fund’s assets.
Society One (which is part-owned by Westpac) currently only caters for sophisticated investors although it expects to enter the retail market soon. Society One allocates interests in unsecured personal loans according to a mandate given by the investor. The mandate is based on the investor’s preference re term and risk grade of loan. It targets rates of return between 8 per cent and 9.5 per cent and works on a default rate of 2 per cent to 3.5 per cent. Fees are charged to borrowers but not investors.
The MoneyPlace model is similar to Society One’s but when it launches next month it will also be open to retail investors.
ThinCats is another P2P that only accepts funds from sophisticated investors. With this model investors select the borrower they want to lend to based on comprehensive information posted on the platform. As this is an individually matched platform, this kind of investing requires a higher level of confidence in your ability to make lending decisions based on information provided. ThinCats is intending to introduce a charge of 5% on the interest you earn.
The big challenge in comparing the different P2P models is working out which one best suits your risk profile and personal preferences. So what are the risks and how are the different players trying to mitigate them?
Despite some excellent technology that enables P2Ps to assess the creditworthiness of borrowers, it is still too early to say that any P2P has established a strong credit risk track record. One thing for sure is that when you lend to or via a P2P you wear the risk of borrowers not repaying. Remember too that the vast majority of P2P loans are unsecured, so if a borrower can’t pay the principle of “you can’t get blood out of a stone” applies.
One way to mitigate the risk of lending to a borrower who goes bust is to invest in a portfolio of loans so if one does go bad you don’t get wiped out. This is likely to require more time and skill in managing and monitoring much the same as with a share portfolio. Society One, ThinCats and MoneyPlace offer fractionalised loans to achieve this portfolio effect. Here you invest in fractions of multiple loans, rather than being concentrated in a single loan.
Another way to mitigate credit risk is to invest in a fund like the DirectMoney fund. This means everyone shares proportionately in losses although you wont have the line of sight on the underlying exposure as you would if you were matched directly with borrowers.
RateSetter adopts a different approach that could provide protection for lenders who get caught by a bad debt. It has a Provision Fund raised from borrowers, which can be used to compensate a lender in the event of a default. But this is not a guarantee and it’s entirely up to RateSetter as to whether they pay out.
The P2P sector is still relatively new and is heavily based on technology, making it fertile ground for cyber crooks. No P2P can guarantee their model is bulletproof and in time some will prove to be better than others. A P2P concerned about its reputation might be willing to reimburse investors if they are caught by fraud but we still don’t know how this might pan out.
Credit risk and fraud can be mitigated by the portfolio approach and fractionalisation but if the P2P’s risk assessment and monitoring systems are not sufficiently robust in the first place, investors pay the price. Some players use systems that have been in operation in other jurisdictions where default rates range from 2 per cent to 8 per cent but only time will tell what the Australian experience will be.
BANKRUPTCY OR INSOLVENCY RISK
In the unlikely event that an Australian bank goes bust, depositors are covered up to $250,000 by the Government’s deposit guarantee scheme. P2P lenders are not Authorised Deposit-taking Institutions under the Banking Act and accordingly are not covered by this scheme. Most P2Ps have yet to become profitable although some have backers with deep pockets who may be willing or able to come to their rescue. If a P2P were to become insolvent, who would continue to maintain the platform to recover your investment? Most providers have some form of arrangement in place but again we just don’t know how this might unfold.
When you invest via a P2P platform your funds will be tied up for the term you stipulate. Some providers talk about the development of a secondary market in P2P loans, but for now you should work on the assumption that this will remain an illiquid investment.
ASIC’s strategic priorities are to promote investor and financial consumer trust and confidence to ensure a fair, orderly and transparent market exists. In a recent speech ASIC Commissioner Greg Tanzer stressed the need for transparency and disclosure. He said “promotional materials for a P2P product should not inappropriately compare the product to a traditional banking product”. Arguably any comparison at all with traditional banking products is “inappropriate”. It might be worthwhile for the Commissioner to clarify what is meant by this word and also for industry participants to ensure they comply with the letter and intent of ASIC’s guidelines.
Industry participants also have a role to play in establishing and maintaining acceptable standards. Stuart Stoyan, CEO of MoneyPlace, said “our biggest fear is a major failure by a P2P lender, or a company claiming to be one, that causes ASIC or another agency to come in and say ‘we’re shutting this down’.
The P2P model has much to offer borrowers and lenders and it would be unfortunate if its undoubted potential was hampered by this fear becoming a reality.
So if you are thinking of investing via a P2P platform here are four tips:
1.Work out how much time and effort you are prepared and able to commit.
2.Read the PDS thoroughly and if there is anything at all you don’t understand seek professional advice.
3.Do your homework on the people backing your P2P.
4.And remember the higher the return the higher the risk.
Neil Slonim is a business banking advisor and commentator and is the founder of theBankDoctor.org the world’s only not-for-profit online source of independent SME banking advice.
Peer-to-peer lending: We do your homework
Elizabeth Redman 29 July 2015 – Eureka Report
Summary: Several peer-to-peer lenders have opened in Australia, each with quite a different model. RateSetter and DirectMoney are open to retail investors, while SocietyOne, ThinCats and Marketlend are targeting sophisticated investors at this stage.
Key take out: For investors searching for yield, it’s worth investigating the different peer-to-peer lenders to see if any of them suit you. Returns of around 10 per cent are available – some are even higher, but come with added risk.
Key beneficiaries: General Investors. Category: Economics and investment strategy.
For investors searching for yield, peer-to-peer lenders are worth checking out. Returns in the ballpark of 10 per cent pa are on offer – some are even higher for those prepared to take on more risk. A string of operations have set up in Australia, eyeing the fat profits made by our big four banks and hoping to use technology to take a slice of the action.
Peer-to-peer online platforms match investors with borrowers seeking personal or business loans, then clip the ticket. The outfits keep overheads low to offer a better deal to both sides. And the operators are cherry-picking the best risks, particularly while they are new and trying to establish credibility with lenders.
Since we last covered the sector (Peer-to-peer lending: Is it for you?, December 17, 2014), prospective lenders have more choice. Some operations are open to retail investors, while some are only accessible to sophisticated investors, but the sector as a whole welcomes SMSFs.
Each one has quite a different model and different rules. For example, RateSetter has a minimum investment of only $10 – the logic is that investors can lend a small amount to see how the platform works and gain confidence that their money will be returned with interest on time. By contrast, DirectMoney has a $50,000 minimum investment, the idea being that large contributions are more efficient for the operator to process. Durations also differ – RateSetter allows a minimum term of one month for lenders (although borrowers face a minimum term of six months), SocietyOne offers a minimum term of 18 months for livestock loans, and DirectMoney has a minimum term of three years – even if lenders begin their investment with an open-ended timeframe, once they decide to withdraw funds, the exit time is three years.
Here’s a guide.
RateSetter originated in the UK, launched in Australia in November last year and is open to retail investors. In Australia, the lender has funded $6.64 million of loans across 410 loans, with an average loan size of $16,196 and an average term of 39 months.
The top reason given for taking out a loan so far is to buy a car, and the second most common reason is home improvement. The minimum investment is $10, allowing lenders to try out the platform before committing a more substantial sum.
For investors searching for yield, the rates on offer look appealing. Rates are matched by the marketplace: An investor can see the most recent matched rate for periods of one month, one year, three years and five years. They can then decide what rate to ask for: perhaps a slightly higher rate, if they are prepared to wait for a borrower who will accept it, or a slightly lower rate, if they wish to match their funds quickly. The most recent matched rates are displayed on RateSetter’s website – at the time of writing it was 9.4 per cent for five years, 7.8 per cent for three years, 5.1 per cent for one year and 4 per cent annualised for one month. Of course, these rates are before tax, and no franking credits apply.
As the returns are determined by borrowers and lenders agreeing with each other, the varying levels of returns don’t indicate whether a loan is higher or lower risk. At this stage, RateSetter is only matching a fraction of the demand for loans, in order to cherry-pick the best applicants. Borrower demand in the past 30 days alone has been $17.63m, almost triple the total amount of loans matched in the past nine months.
CEO Daniel Foggo expects that more SMSFs will lend on the platform over time. There are currently 1162 lenders on the platform, around 10 per cent of which are SMSFs. Only 5 per cent of lenders are aged over 65. “In the UK it’s more like 20 per cent over 65,” he says. “We are actually attracting a younger demographic but I think as the industry matures it will attract a more mature audience.” He says four or five lenders have $200,000 or more on the platform, some of which is through SMSFs.
RateSetter publishes statistics about its lenders and borrowers on its website. For example, the current average amount invested is $6379. The organisation also publishes its rate history, which shows that rates have fallen a little since launch. Foggo expects that as investors get more comfortable with RateSetter’s track record, rates will continue to come down slightly. He points to the experience in the UK, where there is a longer track record and rates are lower than in Australia.
Lenders are right to question how much capital risk they are taking. RateSetter has established a Provision Fund, funded by a fee paid by borrowers, which aims to compensate lenders if a borrower gets behind in their payments or defaults. “Personal loans are a very well understood risk category,” Foggo points out. RateSetter conservatively expects defaults of about 2.8 per cent of the $6.03m it has on loan and currently has $442,697 in its Provision Fund, which it says is more than two and a half times enough to cover its expected defaults. Foggo points out that all lenders in the UK and Australia have received their principal and interest back so far, and that the company over the longer term expects to provision between two and three times its expected defaults. In Australia so far, two loans are in arrears and the lenders received their payments on time thanks to the Provision Fund, while no loans are in default, Foggo says.
In a recession, if defaults tripled from their expected level, lenders should still expect to get their money back, he says. In a situation of stress where the Provision Fund didn’t cover all expected defaults, Foggo says the company would start managing its payouts to pay out the capital as a priority, ahead of the interest. But he is confident enough is set aside to handle an increase in defaults.
SocietyOne is only open to sophisticated investors at this stage, but is working on plans to open to retail investors too. The platform has funded approximately $40m in loans since opening in Australia in 2012, choosing from among the $190m in loan applications received. SocietyOne offers investors the opportunity to lend to unsecured personal loans and secured livestock loans, and CEO Matt Symons says the group is working on a number of other asset classes.
Investors are able to choose different credit grades, such as opting only for the best risks, or spreading their investment across a spectrum of risk levels. The rate of return depends on the level of risk chosen. The minimum investment for personal loans is three years and for livestock loans it’s 18 months, although investors can also choose different term structures.
Investors can also make specific decisions, such as only funding loans to homeowners, or to people in a certain geographical area, or to borrowers with an income to expense ratio above a certain level. Investors can also see on the SocietyOne platform the interests they have at any time. “We’re diversifying the investor across classes,” Symons says. “It’s helpful in terms of mitigating risk.”
Symons says that a lender who had invested in all loans written on SocietyOne’s platform since launch, across livestock and personal loans, would have generated an annualised return of approximately 10 per cent after fees and defaults. He emphasises that historical returns aren’t a predictor of future returns.
Equity shareholders backing SocietyOne include Kerry Stokes’ private company Australian Capital Equity, James Packer’s Consolidated Press Holdings, Rupert Murdoch-chaired News Corporation (publisher of Eureka Report) and Westpac’s Reinventure venture capital fund.
DirectMoney launched in October last year and so far has loaned out about $6.5m. It opened to retail investors in May, who have moved $625,000 onto the platform so far.
Founder David Doust explains that under the DirectMoney model, investors don’t bid on an approved loan, unlike other peer-to-peer lenders. Instead, DirectMoney funds loans as soon as they are approved, using its own capital, then holds some loan inventory in a warehouse that is available for retail lenders as demand comes in. “It’s a better experience for the borrower if we have funds settled – it means borrowers can receive funds straight away,” Doust explains.
When retail investors join DirectMoney, they can invest in one fund, rather than picking individual loans. In order to keep expenses down at this early stage, the fund is only open to new investments on the 15th of each month and at the end of each month, and Doust advises investors to put their money on the platform just before these days, rather than just after.
The loan fund mixes loans of different risk and return levels in what Doust calls a “compulsory diversification” approach. “We don’t believe consumers have the skills to be picking their own portfolio because they may be tempted to go for higher returns,” he says. “To get a stable annual return and a stable loss rate it’s better to have credit experts picking the stable of loans.” DirectMoney vets borrowers with procedures it says are stricter than the banks, insisting on borrowers having at least three years of employment, with no major defaults and an ability to repay the loan easily.
The minimum investment is currently $50,000 as the team gauges interest and aims to reduce costs. “If the market demands smaller amounts we’ll respond to that,” Doust says. Fees including GST are 3 per cent pa.
DirectMoney expects an annual return of approximately 7.5 per cent for the retail fund and defaults of about 4 per cent. Although there haven’t been any losses in the fund to date, the group has been putting aside around 4 per cent of the money on its platform to cover any future losses. Distributions from the retail fund were 7.48 per cent annualised for June and 7.41 per cent annualised for part of May. Doust expects “fairly stable” returns around this level, which he says is a good target return given the diversity of the loan exposures.
The minimum investment is three years. Investors can choose to put money on the platform and receive interest and principal back in 36 monthly payments, or to leave principal on the platform and receive interest only for a time. When investors decide to withdraw their principal, it takes three years for the sum to be repaid. Doust says this model helps avoid a situation of stress where everyone tries to withdraw their money at the same time.
ThinCats enables sophisticated investors to lend to small businesses, largely for growth finance. The Australian business is a joint venture with the more established UK operation. In Australia, CEO Sunil Aranha says ThinCats has written about 10 loans so far, all at rates between 11.5 per cent and 14 per cent in the hands of the lender. This is after ThinCats takes a fee from the borrower of 4.5 per cent, capitalised into the loan. The platform is also looking to introduce a lender fee, perhaps around 0.5 per cent of the loan principal.
Investors can bid in an auction for available loans in minimum fractions of $1000. So one investor might bid for $3000 of a loan at 13.5 per cent, while another might bid for $50,000 of the same loan at 13 per cent, for example. If a loan is oversubscribed, the bidder with the highest rate gets knocked out, so that the borrower will get the best deal.
Small businesses can apply for loans for periods of two, three or five years. In the UK, ThinCats operates a secondary market that allows investors to sell their loan to a third party and get their money back sooner. Aranha suggests this is possible in Australia in the future, but for now, investors are tied to the term they choose.
Aranha points out that small businesses looking for funding will often start with a home loan, then an overdraft. For businesses looking for another form of finance, ThinCats can step in with a loan above the overdraft rate. ThinCats takes the first charge over the business and always takes a director’s guarantee as a form of support.
Borrowers explain their business plan for repaying the loan, while ThinCats runs a credit check for the individual and business seeking funds, and verifies their identity. In some cases ThinCats will visit the facilities of the borrower. This information is then placed on the ThinCats website, where lenders can consider the risk and also ask questions before bidding on the loan.
Marketlend also provides loans to businesses, offering a working capital facility or line of credit to borrowers. After launching to sophisticated investors in December last year, Marketlend has $14m on platform and $2.5m in the pipeline.
CEO Leo Tyndall says the group does fairly significant due diligence before listing a loan on its website. The team talks to every borrower and requires financial information. Marketlend’s credit team review the borrower’s application and accountants analyse the borrower’s financials. The borrower is subject to credit rating checks and court registry searches. Marketlend then gives the borrower a risk rating, which sets the range of interest rates that apply to that loan.
The loan is listed on the Marketlend website for two weeks and investors can look at the financial information and make bids within the range at the interest rate they think is suitable. If loans are oversubscribed, they are covered at the lowest interest rates that lenders offered. Tyndall compares the process to a bookbuild on a smaller scale.
The minimum loan size is $5000 and there is no upper limit. Borrowers pay total fees of 3.65 per cent, although these are cheaper for larger loans above $1m. For example, for a borrower in the C-grade category of an 18-22 per cent interest rate, if a borrower pays 18 per cent interest, Marketlend takes a 3.65 per cent fee and returns 14.35 per cent to the investor. Tyndall contrasts this with a corporate credit card available from a big bank with an interest rate of 20 per cent or higher.
As of July, Marketlend has an average net yield of 14.61 per cent pa, and says investors can expect to receive yields between 10 and 15 per cent. Marketlend has had zero defaults after seven months and invests in every loan it offers to lenders. “If we won’t invest, we won’t put it on our platform,” Tyndall says.
Alan Kohler interviews ThinCats CEO Sunil Aranha
21 July 2015
If banks are disrupted, who will create money?
The Australian – Saturday, 11 July 2015
It’s hard to escape the sense that we’re at the start of some kind of mass industry extinction.
Coal power stations, internal combustion engines, retailers, mail, taxis, hotels, newspapers, television, travel agents, manufacturers … so many old industries are being disrupted and threatened, or are about to be, by the meteor of the internet, that feelings of exhilaration at witnessing historic events get mixed with apprehension and nostalgia.
Throughout history, businesses and industries have come and gone, and one at a time it’s no big deal. Obviously for those working and investing in them it’s an inconvenience or worse, but in the grand sweep of things disruption and extinction are just part of the tapestry of Darwinian capitalism.
Except when it comes to banks. Banks are also being disrupted by, among other digital adventures, peer-to-peer lenders, but banking is not just any industry.
Banks create money. They are, in fact, agents of central banks, and therefore of governments, responsible for the manufacture of money as required by a growing economy.
Every time a bank takes a deposit and makes a new loan, the money is not transferred from one to another, but created anew. The original deposit still exists in the name of the depositor but the borrower now possesses an additional deposit, which may be spent on an asset.
The money thus created is a function of the wonder of leverage. Banks are permitted, in fact required, to lend out money that they are simultaneously making available for withdrawal because of the constraints of capital and liquidity — that they must possess enough of each to meet the ordinary demands of depositors.
Greece is providing the latest in a long line of lessons in the shortcomings of this system: the demands of depositors are not always ordinary and sometimes can’t be met. If it happens to one bank, that’s nasty; if it happens to all of them, it brings down an entire nation.
It was with all these thoughts rattling around my head that I spent some time this week talking to the CEO of a new Australian peer-to-peer lender, Sunil Aranha of ThinCats Australia (the opposite of fat cats — get it?)
Aranha is a veteran banker, with 25 years at Citigroup and Commonwealth Bank, among others. In February this year he started his own business as a local licensee of the five-year-old British operation of the same name.
The UK ThinCats, as licensee, owns 25 per cent of ThinCats Australia and Aranha, staff and friends own the rest. They are not paying themselves a salary yet, and in general the business is running on a shoe string.
ThinCats Australia is a secured business lender of amounts ranging from $50,000 to $2 million and has so far lent $1m. It operates a kind of auction platform on which loans are requested by businesses and lenders bid to provide them — either in part or whole.
It can either operate as a bookbuild system, where the lowest interest rate bid get the business, or the lender can specify the interest rate required and the system matches that to a borrower.
ThinCats does not take a spread between lender and borrower, as a bank does, but charges a set of fees to the borrower — 2 per cent on application, 2 per cent on drawdown, 0.5 per cent or $1000, whichever is the greater, for listing the bid, and a 0.5 per cent per annum monthly admin fee, plus stamp duty and legal fees.
Out of that may be paid a 60 basis point upfront commission to brokers plus a 15 basis point trailing commission.
But here’s the thing: the interest rate charged by the lender is what the borrower pays. It is a direct deal between them, and in the UK, over five years the rate has averaged 10.8 per cent.
By removing the cost of servicing bank capital and bank bureaucracy, both sides get quite a good deal.
The security, by the way, is a fixed and floating charge over the business — not a mortgage on the business owner’s house, which is what banks always require by way of security these days.
In the UK the default rate averages 98 basis points over five years, which is less than the banking system, but with banks, of course, the deposits are guaranteed. Lenders lose only if the bank goes broke — the bank, not the depositors, absorbs loan losses.
I’ve gone into some detail on all this because there is no doubt that it represents part of the future of what we know as banking. There are many other models of peer-to-peer lending, most of which, at this stage compete in the credit card and small personal loan end of the business. ThinCats is the only specialist business lender in the field
We seem to be at the beginning of a long and probably unstoppable process that will surely, eventually, include the home mortgage.
The notion of collaboration — peer-to-peer everything — is becoming increasingly a part of life, thanks to Facebook, plus Uber, AirBnB and a host of other “sharing economy” applications. The price and the service is almost always better, often much better.
Does anyone think that in 10 years’ time, sharing things via apps won’t be as routine a part of life as Facebook, which has gone from nothing to domination in just nine years?
But if it happens to banking, who’s going to create the money?
Peer-to-peer lenders like ThinCats, SocietyOne, The Lending Club and RateSetters are simply recyclers of existing money: for every borrower there has to be an equal and opposite lender.
If the world consisted only of them, money supply would not ebb and flow as it does now in response to credit demand and regulation, it would remain fixed, a sort of economic constant.
Of course it’s unlikely ever to come to that: some lenders will always be prepared to take a lower interest rate in return for the security of a bank and/or government guarantee. For that reason banks will always exist.
But the asset side of their ledgers might become very competitive, since the identity of the supplier of a loan doesn’t matter so much — only the price. Not much point having a grip on part of the deposit market if you can’t get the money away at a profit.
In a world of peer-to-peer lenders simply recycling money, the act of creation would have to be fully taken over by the central bank, and in the US, Japan and Europe these past few years they have been having a solid practice run.
“Quantitative easing”, or QE, is the modern name for central bank money creation, and it’s happening because the banks can’t or won’t do enough of it — either there isn’t the demand for credit, or the banks are reluctant to lend.
The central bank instead buys securities from them, which continue to exist, using cash created from thin air. The banks haven’t been able to lend it to businesses or individuals for reasons mentioned above, and so they lend it to other intermediaries that buy assets, driving up the prices of those assets and resulting in a huge bull market in shares.
But that’s another story. In a world of peer-to-peer money recycling, QE presumably becomes the permanent norm and the banking arms of government — the central banks — the only creators of money.
The Greeks probably think there’s nothing wrong with that at all — that that’s the way it ought to be.
Banks? They only disappoint.
In Australia, alternative lending thrives
PYMENTS.com – Friday, 10 July 2015
In the alternative lending space, technology has streamlined the process through which small and medium businesses gain access to funding. In Australia, one company that is helping change the lending landscape is ThinCats — the name is a playful twist on the popular perception that big lenders and big corporate clients are “fat cats” enjoying easy access to money.
PYMNTS spoke at length with the company’s CEO, Sunil Aranha — who noted that the ThinCats name also serves to illustrate his firm’s “lean structure, cost base and processes, along with competitiveness” — to get a sense of the alternative lending market down under and what SMEs need in order to thrive. Australia’s SMEs make up 60 percent of the nation’s workforce across 2 million enterprises, according to the Australian Chamber of Commerce and Industry.
The growth in P2P (peer-to-peer) and P2B (peer-to-business) markets can be tied to what Aranha termed the “market gap” that has been created by the larger Australian banks. “In the small to medium-sized marketplace,” the executive said, “about 91 percent of the A$73 billion in lending to the 2.1 million small businesses in Australia is controlled by the ‘Big 4’ Australian banks,” which include Westpac, National Australia Bank, Commonwealth Bank and Australia and New Zealand Banking Group. And interactions between those smaller enterprises and the big banks can be somewhat formulaic. Aranha said the loans typically require collateralization and have an LTV cap tied to real estate.
“It’s estimated that small businesses require an additional A$22 billion over and above what they get from the banks in order to finance their growth,” Aranha continued, “but they do not have the real estate security to offer.” That leads to a funding gap, one that can be bridged in Australia by alternative financing.
In a world where lending platforms and online brokers can offer any number of options for lending criteria, from the value of real estate to inventory held to the pensions owned by executives, ThinCats seeks a differentiated approach through a number of factors — chiefly as a platform bringing lenders and borrowers together. Deals are made on a “bespoke” basis rather than employing the algorithm-driven models of larger lenders — and on a platform system such as the one employed by ThinCats, investors can in fact come in on a fractional basis.
The lenders are typically high net worth individuals or funds, with loans offered through those lenders ranging from as little as A$50,000 to as much as A$2 million. Aranha said other alternative lenders in Australia typically offer up to A$100,000 and rather than operating solely as a fee-based platform, do in fact operate their own balance sheets (with some financial risks implied) or in tandem with warehouse financing. Loan terms are usually stretched out a bit as well, comparatively speaking, as ThinCats terms are set at between two to five years, while peers will often set terms of only several months.
A few country-specific factors have set the stage for growth among alternative lending platforms in Australia, according to Aranha. For starters, there is national regulation of the industry, via the Australian Security and Investment Commission. All lending platforms must operate with a license in place from the Australian Securities and Investments Commission. And, noted the executive, the Australian market has an “orderly process for debt collection and security realization.” That, in tandem with collateral guarantees, have helped establish low default rates, where accounts past due more than 90 days are “very low and stable,” with a range of about 1.6 percent to 2.2 percent over the past decade.
Looking ahead, Aranha pointed to alternative lending embracing another form of alternative payments. Virtual currency is a “definite possibility in the future,” according to Aranha.
ThinCats reveals new commission structure
mortgagebusiness – Wednesday, 01 July 2015
ThinCats Australia has unveiled a new commission structure for brokers just days after revealing it is considering listing on the ASX as a growth strategy.
The peer-to-peer lender already paid brokers a commission of 25 basis points for a lead on settlement of a loan (without a fully completed application) and a trail commission of 15 basis points.
However, ThinCats will now pay a commission of 60 basis points for a lead with a fully completed application, with a trail commission of 15 basis points.
The group has also announced no clawback, and borrowers are allowed to repay the full amount of the loan at any time without penalty.
“We are keen to develop our relationships with brokers and believe our commission structure will attract more of them to our platform,” ThinCats Australia CEO Sunil Aranha said.
The peer-to-peer lender, which launched in Australia in December 2014, recently revealed that an IPO was one of several growth strategies it was considering.
ThinCats said it was in discussion with credit unions, private equity funds and accounting firms that wish to enter the growing sector through a strategic alliance with the company.
“We are in deep discussions with a number of parties about our platform, which specifically targets the more than two million SME businesses whose incremental financial needs are often ignored by the big lenders,” Mr Aranha said.
P2P lender ThinCats Australia on prowl for strategic investors, potential IPO
P2P lender ThinCats Australia on prowl for strategic investors, potential IPO
AUSTRALIAN FINANCIAL REVIEW
STREET TALK Jun 22 2015 at 12:15 AM
• by Sarah Thompson Anthony Macdonald Jake Mitchell
ThinCats Australia is looking to capitalise on investor interest in peer-to-peer lending, as it gears up for a potential initial public offering and holds talks with strategic investors.
It’s understood ThinCats Australia, backed by UK-parent ThinCats, is in discussions with private equity firms, credit unions and accounting firms about a strategic investment.
The company, which launched in Australia last year, is also considering a run at the ASX boards.
ThinCats focuses on lending to small and medium-sized businesses, who can have trouble getting loans off more traditional lenders.
Financial institutions, media companies and some well-known investors have shown strong interest in the growing P2P sector. Rupert Murdoch’s News Corporation, investment firms controlled by James Packer and Kerry Stokes, and Westpac Banking Corp piled into P2P lender SocietyOne last year.
It will be interesting to see if ThinCats can attract the same sort of big-name investors. The company is 25 per cent owned by ThinCats UK, which has completed £115 million ($235 million) of P2P loans and unveiled a £50 million underwriting agreement with European hedge fund ESO Capital Group in February.
ThinCats Australia has a base of 203 lenders and has delivered loans to businesses at interest rates between 11.5 per cent to 14 per cent per annum. Morgan Stanley tips Australian P2P loans to hit $22 billion by 2020, while the global market would be worth $US490 billion ($630 billion).
P2P lending, The Economist
Digital disruptors already impacting Australian lending
Tech innovators are making serious inroads into the Australian commercial lending and residential property markets.
Original article: Mortgage Business
Following its entry into the Australian credit space in December, peer-to-peer lending platform ThinCats Australia has partnered with over 150 lenders, 80 finance brokers and has generated a strong pipeline of SME loans.
The online lending platform connects wholesale investors with small and medium sized business borrowers across Australia, capturing a customer segment not optimally serviced by bank and non-bank financial institutions. Lenders benefit through higher returns and diversification, and borrowers reduce their borrowing costs.
ThinCats Australia has delivered its first loans at interest rates ranging from 11.5 per cent to 14 per cent to diverse businesses including a stone importer for the building industry, commercial solar energy systems supplier and an industrial and commercial auctioneer.
The ThinCats Australia platform is a joint venture with ThinCats UK, which has completed more than $190 million worth of secured business loans over the last four years and is one of the two leading peer-to-peer business lenders in Great Britain.
“We are delighted with the response from lenders, borrowers and brokers to our unique platform, targeting specifically the millions of small to medium businesses whose financial needs are often ignored by the big lenders,” ThinCats Australia CEO Sunil Aranha said.
“We have already found a good niche with the SMEs, which borrow about $73 billion a year to finance their operations, and expect to build our portfolio of loans quickly as sophisticated and wholesale investors discover the potency of our platform,” Mr Aranha said.
“We are also generating a lot of interest from finance brokers, who we will be rewarded as they bring loans to the platform,” he said.
Mr Aranha has more than 25 years international and local SME banking experience with Citibank, CBA and the Export Finance Investment Corporation in Australia.
He noted that the global market for peer-to-peer lending is currently worth over $6 billion and doubling in value every year, as the concept gains broader understanding and acceptance.
The news comes just weeks after a major North American online lender announced its entry into the Australian lending space.
NYSE-listed OnDeck is a platform for small business loans and its entrance into the Australian lending market is its first venture outside North America.
The lender has partnered with MYOB and a group of prominent Australian technology investors. MYOB will provide valuable local expertise and make the OnDeck solution available to its approximately one million business users across Australia.
The technology-enabled small business lender evaluates, approves and funds small business loans the same day.
Headquartered in New York City, the company has originated more than US$2 billion in loans to small businesses in more than 700 industries across all 50 US states and Canada.
“Australia represents an exciting growth opportunity,” OnDeck CEO Noah Breslow said.
“Similar to the US market, in Australia we see a huge gap between small business financing needs and the availability of capital from traditional sources,” Mr Breslow said.
“There is significant unmet small business lending demand in Australia, and we believe our online platform is well suited to address the capital needs of Australian small businesses,” he said.
The lender’s proprietary small business credit scoring system, the OnDeck Score®, utilises more than 100 external data sources and 2,000 data points per loan application and leverages a database of more than 10 million small businesses.
For original article please click here.
Latest News from ThinCats UK
I am pleased to report that ThinCats has now passed the £100m of loans made mark and the accelerating pace and size of loans means that we are on-track to make another £100m within the next 12 months – less than a quarter of the 51 months it took us to make the first £100m.
I have pleasure in confirming we are now able to offer a simple ThinCats-only SIPP, through our partnership with SIPPclub. This is exclusive to ThinCats and strengthens our leading position in this market. We believe that there are more personal pensions being invested on ThinCats than all other peer to peer platforms combined and several of the 70 or so personal pensions have now been investing successfully on ThinCats for more than 4 years. The main constraint on the number of SIPPs being used for peer to peer lending has been the cost of operating a SIPP that made pensions of less than about £100,000 uneconomic. ThinCats has now solved that problem with its unique low-cost SIPP.
It allows you to make your own lending decisions and will cost just £350 plus VAT per year plus a one-off charge of £75 if you transfer an existing pension. Importantly, there will not be a minimum investment amount and you WILL be able to make your own lending decisions. To qualify you will need to certify that you are an experienced investor and you will be expected to make your own investment decisions without any advice. Investments through the SIPP will be limited to ThinCats loans although for an extra cost you will be allowed to extend the types of investments you make.
If you would like details of this SIPP, please visit our page on SIPPclub. When you complete the form on the page, you will be sent details of the ThinCats-only SIPP. Here’s the link you need - https://www.sippclub.com/thincats/
CEO & Founder of ThinCats UK
New group to pay up to 75bps for SME leads
A new online lending platform has revealed plans to pay mortgage brokers up to 75 basis points for helping the group target growing SMEs that can no longer receive funding from the majors.
ThinCats Australia targets high net worth individuals looking for fixed-interest exposure as lenders, while large broker groups will increasingly play an integral role as introducers, or ‘sponsors’, by providing SME with leads on the borrowing side.
ThinCats Australia chief executive Sunil Aranha told Mortgage Business that ThinCats has a separate company, SANA Finance, which contracts mortgage brokers and shares remuneration for deals introduced to the platform.
“If an introducer were to be a home loan broker that has access to small business clients and wants to help those clients, they would probably not be part of the credit process, but could call and give SANA a lead and be paid 25 basis points for that lead if the deal goes through at the time of dispersement,” Mr Aranha said.
“If, however, we have a deeper relationship with some of the larger financial planning and mortgage broking houses, those would be documented under a framework with a corporate services agreement,” he said.
“The amount we pay them would be up to 75 basis points depending on the level of work done.”
Mr Aranha has worked in SME banking for over 25 years with the likes of CBA and Citibank and believes the big four are missing out on billions by not lending to growing Australian businesses.
He told Mortgage Business that SMEs in Australia are limited in the amount of finance they can access from the banking system based on the real estate security they can offer, unrelated to the actual loan.“That is where the real issue is,” he said. “It is not about the growth that an SME can have, it’s about how much security they have to offer. “That is really like mortgage lending for business.”
Mr Aranha estimates the gap between what the majors are lending and what they could potentially lend to SMEs is approximately $10 billion.
“There are 2.1 million SMEs borrowing $73 billion dollars, 91 per cent of which is done by the big four banks,” he explains. “So effectively if the big four say no, then the SME doesn’t have access to funds.”
Mr Aranha said he has noticed a worrying trend of SMEs unwilling to source growth funding after being turned down by the majors. “Some SMEs that I have come across are actually reluctant to borrow if the bank turns them down because they lose a bit of confidence,” he said.
According to the ThinCats CEO, while default rates are extremely low among SMEs and lending margins are strong, the major lenders still fail to find shareholder value in ramping up their funding to small businesses.
“They are making good margins, but the level of work that goes in to analysing a small business loan is the same as looking at a large corporate,” Mr Aranha said.
“So even if your margins are the same in an absolute sense, the smaller margins at the top end make you a lot more money,” he said.
“That is where they have always had that difficulty. But in terms of losses, the Australian banks have always had a good history with SMEs. Default rates are between 1.6 to 2.4 per cent over the last 15 years.”
ThinCats targets both start-ups and SMEs looking to grow, but does not target distressed assets, Mr Aranha said.
“A target would be a company that has reached as much as it can get with the banks based on the real estate security it could offer, and they need a top up,” he said.
“So a company borrowing a million dollars looking for $200,000 more that doesn’t have the traditional bank security in place.”. The second kind would be start-ups, where directors are well connected and have strong net asset positions, but can’t borrow from the banks because they are a start-up, Mr Aranha said.
“It usually takes one or two years of trading history before a bank will provide a facility to you,” he added.
Tuesday, 10 March 2015 | James Mitchell
ThinCats in Australian Broker Magazine
ThinCats UK news regarding underwriting
Brokers flock to new lender
ThinCats enters the SME lending market
P2P lending is set to be a high-growth area over the next few years and the highly successful UK business ThinCats is busily blazing a trail through the Australian P2B – people to business – arena. The ThinCats platform – a first for SMEs in Australia – links wholesale investors to SME borrowers requiring a secured loan of between $50,000 and $2 million.
CANSTAR caught up with ThinCats Australia CEO and Director, Sunil Aranha, to find out a little more about the recent Australian launch.
Q: ThinCats is a very successful UK business brand. What makes this the right time to enter the Australian market?
A: The Big Four Australian Banks have a 91% market share in the SME lending space – a market of some $150 billion – with about $70 billion of lending each year. Banks are generally unwilling to increase lending even to growing businesses if the borrower does not have adequate real estate security to offer as collateral, and in most cases, start-up companies cannot access any debt finance without a track record of at least two years of operation. In this scenario, SME’s unable to access finance to match growth opportunities are limited, and in most instances either do not grow or eventually find themselves in a dire position seeking distress finance.
These are two significant areas of opportunity for the ThinCats lending platform – to assist borrowers to access growth and start up finance at competitive rates and investors to diversify risk across a number of borrowers, while earning attractive returns on a fixed income asset class, previously the domain of banks. We must clarify that the ThinCats platform is focussed on companies seeking growth finance only.
Q: What are the common business financing needs of SMEs?
A: Fundamentally, businesses both small and large need capital for infrastructure, equipment and innovation/R&D (long term capital) and working capital to pay for operational fixed and variable costs, which increase when businesses seek to capture a window of market opportunity.
A good management team that has the empathy and understanding of their financial partners, (banks, non-bank lenders and investors) are able to access finance at the right time to grow. These needs have remained the same over time and in most cases SME’s have had to resort to finance from family and friends by way of both equity and high priced debt in order to capture business opportunity and grow. However in many cases the business simply does not grow if the bank says no.
Each business, depending on the industry, may require a different mix of long-term and working capital finance and will have a differing risk profile with variances in earnings and margins and economic/market conditions, however the fundamental needs are the same. In Australia there is a well-recognised gap between the finance needs of SME’s and what financing they can access from the banks.
Q: On the other side of the coin, lenders seem increasingly willing to invest through P2P and P2B platforms - what is the attraction?
A: The unique proposition of P2B lending, such as with the ThinCats platform, is that lenders (currently sophisticated high net worth investors and their self-managed super funds) can access a fixed income asset class with attractive rates of return (currently upwards of 11% pa), while lending on a secured basis to a large number of SME’s.
All loan applications are vetted and listed for auction on the platform by“Sponsors” (unique to the ThinCats model). Lenders can decide on individual deals they wish to lend to and can bid multiples of a minimum bid of $1,000 per loan. In the current market with low interest rates on fixed income assets, P2B lending can be attractive to lenders wishing to diversify and balance their portfolios – achieving rates of returns that are comparable with investments of a similar risk profile.
Q: Finally, P2P lending would seem to be a prime example of digital disruption. What makes personal and business lending a good target for disruption?
A: P2P Platforms use advanced software, risk and communications technologies to reduce borrowing costs and deliver attractive returns to lenders, effectively cutting out the (banks) middleman.
In the US, Lending Club the most successful P2P player, recently valued at $US7.6 billion following their IPO late last year, have proven a capability to disrupt the traditional banking models in the unsecured lending space; reducing borrowing costs to low risk borrowers on unsecured personal loans by more than 300 basis points (with lower infrastructure costs than a bank), while delivering rates of returns to lenders exceeding 10%.
Default rates are also significantly lower than the banks as new technology and access to big data have enabled more sophisticated credit algorithms to decision loans and deliver low default rates, about 200 basis points lower than the major banks operating in the US credit card space.
In P2B lending the ThinCats model differs from P2P lenders, being primarily a relationship based model, evaluating each loan and borrower separately on a loan-by-loan basis (whilst P2P lenders group loans into designated high risk to low risk categories) and offering loans upwards of $50,000 and average of $250,000 while the sweet spot for P2P lenders is far lower. However the default rates for ThinCats UK, which has been in operation since 2011, are comparable to both the banks in Australia and the international p2p players at about 2% (as at December 2014).
Posted by Justine Davies on 05/02/2015
Will P2P lending threaten mortgages?
AltFi Down Under – ThinCats Australia Profile
P2P lending model article by Nick Bendel
ThinCats Australia on Sky News Business
Christmas closure days
Over the Christmas period our ThinCats offices will be closed until the 12th of January 2015.
Although the platform will still be operational over this period, please be advised that staff may not always be available and there will be a slowdown in the services we provide during this time.
From all of us here at ThinCats we would like to wish everyone a very merry Christmas and a Happy New Year!
The ThinCats Team
Our first loan on ThinCats Australia has funded
Our first loan on the ThinCats Australia Marketplace has been funded.
The Borrower was seeking a 5-year term loan of $100,000 for business expansion.
You can view the completed loan on the Marketplace after you are approved as a member of ThinCats Australia.
If you are not yet registered, please click here to register and complete the application process. If you have registered but not submitted your documentation for final KYC and AML/CTF verification, please do so now.
If you have any questions, please email firstname.lastname@example.org and we shall respond promptly
Thank you for your interest and looking forward to welcoming you as a member.
The ThinCats Australia Team