P2P-Banking.com has released its lending volumes for May 2017, and has measured a major increase in the volumes of almost all P2P market places compared to last year’s May. This has come to an approximate $500 million dollars in added volume. Globally, Morgan Stanley forecasts lending volumes of up to US$290 billion dollars by 2020.
We’ve seen a major increase in Chinese P2P lenders, with 2612 lenders coming out of China and turning over approximately $US$18 billion dollars in loans a month. Though, harsh central bank regulations are seeing a threat to this volume as they continue to increase regulations on P2P lending.
Achieving global recognition
Over the last half a decade, we’ve seen P2P lending go from a niche to a reasonable method of investing. This sort of recognition is what P2P lending needs to reach the next level and become wide-spread amongst retail investors as well.
A few years ago, P2P lending was considered to be a fad that would be extinguished very quickly due to its high risks for investors. Though we’ve seen some issues with Lending Club in the U.S., specifically related to some shady loans covered by Bloomberg in 2016.
P2P lending critics are quick to bring up Lending Club’s faults and extrapolate them to reflect the entirety of the P2P lending markets. But, we have to remember that there are a few bad eggs in any market. Conventional banking has led to some of the worst financial crises in history or do we just pretend to ignore sub-prime loans?
It’s important to be aware of the flaws in a financial institution but shady deals and risky ventures done in a few companies do not reflect the entirety of that financial market. P2P lending has the opportunity to excel and grow to huge levels as it garners more and more recognition in the financial sector.
We’re excited to be a part of this growth and we hope you have a look at MarketLend as a means of lending.
A look at how the 2008 financial crisis changed the way policy-makers use monetary and fiscal policies.
It’s a bold statement to say that Governments always learn from their mistakes. But, for the most part, they at least attempt to learn from their mistakes and the outcome is generally positive. However, what if a Government got off scot-free and they didn’t really have to learn anything? This is the case for Australia, but it is not that simple.
Pre-crisis monetary policy was heavily based on one target, inflation, and one policy instrument, the policy rate. It was a heavily one-dimensional and naïve approach to the nuanced and dynamic 21st century economies that exist today. The assumption being that the policy rate could be manipulated to ensure a stable inflation rate. The stable inflation rate would then lead to a stable output gap. However, after the crisis occurred in 2008, policy-makers realized that this was not enough. Firstly, they realized the relationship between the policy-rate and the output gap was not as strong as they initially expected. Secondly, a stable inflation rate and output rate does not necessarily ensure that the financial sector is stable.
This has resulted in a global rejuvenated focus on macro-prudential policies in order to stabilize the financial sector. This regulation can take many forms, there is no instrument to stabilize the financial sector. In Australia, we have already seen this with the enforcement of higher capital to credit ratios in the larger banks.
However, is this enough to control the credit market?
Credit is an aspect of the economy that is often over-looked. It was an excess of credit that created a bubble that eventually burst and caused the 2008 financial crisis. Basic macro-prudential policies can prevent this, but is it enough? Is it possible to efficiently enforce regulation on “too big to fail” banks? This was another lesson learned in the crisis; private banks act in self-interest and cannot be trusted to act responsibly with regards to the national and global economy. Post GFC, we have seen the banks focus on residential mortgage lending with little to none in the small to medium enterprise (SME) lending. A large question mark looming over many heads is whether Governments who were not heavily affected by the GFC will learn from these mistakes.
What does this mean for you, the investor?
I think a basic investing principle to decrease risk is the concept of diversification. It is never a wise concept to invest in shares, or property or both and say I am diversified and protected from any downturn.
Fixed income, either securities, loans e.g. peer to peer lending or corporate debt, is another way to diversify. For many, investing in fixed income is complex and at times hard to understand, but it doesn’t need to be. The simple concept of lending to a SME or a person by participating in peer to peer lending platform, Marketlend, and Ratesetter to name a few that are available to all investors and that are accompanied with loss protection, will give you that diversity. With the added benefit, at least you know where you are invested.
Under the current government, we are heavily reliant on the Chinese economy, we haven’t really diversified and the economic complexity of our exports are low. We also lack the lessons learned in the GFC, and our policy-makers are scared to enforce a set of fiscal policies that include macro-prudency. This raises some questions. Is our economy stable enough to withstand a recession? A steadily inflating credit market in both China and Australia is beginning to loom over us; are we up to scratch? Is your investment portfolio exposed to China, and if so, how much? Comically, there is a suggestion in the press that we should begin exporting baby milk and this will in some way compensate for the reduction of mining exports. Ask yourself, is this a real solution and is it long lasting? Can’t the Chinese make their own high quality milk formula in the future? It is not like Iron, it doesn’t come from the ground.
Ironically, one of the largest peer to peer lending markets is China, maybe we should import more of their ideas and technology than export our natural resources.
Why it is important to stop anti-competitive behaviour in its tracks?
Humans are strange; we are so very opposed to change before it happens and shortly after it happens, but after some time has passed, we quickly adapt. We forget why we are angry, and accept it. This is dangerous behaviour.
Banks, like any institution, hold a lot of clout, politically and financially. An oligarch or four banks governs Australia’s finance, and Australians have grown to accept their behaviour. The banks tell us their questionable behaviour is for “the minimization of risk, and the stability of the sector”, and we accept that. Similarly, many merchants have been abusing their ability to charge credit card surcharges, gouging consumers who choose to use credit.
Over the last few months, the Government began to crack down on this behaviour. So have the people. We realize the ridiculousness of these status quos. Most recently, Westpac has placed an increase of 20 basis points onto their consumer mortgage accounts. This was implemented after the RBA made several interest rate cuts in the last year; the most recent being an interest rate cut in May by 25 basis points, down to 2%. In the same vein, Government regulators have ordered major banks to increase their capital relative to loans; a method to insure that the banks do not collapse as a result of a housing bust.
Instead of lowering their profits, they have passed the costs of this regulation onto the consumer. I think I speak for most Australians when I say I find this ridiculous.
In contrast to many other OECD countries, Australia is governed by these banking oligarchs. They gobbled up our smaller banks after the GFC and we were left with a sector that lacks any sort of competition. The disparity between term deposit interest payments and mortgage interest payments is shocking and unfair. Lack of competition and complete market dominance almost always leads to inefficient solutions. These are solutions where consumers feel helpless, but have to rely on them. I think this is changing, at least I’d like to hope so.
On a positive note, it doesn’t have to be the businesses that change. In this circumstance, I think the technology is changing. Peer to Peer lending or marketplace lending as it is also known globally is allowing us to access a whole range of financial instruments that weren’t available before, and prices that were not available before.
We’re able to acquire trade credit, debtor financing, personal loans, car loans and business loans on reasonable terms. We’re able to choose from a range of different offers from competing platforms, and choose the most competitive option.
P2P lending is disruptive, and it’s here to stay.
The Greek Economic Crisis:
Greece has experienced a tremendous amount of attention, after the strenuous and frustrating months of negotiation between creditors and the Greek Government have come to a crescendo.
Creditors had given Greece another opportunity for a bailout, under the provision that strict austerity must be practiced. Alternatively, Greece could vote ‘no’ to these provisions, and default on these loans.
The Greek Government put its decision to a referendum. One side, led by the opposition leader, was ‘Yes’, we will adopt austerity and accept the bail-out, and on the other, campaigned heavily by the Greek Prime Minister, was ‘no’, which risks default and exit from the euro-zone.
From the moment that the votes were rallied, and a resounding majority voted ‘no’, Greece had stepped into uncharted, yet dangerous waters. It has an opportunity to create history, and hold its own destiny in its hands, a dangerous, yet empowering situation.
Businesses and institutions are struggling to manage, as imports become increasingly harder to obtain, the entire country is strapped for cash, and more importantly the political effects of default will soon resonate throughout the euro-zone, potentially leading to Greek exit. This has led to shockwaves in the world economy, as the Australian dollar fell to a six-year low, and almost all major economies were negatively affected.
Investors have a big question mark over their heads. What does this mean for them? The Greek Economic crisis highlights the importance of independence and information in investing. Investors should know where their money is going, and it is very easy to lose sight of this idea when you are investing.
Peer to peer lending platforms, like MarketLend, and other P2P lending hubs show the importance of this idea. Banks, Governments and Politicians are not always secure, typically not transparent and it is the unknown that seems to surprise us.
Statements we are hearing from super fund participants are “I didn’t know my fund was at risk, or took risks in countries where I would not invest”. To a lot of those funds, the answer is simply it is all interconnected. But how do you know?”
Investing and transparency should go hand in hand, so that you can invest knowing the risks. It’s in situations like these, it comes to be known that directly investing is favourable because you can know your risk. Peer to peer lending offers such investments.
The obvious need for working capital business loans in Australia is evidenced by recent demand from the newly launched only Australian business peer to peer lender, Marketlend.
Within a month, Marketlend has 7.1 Million loans listed on the marketplace from borrowers with strong credit and significant asset positions, and another 1.2Million in the pipeline. It is obvious that the need for working capital business loans is not filled by the major banks, or corporate credit providers.
The borrowers are strong corporates who seek to improve their bargaining power with suppliers or consolidate debts that are charged at rates in excess of 20%. Without the security of property collateral, competing products to Marketlend are corporate cards or expensive factoring solutions that are limited by high interest rates or limit to the lending amount.
Investors – Self Managed Super funds and others
With a burgeoning Australian self managed superannuation market looking for yield, it is a no brainer for these investors. Marketlend provide a stringent credit and rating process, and offer investors net returns between 10-14% dependent on the risk. A personal property security interest is created over the supplies and the business, complimented by director’s guarantees. This is fully transparent and accessible to the investor.
For the borrower the ease of an application process that takes less than 10 minutes to complete, with approval and listing within 1 hour, there are few competitors in this space.
“These are borrowers have bank facilities, and strong credit performance but seek for an alternative for their working capital that offers transparency, speed, reduced finance and administration costs. We return to the borrower the ability to bargain with its suppliers by paying them overnight, and to the investor, a strong yield that is stable and easy to collect” Leo Tyndall, Founder of Marketlend.
Financial System Review - click for the full report
Government should continue its current process to graduate the fundraising regime to facilitate securities-based crowdfunding. This would enable entities to make public offers of securities to a potentially large number of people (the ‘crowd’). The risks associated with crowdfunding investments would require some adjustments to consumer protections, including capping individuals’ investments and clearly communicating the risks.
Government should then use the policy settings for securities as a basis to assess wider fundraising and lending regulation to ensure it facilitates other forms of crowdfunding, including peer-to-peer lending.
A range of crowdfunding models are emerging globally. Crowdfunding facilitates the funding of projects or businesses, where small amounts of money are raised from the ‘crowd’ via an online facilitator (or platform).68 Financial crowdfunding models include:
- Securities-based crowdfunding, where the ‘crowd’ invests in an issuer in exchange for securities — either equity (crowd-sourced equity funding, CSEF) or debt.69
- Peer-to-peer lending, where an online intermediary facilitates lending between individuals, often in the form of unsecured personal loans, potentially to fund a business.70
- Graduate fundraising regulation to facilitate innovations in fundraising emerging from new technologies and ensure policy settings are consistent across funding methods.
- Provide firms, particularly small and medium-sized enterprises (SMEs), with additional funding options.
Article by Neil Slonim – Financial Reform Report released on 7 December 2014
If adopted, the financial reform recommendations made by the team headed up by businessman David Murray could usher in some of the biggest changes to Australia’s banking system in recent history.
The recommendations are broad, but the key ones impacting small business are those calling for super funds to drop their prices and the government to relax rules around governing crowdfunded equity.
The big banks will be required to hold much more common equity capital against their mortgage business if the inquiry’s recommendations are adopted, while financial planners would need to hold a relevant tertiary degree and be able to prove their competence in managing superannuation.
The inquiry has recommended a ban on self-managed super funds borrowing to buy assets and says the corporate regulator, the Australian Securities and Investments Commission, should be granted more power to crack down on white collar crime.
Numerous professional bodies expressed their support for the recommendations yesterday, including CPA Australia, whose chief executive Alex Malley said in a statement that the report “addresses some of the fundamental issues facing Australia’s financial system and signposts some of the critical work that needs to be done”.
“Recommendations for allowing the development of crowdfunding options for businesses to access, the establishment of a new ‘innovation collaboration’ and an emphasis on removing unnecessary regulatory impediments to innovation all have the potential to help business prosper,” said Malley.
However, SME banking expert Neil Slonim says that the 2.1 million small Australian businesses have missed out.
Slonim, who heads up advisory firm ‘The Banking Doctor’ told SmartCompany the report’s lack of specific recommendations relating to the SME banking sector is “disappointing”.
“There was really nothing specific in the 44 recommendations that related to SMEs and startups, other than a generic statement that the inquiry wants to encourage the development of crowdfunding and peer-to-peer lending, which would potentially give SMEs more funding options than they currently have,” says Slonim.
“But other than that, there is really very little if anything else in the inquiry that would give SMEs hope they would get better access to funding.”
Slonim says the two key banking issues facing SMEs are a lack of access to finance and the need for greater competition between the big four banks.
“The inquiry makes some recommendations that would level the playing field between the big four banks and smaller providers of mortgage finance, which will help the consumer sector, there is nothing similar for SMEs,” he says.
“There is a lack of genuine competition between the big four banks, which control more than 80% of the marketplace, in an environment in which it is very difficult for smaller players to compete for SME business.”
And while the Murray report recommends that the government extend protections from unfair contracts for SME loans, Slonim says that “assumes” small businesses are able to sign a contract with a lender in the first place.
Slonim believes it is likely the government will adopt most of the recommendations contained in the Murray report, but says there will be another period of consultation with Treasury before the government officially responds at the end of March 2015.
“Joe Hockey will now be lobbied by all and sundry, particularly the banks” he says.
In a first for the peer to peer industry, Marketlend from inception is operating a securitisation trust structure to offer investors the most secure and protected funding opportunity available.
Master Trust Deed, Security Trust Deed, Sale and Origination Deed, and Back Up Servicer Deed were executed on 24 December 2014.
AET, a wholly owned subsidiary of IOOF, who manages approx. 123 Billion of wealth funds in Australia was appointed the Trustee, and Security Trustee.
Jardine Lloyd Thompson, listed on the UK stock exchange will perform the role of back up servicer.
“We have structured our lending platform with a solid foundation, that will be built to last. From the mom and dad investor to the large financial institutional investors, all investors are protected and purchase a secured bond where the underlying asset is a loan in the trust or part thereof if the investor wishes. These notes will have the traditional trading aspects to them, and whilst liquidity take a while to build, the notes are tradable instruments in the capital markets.” Leo Tyndall, Founder and CEO.
Marketlend is a new Australian lending platform founded and led by Leo Tyndall.
Launched in the same week that the Financial System Inquiry (FSI) of Australia released its “blueprint” for the Australian financial system for the next ten years, this new platform shows how innovation in financial products is global.
We were lucky enough to get a chance to speak to Leo in the week of his launch.
Leo provides us with an interesting insight as to how Marketlend is a necessary addition to the Australian business finance marketplace and what makes its offer so distinctive.
The FSI report is generally encouraging towards crowdfunding and new and novel approaches to finance and we can be sure that where Leo’s team lead others will certainly follow.
You can stream the interview from here, our Podbean account or download it for later listening
Banking Day article
Marketlend jostles in P2P sector
12 December 2014 7:02am
Marketlend, another P2P style lender, is making its debut in the Australian market.
Leo Tyndall, a former head of capital markets in Asia for UniCredit, is the founder and CEO. Paul Roffey, a former JP Morgan and NAB banker, is the second director.
Marketlend is a subsidiary of Tyndall Capital Pty which holds the Australian Financial Services Licence.
Business loans (especially working capital, including a line of credit linked to invoices) are the initial target product with personal loans to come.
Like others in the segment, Marketlend is not really a peer to peer lender as its investment is confined to a well-heeled few and professional investors. However, there is a bidding platform to match investments with loan requests.
Retail investors may be able to join later.
One difference in the Marketlend model is a market for secondary trading in investments in loans.
ThinCats is another recent entrant in this niche, while RateSetter and SocietyOne have more of a consumer loans focus.