Since the p2p lending industry began in 2005 no large bank has ever invested directly in a platform. Last week, there was not one, but two such investments.
Australian Platform SocietyOne Receives A$8.5 Million Investment
In Australia, the venture capital arm of Westpac (one of the four big banks down under) led an $8.5 million funding round in SocietyOne, Australia’s leading p2p lending platform. I wrote this profile of SocietyOne last year and since then they have grown steadily.
Last week I spoke with Matt Symons, CEO and co-founder of SocietyOne, about the new funding round and the deal with Westpac. He was obviously very pleased this deal has come to pass as it will allow his company to begin to accelerate their growth.
It comes at a particularly good time because Australia is about to undergo a transformation in their credit reporting industry. In the U.S. we take for granted the robust dataset that is available from the three main credit reporting agencies. In Australia there has only ever been limited credit data available but this month that will change. Recent legislation has meant that for the first time loan underwriters like SocietyOne will be able to access more credit data and eventually the depth of this data should be similar to that enjoyed by the U.S. platforms since day one.
This lack of credit data is one of the main reasons that SocietyOne has been growing relatively slowly (when compared to the U.S platforms). Although Symons did say they are on track with where they want to be right now. After 18 months they have issued just $4 million in loans but now with this law change and their cash coffers full they can start to accelerate.
Symons told me that this cautious approach to growth has served their investors well. They have so far provided 10% annualized returns to investors net of fees and defaults. So, while they will now be able to grow more quickly they will still be trying very hard to maintain this impressive investment track record.
It is a curious partnership when you think about it. P2P lending has become popular in part because it is disrupting the centuries old banking business model. There has been a lot of talk about the efficiencies of p2p lending versus traditional banking and how large banks have fallen out of favor since the financial crisis.
When asked about the irony of having a large bank invest in a platform that is trying to disrupt them Symons had this to say, “Maybe this is the future. We will find ways to coexist with banks and each will focus on what they do well”.
South African Platform RainFin Receives a Large Investment from Barclays Africa
Directly across the Indian Ocean from Australia is South Africa where another big deal was announced last week. Barclays Africa has acquired a 49% stake in the leading South African p2p lending platform, RainFin. So last week, I also spoke with the CEO of that company, Sean Emery, to discuss this deal.
He obviously knew about the SocietyOne deal and one of the first things he said to me was that his deal was different. In Australia, it was the venture arm of a large bank investing in a p2p lending platform, in the case with RainFin, it was the bank itself.
Emery said he has been looking for the right partner for RainFin for some time. He didn’t want to just take more VC or angel investor money, he said he “wanted a financial services player who saw the potential of peer to peer in their core strategy.” In Barclays Africa he has found just that.
They are going to be a true partner with RainFin helping in many areas of the business such as developing credit models, underwriting loans and even collections. One of the challenges Emery has had trying to attract institutional investors is that they want to see a track record and a credit scorecard that has been tested over time in various economic environments. A less than two-year-old startup just can’t provide that.
But, a large bank has all those things. Now, RainFin can take their own scorecard and measure it against the large personal loan book of Barclays. This should make it much easier to convince large investors to come on board with RainFin.
When I asked Emery the same question about the irony of forging a deal with a large traditional bank he had an interesting take, “There are plenty of things that banks do very well. P2P lending needs to take the good stuff that banks do and throw out the bad stuff.”
I will be very curious to see how this partnership develops. I hope he is right and that Rainfin can, not just co-exist, but thrive in partnership with a big bank. Either way, I find it fascinating that big banks are starting to realize the potential of p2p lending.