I hear from a lot of platforms both in the US and around the world in various stages of launch. Never before have I heard of a new platform launch with such a large cash war chest. Harmoney has received NZ$100 million (around US$80 million) in lending commitments – for a p2p platform to raise that kind of debt capital before launch is unprecedented.
Harmoney is the first New Zealand (NZ) p2p platform to have been licensed by the government there under the new rules that took affect in April. I have been following their evolution with great interest and have had several phone calls with their founders over the past year. I also met with them in person at LendIt 2014 in San Francisco back in May.
I have been very impressed with Harmoney from day one. Last week they launched publicly and garnered a lot of attention in the local press. But if you think this is just an NZ story, think again. There is a lot we can all learn from Harmoney and, not only that, US investors may soon be able to invest on their platform. More on that later.
First, I want to share some details of the conversation I had last week with Harmoney’s CEO, Neil Roberts and Duncan Gross their Director of Business Development.
Both gentlemen were obviously very excited about their launch. They have assembled a large cash war chest and are eager to get their business going. They have had several trips to the US over the past year and met with many prominent people in our industry including some executives at Lending Club who they said have been “very helpful.” At LendIt they also met with several of the funds in our industry and have received a commitment from one of those funds as part of the $100 million.
A Partnership With a Prominent New Zealand Bank
Also part of the $100 million is an investment from an established NZ bank called Heartland. This bank has been so impressed with Harmoney that have also taken a 10% equity stake. Heartland Bank CEO, Jeff Greenslade told TV NZ last week that his bank was attracted to the Harmoney customer base.
“We see it as a platform that gives us access to a customer base that we like anyway,” Greenslade said. “We like the concept in terms of the UK and the US, we think the model has been proven to our satisfaction overseas and also the nature of the channel being online just adds another dimension to our strategy.”
Having an established bank involved from the get-go is significant for several reasons. First, it gives a vote of confidence to both borrowers and investors alike. Second, it indicates that the banking industry is open to finding ways to work with the p2p platforms in NZ. Third, it is the first time ever a p2p lending platform has launched with the full support of a bank.
A Choice of Secured or Unsecured Loans
The borrowers at Harmoney are similar yet also very different from US borrowers. They tend to be relatively young, they average in the mid-30s; they own a home (with a mortgage) and own a car as well. And this is where it gets interesting.
The fact that the borrower owns a car is something Harmoney takes very seriously. They allow borrowers to take out a secured loan using a car as collateral. By doing this the borrower is eligible for a higher loan amount and Harmoney gets to put a lien on the vehicle.
Another interesting twist is that Harmoney allows co-signing on their loans. In fact, 80% of the loans originated so far have been joint loans with two borrowers. This means that Harmoney can take both people’s credit into account when making a credit decision again often leading to a higher loan amount.
A True Debt Consolidation Loan
Most Lending Club and Prosper investors know that the majority of the loans available at both companies are for debt consolidation. But how do we know the borrowers are really using the money to pay down their debt? The answer is we don’t.
Harmoney has a better idea. When a borrower applies for a debt consolidation loan they have the option of having Harmoney send the money directly to the credit card companies (or other lenders). This way investors can be sure the money is really going to pay down debt and isn’t going to be spent on a European vacation or a new motorcycle.
The Opportunity for Investors
Harmoney expect to have an average interest rate of around 20% and an expected annualized loss rate of around 3%-3.5%. This is an excellent opportunity for investors and helps explain how they were able to raise $100 million. And despite this large commitment they are looking for more investors.
And this is where it might get very interesting for US investors. Harmoney intends to launch their own fund called Harmoney Platinum soon. This will work in a similar way to LC Advisors insofar as it will take investor money and deploy it on to Harmoney’s platform. And they are working on making this fund available to US accredited investors. Of course, if this does in fact come to fruition you will read about it here on Lend Academy.
The Harmoney management are also looking to do a securitization at some point in the not too distant future. And unlike in the US, they have setup their platform so that they can securitize fractional loans. This will help them put a securitization together while still a young platform.
Harmoney has been operating in closed beta since July so they had already made a few loans before their launch. In the first two weeks of September they have issued NZ$1.2 million with a NZ$13,000 average loan size.
As the first p2p lending platform in NZ they realize they will have some educating to do. But the huge amount of coverage from the press has certainly helped with hundreds of investors signing up.
The Harmoney team has put together a rock star advisory board with names that would be familiar to many Lend Academy readers. I spoke with one of these board members last week and this is what he said, “Harmoney have built a Ferrari, now they get to start it up and we will see how it runs.” It should be quite the ride.
Since I’m in an especially charitable mood tonight, I’m going to be doing the part of Peter’s job that he would do if he was a real journalist & not a p2p cheerleader. 🙂
I’m sorry, but other than the inhabitants of New Zealand, who else will this company be lending to? Because assuming it’s only New Zealand, & even assuming that they experience a 25% steeper growth curve to the already rapid growth we’ve seen in the US market,…………….my back of the napkin calculation tells me that “new lenders” might be needed sometime in 2018 (or 2019 if interest received is reinvested) So, I don’t get the talk of looking for new or US lenders when they have $100 million committed already. Unless of course,…………wait let me get a shovel. But if they are in fact looking for US lenders now, then I’m guessing that the ones who decide to go for it will subsequently have the opportunity to truly experience the meaning of cash drag. 🙂
What are the minimum borrower standards? Because anyone that can think knows that it’s going to look nothing like the 96 early adopters that have so far received loans. Regardless one can assume that whatever standards they have set will nevertheless quickly devolve into some version of LC style Policy Codes 2, 3 etc. once they fully appreciate that if their company wants to actually make some money they’ll have to drop standards & eventually lend to any two legged adult mammal in New Zealand……………the total of which is less than the population of LA 🙂
US investors should also consider the nature of New Zealands’ economy & how that has historically affected the USD/NZD currency values.
Finally,…………the anticipated 20% average rate & anticipated 3.5% annual loss rate paint an especially pretty “anticipated” picture for US investors. But at the risk of violating what passes for “journalism” on this blog, it should be pointed out that (unlike in the US) you can get close to 5% on a near risk free New Zealand bank 1 yr CD.
With great shame I must admit that it actually took me all of 3-4 minutes to investigate all these inconvenient to the narrative issues that Peter left out.
Dan,
Thanks, as always, for your illuminating criticisms. As you well know I see the world through rose colored glasses but I do not deliberately leave things out to deceive readers. I tend to focus on the positives in my analysis because that is how I look at things.
Anyway, let me address a couple of your criticisms directly:
1. Harmoney intends to focus on New Zealand initially and then move on to the Australian market some time next year. One thing I didn’t mention is that the founders have already built a lending operation into a $500 million business in NZ before, so they know how to scale. Their goal is to lend the entire $100 million committed into the NZ market in the first 12 months.
2. The typical borrower is going to have a similar profile to the typical Lending Club borrower of today – prime or near prime borrowers.
3. Yes, the interest rate environment is different in New Zealand, which helps to explain in part why rates are higher for borrowers there than in the US.
Let me get this straight. Harmoney targets doing the first $100 million of volume in 1 year…………..which Lending Club took 3 years to accomplish in the US. That in itself would be HUGELY impressive. But you go further. You think that these Harmoney borrowers will have a similar profile to LC because Harmoney will be able to do the enormous above volume by somehow lending the money to “prime” & “near prime” borrowers …………….. in the 2 countries (NZ & Australia) whose combined population is 8% of the United States. Wow!
Congratulations Peter, your above take on Harmoney has earned you a nomination to my notorious 2014 MSS Awards which honors/ridicules the most outrageous & unfathomably over the top spins. An award that bears the name of its first recipient, the incomparable Mohammed Saeed al-Sahaf, Minister of Information, Iraq.
You will be competing against 2 other finalists…………… former VP Dick Cheney (hardly a young man) who recently said “ISIS is one of the most dangerous threats we have faced certainly in my lifetime……” and
Alexander Zakharchenko, the Prime Minister of self proclaimed Donetsk People’s Republic. When the press accused him of having thousands of Russian troops fighting & dying alongside his rebels, he flatly rubbished the idea. He said that though the men in question were Russians & had Russian military training,………….that they in no way represented the Russian military or government, since were there either voluntarily, been discharged after their conscription period, or were on leave. As if he needed a deeper hole, he then added “fighting among us are soldiers, who would rather take their vacation not on a beach but with us, their brothers…………….”.
That’s some tough competition, but I think Peter has a real shot at winning the whole thing.
Let’s chat in 12 months Dan and I will have you retract your comment above. I am very comfortable standing by my prediction.
In my opinion there will be many, many platforms in the future who will get to $100 million far quicker than LC did.
I see that your current 0-2 record against me hasn’t taught you much. I’m happy to allow you to try for 0-3. May I compliment you on the wise choice you’ve made previously in deciding that “gambling” wasn’t for you. 🙂
Btw, I’m sure what you meant to say was that we should chat in 12 months & you’d expect my retraction…………….IF I was wrong. Of course I’d expect the same from you. However I’m not foolish enough to allow you re-frame the wager into just a question of volume.
Myself & a dozen semi trained kangaroos could lend out $100 million a year if we didn’t care who we lent it to. The part you conveniently left out was, you said & I quote ” The typical borrower is going to have a similar profile to the typical Lending Club borrower of today – prime or near prime borrowers.”
I say not in those countries. You’re not going to get that volume with that quality in the first 12 months.
That is all fine.
BTW, I haven’t forgotten about the other “challenge” we had. You said there was no way Prosper would post a profit until Q4 at the earliest, I said it would be Q2 or Q3. Q2 at Prosper was almost break even and I am confident Q3 will show a substantial profit. So, given your penchant for keeping score I need to say it looks like I will be 1-2 here shortly.
Dan B-
I will only say that your comments are most appreciated, and your comments are the only reason I even bother coming here. Even if you get censored once in a while on this blog by saying the wrong things, you are a true patriot for trying to say those things. Keep it up, sir.
Peter-
I’m looking forward to your next story on what they’re doing in Pago Pago.
I’m not so sure if the average reader here is sophisticated enough to understand the foreign exchange risks associated with investing dollars in something denominated in another currency. Perhaps this could be a topic for a future post
Once it becomes relatively easy to invest in these foreign platforms I will certainly be covering the foreign exchange risk.
NZ dollar does move around a bit. It’s down sharply again today…………….down over 10% in just the last 3 months versus US dollar. Gotta make those exports down there as attractive as possible, so the plan’s been to deliberately devaluate