This is part 1 of a 2 part series on the Canadian marketplace lenders. In this series, you’ll learn about the state of lending in Canada and about the major marketplaces operating Canada.
What’s most interesting to me is that although marketplace lending is starting to become a global trend, each market has it’s own nuances. This is certainly the case I learned in Canada as I spoke to executives of several companies to learn about the challenges they face in their home market. Similar to Australia, there is an oligopoly of five stable, highly profitable banks that have between 70-80% of the market in Canada. One of the biggest challenges is consumer behavior, where consumers tend to be much stickier to the household names. The NPS score of these banks are not as low as in the U.S. The general positive attitude towards Canadian banks is partly due to the fact that Canadian banks were far less affected by the financial crisis.
This results in lack of competition to the banks, stagnant products, stifled innovation and high fees. Thus, the opportunity for these marketplaces is much larger. These new entrants must focus on educating consumers and offering them a superior product.
On the investor side, due to the regulatory environment in Canada, loans listed by any of these companies are not available to retail investors. For borrowers, the FICO credit score is based on a maximum of 900, not 850 as we have in the U.S. To give you a little perspective for comparison, a score of 690 in Canada would be equivalent to a 665 or 670 in the U.S.
As you’ll find out by reading about the biggest marketplace lenders in Canada, you’ll find that it is very much in its infancy in Canada with these lenders coming to life less than a year ago. They are several years behind the U.S. market. However, after talking with each company, it’s clear that the market opportunity large. [Read more…]