Squirrel to fire up NZ’s P2P market

Squirrel Mortgages is set to launch its peer-to-peer (P2P) lending service early next month, after receiving New Zealand’s third P2P licence from the Financial Markets Authority (FMA) on Friday.

Monday, August 10th 2015, 11:26AM

by Miriam Bell

It will be New Zealand’s second P2P lending service to go to market, following Harmoney which has been in operation since July 2014.

Squirrel Mortgages managing director John Bolton said the company will do things differently to Harmoney, which meant they had taken a slower route to market.

“But this means we have already built our platform, in-house and from scratch, and it is now in the final testing stages.

“All going well, we will be launching our unique service in the first week of September.”

Bolton said Squirrel’s P2P offering will focus on offering both secured and unsecured personal loans of up to $70,000.

“Squirrel Money will connect borrowers and lenders together. Unlike other P2P offerings in the market, we aren’t funded by a bank to deliver a bank-style offering. All our loans will be genuine ‘person to person’ loans.”

One of its major differences is that, in a first for the New Zealand market, it will be running a reserve fund – called Loan Shield – in order to protect investors’ money.

Part of each borrower’s interest payment will go into the reserve fund and this will cover defaults.

Bolton said this means investors won’t have to spread their money over a number of loans and won’t have to assess the credit risk of every loan they invest in.

Another difference is that Squirrel Money will operate a market based interest rate system.

Borrowing rates will be determined by an auction type bidding process. The more investors that join in an auction, the lower the rates on offer and vice versa.

Instead of a percent-based approach, a flat fee will be charged. Unsecured loans will cost $250 and secured loans $500.

Bolton said they believe this approach will be far more transparent for both borrowers and investors.

“We think our system will drive down borrowing rates, but leave rates fairly stable for investors. It offers greater flexibility.”

To enhance fluidity, Squirrel Money will also run a secondary market where investors will be able to sell their loans back into the market.

Bolton said that, in a market where people might be taking a step back from diving into property, P2P lending was able to offer investors a passive investment which generated decent yields.

“We want to stay true to the ethos of person-to-person lending and social entrepreneurship and, if international experience is anything to go by, this is an exciting time to be in the P2P space.”

Bolton added that they also expect their service to be popular with people wanting to do property renovations, without having to borrow against their existing property.

In New Zealand’s broader P2P lending space, the news is less rosy.

The Commerce Commission recently announced it is investigating if fees charged by P2P lenders are covered by the fee provisions of the Credit Contracts & Consumer Finance Act.

Original P2P lender Harmoney confirmed to media that it is in discussion with the Commission.

Last month Harmoney’s founder and majority owner, Neil Roberts, stepped down from the company’s board, although he is still chief executive.

The company also recently reported a loss of $6.3 million on revenue of $1.9 million in the 11 months ended March 31, 2015, according to the first financial statements it lodged with the Companies Office.

Meanwhile, Mark Kirkland’s LendMe received the country’s second P2P licence in May this year, but is yet to go to market. 

Tags: finance companies FMA Harmoney Peer to Peer Lending

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