I caught up with Mark Jones, Chief Executive Officer of SocietyOne, Australia’s first and only marketplace lender to reach $500 million in loan originations across its personal loan, agri lending and marketplace business. And now its setting its sights on reaching $1 billion by the end of calendar year 2019.
I wanted to know how he had been able to grab the $500m of the $100 billion market, and specifically whether it was the appetite for P2P which was growing, or whether there were particular elements which had made the difference, given the 60 people working in the business, plus the external technology platform provider.
He argued that in the past 3-6 months SocietyOne had made a number of improvements to its business, and combined this had made a significant difference to their momentum. First, they have improved their algorithms around risk assessment and pricing. He explained that their underwriting algorithm had been tuned and improved, but that loans were still reviewed by a credit officer. They are sending data to, and expect to benefit from the new comprehensive reporting regime which is coming in October.
Next they are clear on their target market, with a focus on good quality borrowers, often stable homeowners aged 35-50, with loan interest rate tailoring between 7.5% and 18% depending on individual risk profiles. The typical loan would be in the region of $22k, over 3 or 5 years, though they are able to offer facilities between $5k and $50k. Average loan duration is around 4 years, and funds are offered on a principal and interest, straight line repayment basis.
Finally, they have invested in new technology, designed to offer customers a better online experience. They will shortly be launching a new application form, built from the ground up for mobile devices. Loans via these devices make up more than half of the loan applications now, and are growing quickly. This is a substantial change from the previous front end which was PC/Web based primarily. Mobile is the future.
They offer unsecured loans, and also credit to agribusiness sector – for example for the purchase of cattle and sheep. Momentum has accelerated thanks to the development of the broker channel, which they started in June 2018. They wrote $100k in June/July via this channel, $1.4m in August and are on track for $2m in September. This is proving to a significant venture. Most of this business related to unsecured personal credit, where around half of loans are refinancing of existing facilities, debt consolidation and credit cards. More than half of the loans are written below 13% interest rate, which is significantly lower than many credit cards. Brokers often advise their clients about managing their debt, Mark said. Other reasons to borrow include car loans and holidays.
Ahead they are considering offering secured loans including motor vehicle finance among others. They will continue their focus on the Australian market, which remains a significant opportunity.
Their portfolio is quite concentrated in the Sydney and Melbourne metropolitan areas, because they have been targeting their marketing and advertising there. That said it is a national business. In terms of portfolio losses, Mark said he was satisfied with these, making the point that all applicants were effectively “new to bank” so there was no customer history. But on a like-for-like basis the loss ratios were quite similar if not better than what a typical bank might see.
Finally, I asked about the funding source for the business. Around a quarter comes from high-net worth “sophisticated” individual investors, with the remaining coming from a range of institutions, including mutual banks and institutional investors. These channels are growing more quickly, as shown by the relative fall in the proportion from high net worth sources, which was 30-35% a year ago.
The recipe of good risk profiling, target markets, and a focus on customer experience is clearly paying off, and the $1 billion target certainly looks achievable, ahead.
