Society One – Digital Finance Analytics (DFA) Blog

SocietyOne Invents P2P 2.0

Australia’s pioneering alternative lender, SocietyOne, has reinvented P2P lending for retirees and savers in response to continuing reductions in interest rates, where a growing inability to survive on fixed-term deposit returns is causing an exodus into higher-risk investment options.

Where P2P or marketplace investment options have traditionally been segmented by risk-return tiers, SocietyOne is once again leading with its new “P2P 2.0” model, which provides two completely separate and differentiated offerings for its two key investor categories: individual investors and institutional investors.

Under the new model, institutional investors will access the original P2P product but now at a minimum investment of $10 million, so they gain exposure to a large enough pool of loans to achieve an acceptable level of diversification and risk for the desired return.

Individual investors will instead be offered an entirely new income-managed fund in which investment can now start as low as $50,000, and which will provide a smoothed 6 per cent per annum return, paid monthly and supported by a reserving mechanism, as well as increased liquidity, access, and diversification.

The new model is the next evolution of traditional P2P or marketplace lending, says CEO Mark Jones, and yet again demonstrates SocietyOne’s commitment to a constant process of innovation to meet its customers’ changing needs.

“Being the first P2P lender in Australia, we’ve had many years to build a thorough understanding of our different investor categories’ needs, and hone our investment products accordingly,” said Mr. Jones.

“We’re also conscious of changing economic conditions, such as the all-time-low interest rates pushing a growing number of retirees and savers to invest in more risky products to achieve acceptable returns. We wanted to provide a more diversified, higher-return, and income-producing alternative.”

The Reserve Bank recently cut interest rates back-to-back in June and July of this year, landing them at a historic low of 1 per cent and representing the first back-to-back cut since 2012.

As a result, current average fixed-term deposit yields are now sitting at around 2 per cent and, according to futures markets, are likely to drop by another 0.25 per cent within 6 months with RBA governor Philip Lowe recently telling the House of Representatives “it’s possible we end up at the zero [rate] lower bound”.

Long-term falling yields are forcing the growing pool of retiree savings into higher risk products such as ‘high-income or defensive equity portfolios’ more suited to institutional and professional investors. The significant capital-at-risk nature of these asset classes is often glossed over.

In the event of a further economic downturn, such as a significant global equities correction, these higher-risk options mean Australians who are no longer earning and who require income-based investments could lose a substantial proportion of their savings, according to SocietyOne Chief Investment Officer, John Cummins.

“Current and future market yields are a reflection of a slowing global and local economy. Any further downturn in global growth and trade should lead prudent investors to choose quality yield-based assets and not higher-risk investments,” said Mr. Cummins. The SocietyOne P2P 2.0 “Personal Loans Unit Trust” for individual investors, as it’s named, is currently open to wholesale and professional investors. SocietyOne intends to open it to retail investors in the future.

The Fall Out from The ASIC-Westpac HEM Case

Last week the Judge delivered his verdict in the ASIC-Westpac HEM case, essentially because of the ~260,000 loans examined in the case less than 5,000 would have potentially had their loans tweaked lower if the HEM was not used, whereas the bulk of the loans would have been bigger if HEM was not utilised in the decisioning.

I have now had the chance to speak to a number of industry players, and most have fallen into expected camps. Lenders in the main welcome the decision, suggesting that common sense has prevailed, and that ASIC was not reasonable in its interpretation of responsible lending guidelines. On the other side, consumer advocates are calling for tighter controls and suggesting that the HEM benchmarks, even in their revised form are too low – meaning that households are committed to servicing loans they cannot afford. And ASIC has commenced a review of responsible lending by years end.

But among my conversations on this topic, I found a sensible and balance view expressed by Fintech CEO Mark Jones from SocietyOne. They of course are on the cutting edge of technological innovation through their lending processes in Australia.

Mark made the point that recently lenders have been raising their standards, but the question becomes whether a lender has to try and uncover untruthful declarations from prospective borrowers. In Australia there is no clear-cut legal obligation of borrowers to be honest and transparent in their declarations, whereas in the USA there is such a legal obligation, and in New Zealand a Code of Conduct.

He cited examples where applicants had clearly lied on loan application forms.

What is the right balance between asking in painful detail for information from applicants, some of which are unsure of their specific spending patterns, and the fact that in any case if they take a loan, they may be capable of “life-style modification”?

So, he sees HEM in the context of the broader loan assessment processes, with data from applications tested again HEM, and additional dialogue around other unusual commitments which might include school fees, alimony, and other elements. This is all around knowing your customer. And there needs to be a focus on both discretionary and non-discretionary categories to give a complete picture.

The systems which Fintech’s like SocietyOne use are more sophisticated and can handle the complex algorithms which reflect real life. Positive credit and now Open Banking, both of which are arriving, are helpful in uncovering critical information. As a result, there are better outcomes for customers. No lenders want to make a loan which is designed to fail! And it opens the door to more sophistication around risk-based pricing

So, in summary, the trick is to get the right balance between getting every scrap of potential data from a customer, thus getting bogged down in the detail but missing the big picture; and applying simplistic ratios which do not provide sufficient precision to spot good and bad business. And it is this balance which needs to be defined in responsible lending, to a level which passes both community expectations and the operational requirements of lenders. To that end, the debate should not really be about HEM at all!

Fintech Spotlight – SocietyOne – P2P Lending Getting the Recipe Right

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.

SocietyOne becomes first Aussie P2P to hit $500M in lending

SocietyOne says it has today become Australia’s first and only marketplace lender to reach $500 million in loan originations across its personal loan, agri lending and marketplace business, and is now setting its sights on reaching $1 billion by the end of calendar year 2019.

The milestone follows a record August and the recent appointment of ex-Westpac and Citibank exec, Mark Jones, to the top job of CEO.

“We’re delighted to have reached this significant milestone as we deliver an even better deal for our borrowers and investor funders,” said Mr. Jones.

“We’ve been growing steadily over the past 12 months while we continued to transform our business and build new capabilities for our customers. As a result, we’re now seeing real momentum in the business that we expect to continue, and which should see us achieve breakeven by the end of March 2019 and reach $1 billion in loan originations by the end of 2019.”

We had a record August month for personal lending with $14 million in originations, up 46% on August 2017, and well above the monthly average for the past 12 months. September is now also shaping up to be another record month, with volumes expected to further increase into the fourth quarter of the calendar year.

“The seasonal increase in consumer credit heading into the festive season will combine with the rollout and expansion of a number of new initiatives, including continued expansion of our broker distribution offering, the launch of our new brand campaign, and the release of the first phase of our new technology platform,” continued Mr. Jones.

“We’ve also launched our new “When it happens” brand campaign this past weekend, bolstered by support from our shareholders. The campaign is an honest reflection of the way that even joyful moments can sometimes present financial stress to otherwise financially-fit people, as a result of unexpected costs.

“‘It’ can happen to any of us, but there’s no need to add extra stress by racking up high-interest credit card debt when a low rate personal loan from SocietyOne is often a far better solution.

“Looking ahead, the impending introduction of comprehensive credit reporting and open banking, ASIC’s proposed regulatory changes to credit cards, a robust economic backdrop, and a push for a better deal following the royal commission into banking all bode well for a highly prosperous 2019,” concluded Mr. Jones.

SocietyOne celebrates 6th anniversary as total lending approaches $500 million

SocietyOne, Australia’s pioneering and leading marketplace lender, has celebrated its sixth anniversary of operations as total lending since inception approaches $500 million.

After making its first loan in August 2012, SocietyOne has now helped more than 20,000 customers thanks to more than $480 million provided by its investor funders.

Based on current lending volumes, SocietyOne expects to achieve $500 million in total lending in September – making it the first marketplace lender to achieve this milestone.

Since the beginning of 2016, total lending has grown nearly 6 times and SocietyOne’s loan book now totals over $220 million, up from $41 million at the start of 2016.

“The last 12 months have represented another year of growth, transformation and progress” said interim CEO Mark Jones.

“We have seen continued growth in lending with more than $150 million originated since our fifth birthday. Lending growth, combined with an improvement in margins and disciplined cost management, has translated to a strong improvement in SocietyOne’s financial performance. At the same time, we have continued to transform and simplify our business to focus on our core marketplace lending activities.”

“SocietyOne’s vision is ‘to be Australia’s leading, most trusted, lending marketplace’ and our mission is to achieve this by ‘providing a better deal for borrowers and lenders, one brilliant funding moment at a time’.”

“We have made good progress over the past year towards our vision and goals.” Among many highlights, Mr Jones noted the:

successful completion of the strategic investor capital raise in January 2018;

strengthening of the leadership team ranks with the appointment of Simon Farrell as Chief  Technology Officer and Ross Horsburgh as Chief Credit Officer;

expansion of our distribution reach with the development of a new personal loan offering  available through mortgage brokers;

successful implementation of systems and credit processes to ensure readiness for  Comprehensive Credit Reporting; and

continued recognition for excellence and innovation through numerous industry awards.  Most recently, SocietyOne was recognised in The Australian Financial Review Top 100 Most Innovative Companies List for 2018.  “We have come a long way over the past 6 years and our success could not have been achieved without the collective effort of our hardworking and passionate team here at SocietyOne, and the backing of our Board, shareholders and key business partners” said Mr Jones.

“SocietyOne has been at the forefront of ‘fintech’ disruption of the financial services industry in Australia for 6 years. We have a real commitment to customer-first innovation and everything we do is guided by our values of being Transparent; Imaginative; Empowering; One Team; and Connected” said Mr Jones.

Looking ahead to the next 6 months, SocietyOne will be focusing on making further improvements to the customer experience; continuing to build its brand profile; developing new solutions for investor funders; broadening out its broker solution and developing new strategic partnerships; and further investing in its technology capabilities and platforms.

“With more than $60 million in committed investor funding at present, and continued interest from a number of institutions, we are in a strong position to further grow lending over the remainder of the year.”

“The next 6 months will be another exciting period of growth and innovation” said Mr Jones. While there is a lot of work to do, the momentum in the business is really pleasing. By the end of 2018, we will be well positioned for the next phase of growth. We remain on track to achieve operating breakeven by March 2019.”

SocietyOne sets new record with triple milestones in 2017

From Australian Fintech.

SocietyOne, Australia’s consumer marketplace lender, has set new records for lending with growth in 2017 already surpassing the level of volumes for the whole of 2016.

Total lending since the company started operating five years ago has now topped $350 million as the current loan book also reached $200 million for the first time in SocietyOne’s history.

These were new records for a consumer finance marketplace lender in Australia with SocietyOne having originated more than twice the loans than that of the company’s nearest competitor. SocietyOne has now enjoyed seven successive quarters of strong growth as it scales up.

New lending to borrowers in 2017 has so far totalled $141 million, topping the $139 million which was advanced over the course of 2016.

Jason Yetton, CEO and Managing Director of SocietyOne, said: “We have continued to build on the strong momentum achieved in 2016 and have seen sustained year-on-year growth with comparable lending volumes now above the levels achieved for the whole of last year.

“Our growth in 2017 underlines the demand from consumers for a real alternative to the major banks. Consumers are looking for a better deal on their finances and our risk-based pricing is attractive for customers that have demonstrated that they have a good credit history.

“Customers have responded positively to a number of improvements we have delivered over the past year. These have included a strong focus on better service outcomes and speed of loan approvals, increasing the maximum loan amount on personal loans to $50,000 and continued success with our advertising and marketing activities, including the “Make It Happen” campaign that launched in June.

“Our customers are also loving the differentiated service experience that we offer. We have had more than 600 customer reviews on ProductReview.com.au with an average rating of 4.7 out of 5. We also track Net Promoter Scores on our lending and this now stands at +63.”

Of the $350 million of lending to date, $270 million has been advanced to consumer borrowers as personal loans and $80 million to farmers via their agents through SocietyOne’s unique secured livestock lending product.

Launched as a pilot in March 2014, SocietyOne AgriLending is now scaling up and during the third quarter was recognised for its support of Australian cattle and sheep farmers at the 2017 Australian Business Banking Awards by being named as a finalist in the industry specialisation category. The last quarter saw improvements to both the product and the technology platform.

The first three-quarters of 2017 have also seen a record amount of funding made available by investor funders with new mandates secured from existing and new institutions and high net worth individuals. The total number of funders since inception has risen to 320 and committed available funding as at 30 September 2017 stood at $61 million.

SocietyOne enjoys strong support from the customer-owned banking sector with the number of mutual banks and credit unions as funders now numbering 20. Mutual institutions have to date provided $100 million of funding out of the $350 million advanced to borrowers.

As for the outlook, Mr Yetton said the company was looking forward to another strong quarter ahead and welcomed moves by the Federal Government to encourage more competition in the banking sector by legislating for comprehensive credit reporting and open banking.

“With a more dynamic approach to both comprehensive credit reporting and open banking on the horizon, Australians are becoming increasingly aware of the better choices now available,” he said.

“As the undisputed leader in marketplace lending for personal loans, our customers are clearly telling us there are more attractive ways to sort out their finances, whether it is consolidating credit card debt, renovating their homes, buying a car, going on holiday or paying for a wedding.

“I’m also pleased at the way we are getting behind Australian livestock farmers as the growth in SocietyOne AgriLending has shown. The team is standing ready to help them even more so as rural and regional Australia waits for the rains that will kick start the Spring growth and rearing season.”

Fintechs Eye The Mortgage Market

From Fintech Business.

Speaking at a media roundtable in Sydney this week, SocietyOne co-founder Greg Symons said there is a class of mortgages that could suit “exactly what we do”.

“We will look at that in time, probably through a partnership of some kind,” Mr Symons said.

“The fact is it’s very cheap debt and very low capital that goes into it. The problem is the margins of play are very tight, whereas there is a second tier of mortgage lending with a lower LVR, a different form of mortgage lending that actually would fit well,” he explained.

“It is more like a syndicated loan style opportunity, which essentially is just low-volume peer-to-peer. The thing is, you’ve got to change your thinking. You’ve got to move away from this pooled investment style to something that is more individual based.”

Mr Symons said he built SocietyOne and the technology underpinning it to ensure that the company doesn’t exclude itself from certain asset classes that are a natural fit.

However, SocietyOne’s newly appointed chief investment officer John Cummins, who was also present at Wednesday’s discussion, said there is little “juice” in mortgages, echoing Mr Symons comment about tight margins.

The group has over 280 funders including Australian banks, credit unions, high net worth individuals and SMSFs.

Mr Cummins said mortgages are a difficult market to get high net worth investors into.

“The structures are really set up for institutional. To go in and nakedly invest in mortgages… I know it has been done overseas. It’s just a bit more challenging here because you have established an investment structure now that looks like an amortising structure with a whole lot of variable rate mortgages in it,” he said.

US-based online lender SoFi, which is planning an Australian mortgage market play, has successfully managed to move from a peer-to-peer lending offering student loans to a balance-sheet lender offering home loans.

The company has made clear its ambitions to grow beyond lending to provide a fuller, more holistic banking-like offering to customers including deposits, credit cards and payment solutions. It is currently preparing to launch its first mortgage securitisation deal.

SoFi this week announced the acquisition of Delaware-based mobile banking group Zenbanx, which has been pioneering ‘conversational banking’.

SocietyOne hits $200m milestone

According to Australian Fintech, SocietyOne, Australia’s marketplace lender, has achieved another key milestone after breaking through the $200 million lending mark.

The last three months of the 2016 calendar year have witnessed the strongest growth in the company’s four-year history with an additional $50 million of lending made between the first weeks of September and mid-December. November saw a record month of more than $15.3 million in lending.

That took the total amount of lending made by SocietyOne to just over $200 million since inception of which $126 million – nearly two-thirds of the total – has been recorded in 2016 alone, said Jason Yetton, SocietyOne’s Managing Director and Chief Executive Officer.

The year had seen strong demand from both borrowers of personal loans and investors with every dollar lent matched by a dollar in funding from wholesale investors such as life companies, mutual banks, credit unions, SMSFs and high net worth individuals through SocietyOne’s digital auction marketplace. The total number of investor funders has now grown to 280 since the company started lending in August 2012.

“2016 has been a milestone year for several reasons, not least for the fact of us reaching a total of $200 million in lending which makes us the clear leader in marketplace lending for consumer finance in Australia,” said Mr Yetton.

“Having started the year with $70 million of originated loans since we commenced in August 2012, we have virtually tripled that amount in the last 12 months with an additional $126 million of lending to our personal loans and agri-lending customers. This is a real testament to the vision of the company’s co-founders, Greg Symons and Matt Symons, and the hard work of everyone at SocietyOne.

“We are now looking forward to an even better year to come in 2017 as the opportunity opens up for us to mount a real challenge to the big four banks in the $20 billion personal loan market and the wider $100 billion consumer finance market. This is part of our goals to achieve a 2-3 per cent share of the consumer finance market by 2021 and helping over 100,000 Australians to get a better deal.”

Mr Yetton’s comments came as SocietyOne released its latest performance figures, which show:

An acceleration in quarterly lending in the three months to December. SocietyOne topped $100 million in total originated loans in early-April this year, up from $70 million at the start of January, and then reached $150 million in early-September;

Available funding from investors for borrower customers has averaged $22 million a month for the past six months;

The effective annualised rate of return across the company’s portfolio of two year, three year and five year personal loans has averaged 10.66% p.a. between January 2014 and the end of November 2016(a) ;

The number of borrower customer accounts has grown by a further 1,800 since August 2016 to now stand at 7,800 at December;

Default rates of the personal loan portfolio as at the end of November 2016 were 1.1% compared to a sector average of 2-3%.

“The momentum we saw in the first half of the year has increased in the second half following our successful national TV brand campaign that was launched during the Rio Olympic Games on Channel 7,” added Mr Yetton.

“Hundreds of thousands of Australians have been empowered with their personal credit information through getcreditscore.com.au and are now aware that they can get personal loans tailored to their individual circumstances without having to turn to their major bank. Since June, the number of Australians who have obtained their credit score has risen by nearly 450,000 to 800,000 now.

“At the same they are also discovering that there is a better, trusted alternative to the one-size-fits all, higher comparison interest rates the traditional big banks offer.

“That alternative now includes even better reasons for customers to tackle the financial issues that matter to them, whether it’s consolidating credit card debt, renovating their home, buying a car, taking that well-deserved holiday, paying for the wedding of their dreams or covering off those ever-increasing school fees.

“We’re now offering interest rates that are up to 1.4 percentage points lower than our previously publicised rates as we look to help out Australians at what is arguably the most expensive time of the year as Christmas, the summer holidays and back to school come together in one huge spending moment.

“We are also responding to borrower demand by increasing the limit available on our personal loans from $35,000 to $50,000 which will give our customers the financial flexibility they are looking for.”

Mr Yetton also announced two changes to SocietyOne’s management team with the appointment of Maria Loyez as the company’s new Chief Marketing Officer and the resignation of Company Secretary Jerry Yohananov.