DirectMoney raised $11.2m via an IPO on the ASX last week – the fifth listing of an alternative finance platform globally.
A brief lesson in history. We first profiled DirectMoney in January 2015. The proposition is divergent from the P2P norm; a “warehouse lending” platform which Executive Chairman Stephen Porges describes as the combination of the Lending Club model and the P2PGI model. Investors buy into a fund structure, and gain exposure to a portfolio of consumer and SME loans. The onus is on DirectMoney to select and service those loans. The platform’s target borrowers range from near prime to prime in terms of risk profile on the consumer side. DirectMoney was initially open only to sophisticated investors, but recently launched a retail fund (The DirectMoney Personal Loan Fund) after having secured a retail license from the Australian regulator.
Rumours had swirled about a DirectMoney listing since the outset of 2015. We first heard some hard numbers for the IPO in March 2015 – when the target raise was set at between $5m and $10m. Between 25m and 50m shares were to be floated, at 20 cents a share, valuing the company at around $40m.
When the listing finally rolled around, DirectMoney initially exceeded expectations, raising $11.2m at 20 cents a share. But the share price quickly slipped. The Sydney Morning Herald’s (SMH) Shaun Drummond reports that DirectMoney shares closed at 17.5 cents a piece on the day of the float, a 12.5% drop off. The price per share today stands at 16 cents, having fallen to 14 cents at the nadir.
So, why the fall?
An ill-timed query from the Australian Securities and Investments Commission (ASIC) that preceded the listing can’t have helped. The ASIC required more clarity around the point that if a DirectMoney loan defaults within 30 days, it’s the platform that absorbs the loss, not the individual investors, because all loans are originated from the platform’s balance sheet. Mr. Porges appeared unperturbed by the nature of the objection, although he admitted that the timing was unfortunate:
"There was a bunch of investors that disappeared as a result of that – probably it was a couple of million dollars of capital."
There has also been a bit of back-and-forth over the structure of DirectMoney. The company has seemingly come under fire for not being a “true” peer-to-peer lender, or rather, for incorrectly affiliating itself with the process of peer-to-peer lending. Mr. Porges was dismissive of these qualms:
"Peer-to-peer lenders are saying you're not P2P – I so don't care. We are a better experience for the borrower and the lender. I don't believe that people should be directly lending to each other. They do not have the ability to be credit analysts.”
"It is [also] a bad borrower experience – if I am going to borrow money I don't want to have my loan up there for three days and not get it filled. I want to know if I am able to borrow money, 'well OK, give me the money'."
Stuart Stoyan, CEO of the yet to launch MoneyPlace, voiced concerns that the DirectMoney case could confuse the “P2P” concept in the minds of consumers. Mr. Stoyan also kicked up a fuss recently over a perceived shortage of regulatory oversight in the Australian peer-to-peer lending sector, a sector that MoneyPlace has yet to enter.
Where will DirectMoney go from here? The platform’s model is unique, and its public status is unusual. The company has invited the spotlight, and will continue to operate in its glare heading forward. Today’s rebounding in share prices (from 14 to 16 cents a share) represents an encouraging but small step in the right direction.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.