SocietyOne targets the premium borrower with a rigorous credit process that to date has approved just 14% of applications. Borrowers currently fall into two categories: individuals, or consumers, and farmers. Loans to farmers are secured against livestock purchases. This asset class is as a product that involves a traditional collaboration between stock agents and farmers. Each play a role in the finance agreement/arrangement. This specific asset class is reasonably boutique and therefore neglected by banks as they have tended to move away from fringe lending activity since the GFC. It gives a flavour of the complex lending activity SocietyOne are geared to do in the future. Typical annualized net returns for lenders have been 11.5% over the past 2 years with borrowers being charged between 9% and 15%. Default rates are running at around 2%. When asked about the amount that the platform has lent since launch, management were a bit coy, we know that up to Feb 2014 they had lent A$4m and best estimates put the platform on around A$15m at the moment. This makes it the largest lender in Australia, however on a global level, it has a long way to go when compared with the likes of Lending Club,Prosper and Zopa.
SocietyOne highlights that part of the appeal of peer-to-peer lending is in the control it gives the borrower, with the ability to shop around more and have access to a wider variety of rates. SocietyOne says that this is able to happen because consumers’ data is now more widely available. In the past, there hasn’t been a lot of data available, and this gave the banks great advantage. They owned the consumers’ personal data, not the consumers themselves. With Comprehensive Credit Reporting now in effect since March of this year, there is a move to an environment where people can take control of their credit data, and can be empowered to make better choices to fund their credit needs, particularly if there are new options available. For SocietyOne it’s all about empowering consumers to make better decisions.
SocietyOne feels that the potential for alternative finance in Australia, which boasts the world’s most profitable banking system, is large. Borrowers can save a considerable amount of money by using P2P platforms which will help them reduce debt. This whilst offering investors for the first time, access to an attractive, diversified multi-asset class portfolio of loans. If Lending Club’s successful momentum in delivering investor returns can be replicated then P2P lending and SocietyOne can become an important part of the Australian financial services landscape over the next 5 years.
SocietyOne boasts an impressive list of equity backers including Westpac’s VC arm which invested A$5m of Equity in Feb 2014 and more recently a consortium of well-known Australian moguls (Murdoch, Packer and Stokes) ploughed another A$20m into the company.
On the back of these capital injections and the solid lending track record that SocietyOne has built up, 2015 promises to be a big year for the firm. They see big opportunities in the A$1.2bn friends and family borrowing market; are working on a provision fund product and, as mentioned above, will look to obtain approval to allow retail investors to lend through the platform.
Additionally, it is worth noting the impact the Murray Report has had on raising the profile of the alternative finance space in Australia. When asked about the effect of the Murray report on the alternative finance space SocietyOne commented:
“First, we welcome the explicit acknowledgement by the Murray Inquiry of the role that technology-based innovation and particularly online lenders could play in boosting competition and consumer choice.
We are also heartened by the recommendation that Government should look to encourage, and if necessary mandate, the move to comprehensive credit reporting as proposed in SocietyOne’s own FSI submission. Making comprehensive credit reporting mandatory was one of our recommendations to the inquiry as we believe more detailed credit data is vital to better assessing credit risk, and ultimately providing borrowers with a far better deal. The better the data, the more confidence we can have in being able to offer lower, risk-based interest rates to good borrowers. We believe a healthy, robust, transparent credit reporting ecosystem supports the kind of innovation that creates new and better choices for borrowers.
Finally, we also support the creation of an Innovation Collaboration Committee and welcomes the opportunity to actively participate in such an entity that could bring together senior industry, Government, regulatory, academic and consumer representatives who are likely to be shaping the discussion about how to foster and support innovation.”
To learn more about the Australian AltFi market, check out our roundup here.