Can you tell us a bit about your background and why you decided to start the platform?
I’m a former investment banker who worked in private equity for a number of years. I saw what the financial industry was like from the inside: bureaucratic, slow to innovate. Banks are big organizations; there’s a lot of inertia and conservatism built into the system. I saw a real opportunity to use today’s technology and a data-driven approach to change the way banks operate in this country.
Can you give us a brief introduction to Grouplend?
Grouplend was designed to give Canadians a better way to borrow. As Canada’s first marketplace lending platform, we provide fast, easy and affordable loans by bringing together qualified borrowers with capital from individual lenders in a unique, innovative and efficient digital environment at Grouplend.ca. Our low-cost, online service model puts the power of technology to work for our customers, building a better borrowing experience that’s fully personalized.
Why is there a need for Grouplend in the Canadian market?
Banking in this country has been hyper-conservative for a long, long time. The industry’s predilection to conservatism penalizes consumers twice: first, with high fees and interest rates on credit products, and second, with a lack of innovation amongst the industry. Banking, with its traditional branch structure and legacy systems, is stuck in a century gone by. Using data-driven processes and modern technology, we’ve created an experience for the consumer that is not only cheaper, but much more convenient. Our algorithms don’t take sick days or vacations. Our service is available 24 hours a day, 7 days a week. This is truly personalized, more affordable banking that happens on your schedule.
Tell us about the regulatory framework that applies to peer-to-peer lending in Canada.
At this point in time, only accredited investors are permitted to invest in the asset class. Although retail investors are prohibited from participating, in many ways this is actually a benefit to our borrowers. Working with accredited investors keeps our operating and capital costs low, enabling us to pass those savings onto our borrowers. Tapping a large pool of scalable capital also enables us to aggressively pursue growth to expand our offering to broader base of potential borrowers.
Looking at the specifics of the platform – what are the borrowing rates, fees and average interest yields?
Our rates range from 6.3-17.5%. Most of our borrowers fall into the 9-12% range, which presents a substantial savings compared to the average credit card rate of 20%. For our investors, they can expect a 7-9% return after fees.
What type of consumer and investor are attracted to your platform?
Our consumers are prime quality borrowers. They’re average, everyday Canadians looking to save money on their credit products. The majority of our borrowers are 25-50 years old, living in urban centres, and making between $50,000 to $100,000 a year. The people you see when you walk into the coffee shop or the grocery store — that’s who this model benefits most.
Due to regulations in Canada, only accredited investors are able to participate in the peer to peer lending model (IE. high net worth individuals and institutions). With the interest rate environment in Canada at historic lows, it’s difficult for most of these investors to earn this sort of risk adjusted return in their existing portfolio assets.
How do the investors pick their loans? Is it via an auction model or are the funds auto-diversified?
The funds are auto-diversified. Our existing debt capital providers have pre-committed capital, so we’re able to fund our borrowers and sell the loans to our investors simultaneously. One of the issues that we see with similar platforms in other countries is that borrowers have to wait up to four days in some cases before their loans are fully funded. With us, that’s not the case. The pre-committed capital backstops the loans, so we can move the money immediately.
What are the minimum and maximum loan sizes you can accommodate?
Our loans range from $1,000 to $30,000.
What is the minimum investment amount?
No specific minimum required and we work with a number of sophisticated investors with varying levels of investment appetite.
Where do you see the platform in a year’s time?
The primary differentiator with our approach is that our technology gets smarter with every loan application that we receive. We get better at determining optimal interest rates. We get better at fraud detection. We learn how people use the platform. We already have a refined sense of who our customers are, and in a year from now, that will be further honed. That will result in evolution to our model through pricing improvements, feature rollouts, and new product releases.
There are many underserved markets within Canada that can and will benefit from our approach. Within the next year, we may find ourselves servicing the small business community, offering student loans or in another underserved sector. It’s hard to pinpoint right now, but there are many opportunities that have us immensely excited.