There are few international markets in the developed world that lack any trace of peer-to-peer lending activity. But there are many in which that activity emanates from just a handful of very early-stage operators. These formative markets are receiving heaps of attention from VCs on the hunt for the next geography-defining alternative lender. The lenders themselves face a balance of daunting obstacles to growth and tremendous opportunity.
Sweden is one such market, and Lendify one such platform. The consumer lender – which delivers unsecured credit to prime borrowers – sees itself as the nation’s first true marketplace lending platform. Lendify has managed to get a head start in the sector from a regulatory perspective – having achieved authorisation some 12-18 months ahead of the competition.
We caught up with Lendify Co-Founder Nicholas Sundén-Cullberg. He paints a picture of a market striving for sophistication, and poised for considerable growth – with trust-building, as it so often is, proving to be perhaps the platform's greatest challenge.
Could you give us a brief introduction to Lendify?
Lendify is Sweden's first and leading marketplace lending platform focused on prime borrowers in the unsecured consumer credit space. Since launch in August 2014, we have handled SEK 350 MM worth of loan applications and have acquired 3,000 members (registered lenders and borrowers). Lendify has a 12-18 month head-start to competition due to the regulatory hurdles and operational requirements that face new entrants.
Give us a brief overview of the peer-to-peer lending market in Sweden.
There are currently three active p2p lending companies (apart from Lendify, there are two companies that focus on medium/high-risk small and short-term unsecured consumer credits). Lendify is the only platform that focuses on prime borrowers in the unsecured consumer credit space and hence the only real bank-challenger. The banks (65% are system critical banks (4 companies) and 35% are non-system critical smaller consumer credit providers (20+ companies)) dominate the Swedish consumer credit market and still enjoy c. 100% market share (for prime borrowers, which Lendify targets). We expect that at least four new p2p lending companies will enter the market this year, probably as soon as they have regulatory approval. In the SMB space there are currently two companies active that I am aware of.
Why has peer-to-peer lending been slow to develop in Sweden?
The financial industry in Sweden is highly regulated. Swedish law regulates the provision and/or intermediation of credit to consumers requiring, inter alia, marketplace lending companies to obtain a consumer credit institution license from the Swedish Financial Supervisory Authority (Sw. Finansinspektionen). Those p2p lending companies that manage to pass the first regulatory threshold I think will be able to leverage a lot from the marketplace industry in the more established markets (the US and the UK, specifically) and grow rapidly.
The global investors who see what’s going on in the US and UK tend to invest in businesses that are present in the largest and most sophisticated (highly regulated) markets first. That’s why we see with the most established p2p lenders are based in the UK, Germany and France (being large and sophisticated markets). Now that the industry has grown and matured, investors are looking at other attractive geographical markets to find companies that can become domestic (e.g. Sweden) and regional (e.g. Nordics) champions. The Swedish consumer credit market is large on a per-capita basis and highly sophisticated, both in terms of regulation and systems/structures for debt repayment/collection. Other attractive markets in Europe may be for example Spain and Poland because those markets are large (but lightly, if at all, regulated).
The first p2p company to enter brought payday loans in p2p-form to the Swedish market. Because payday loans (also called “SMS-loans”) tend to put even more strain on people whom are already in financial distress, the providers of such loans are often labelled as “unserious” and “short-termed”. The general public equated payday/SMS-loans with p2p lending, which is unfortunate for us and the other serious and more long-term thinking p2p lending companies/initiatives. We have a huge task of building trust and awareness for the p2p lending industry in Sweden.
If you were given the chance to construct a Swedish regulatory framework from scratch - what would be the first feature that you would cherry pick from an existing international regime?
Adequate platform credit risk assessment for loans on platform and calculation of historic returns on “apples to apples” basis.
Practicalities: who does Lendify lend to? What is the borrower interest rate range? What fees do you charge? What is the average, default-adjusted return for investors on the platform to date? Do you operate an auction-based model?
Prime borrowers (no payment remarks with Sweden’s leading credit reference agency [“UC” covers data for all Swedish residents], income c. 30,000 GBP p.a., most commonly uses Lendify to consolidate other loans). Nominal interest rates are 2.95%-11.83% (effective 4.84%-14.79%). We charge service fee (0.25%-1.50%) from investors and origination fee (1%-5%) from borrowers. The net-return to date is 6%. We do not operate an auction-based model.
Are you currently working with institutions on the investor side?
We currently don’t (the funding is 100% retail so far). Our aim is to have institutional partnerships in place this year. We are in advanced talks with a bank and are in the process of setting up a fund that will provide access for accredited investors (HNWIs, hedge funds, family offices etc.) to invest in loans through Lendify’s platform.
Tell us about the work you're doing to establish a Swedish equivalent of the P2PFA.
We have started reaching out to the p2p companies/initiatives that have applied for a license from the Swedish Financial Supervisory Authority (Sw. Finansinspektionen). When/if these companies are approved to commence business, the discussions will become more relevant and hopefully materialize in a draft framework that we can present to the Swedish Financial Supervisory Authority (Sw. Finansinspektionen).