P2P-Banking.com

Smava.de, offering p2p lending in Germany, today successfully closed it’s second VC round. Earlybird and Neuhaus Partners invested 4 million Euro (approx 5.5 million US$). Earlybird did already invest 4 million Euro in Smava in the first round. Smava CEO Alexander Artopé announced that Smava will use the money for product development, marketing and internationalization.

Smava funded a loan volume of 535,000 Euro in September generating revenues (1percent origination fee) of 5,350 Euro plus an undisclosed amount (my estimate:<1,000 Euro) in commissions for insurance products.

The growth of the funded volumes per month can be seen in this chart.

Demand at Boober.nl is slowing. When I checked today only two loan listings were open. The following curve showing unique loan requests definitly shapes in the wrong direction. Boober lenders discus this development in this forum thread.

(Source Booberwatch.nl)

Since the launch 15 months ago, about 2.4 million Euro (about 3.8M US$) loan volume has been funded through Boober.

German Smava.de has funded about the same volume (2.3 million Euro) but after a slower start 14 months ago, lately the volume growth accelerated moderately.

(Smava loan volume, Source: Smava loan stats at Wiseclerk.com).

On Smava as well as on Boober average borrower interest rates have risen considerably since the start. This reduces the attractiveness for borrowers.

Dutch Boober which announced and worked on entering the German p2p lending market for over a year (see earlier coverage) apparently dropped that plan.

Source: P2P-Kredite.com

German p2p lending service Smava.de launched one year ago. Since the launch of Smava 393 loans were funded for a total loan volume of about 1.7 million Euro (approx. 2.6 million US$).

Lender’s viewpoint

In a february survey 33% of lenders answered to be very satisfied with Smava and 63% were satisfied. 48% said their ROI met expectations while 19% said it exceeded expectations.

So far a 7% ROI is realistic. Only 3 loans have defaulted and 11 are (less then 30 days) late. In the past Smava cured the majority of late loans. The Anleger-Pool mechanism spreads the losses of a default across all loans of a credit grade. Therefore when 1 in 100 loans in credit grade X defaults, the lenders invested in the defaulted loan still receive 99% of the principal, while for lenders in the current loans returns are lowered by 1%.

Technically and on the process level Smava functions as promised.

Borrower’s viewpoint

Provided the borrower has a credit grade of at least ‘H’ (95% of the German population have credit grades between ‘A’ and ‘H’ so about 5% are excluded) and he has a sufficient income, chances for obtaining a loan through Smava are good. About two third of the listings were funded. The fee of 1% of the loan amount that Smava charges borrowers is low.

Marketplace development

Smava’s growth has picked up in the last month (see chart).

(Source: smava loan stats, Wiseclerk.com, 03-21-08)

So far Smava has not reached a broad appeal. While press release state 25,000 registered users, only 650 have invested money and roughly 450 wrote a loan listing. Looking at the distribution of lenders by amount invested, the top 50 Smava lenders funded about 700,000 Euro (or about 40% of total loan volume). Currently lenders are limited to a maximum of 25,000 Euro investment.

Attracting new borrowers has been the bottleneck for Smava’s growth so far. An increase of money supply by lenders with no matching demacnd increase led to slightly falling average interest rates in the last weeks (see chart). Before rates increased, especially for credit grade ‘F’ caused by sharpened risk awareness following several late payments.

(Source: smava loan statistic, Wiseclerk.com, 03-21-08)

Smava charges borrowers a fee of 1% of the loan amount. There are no fees for lenders. Total revenue of Smava in the first year therefore was 17,000 Euro (1% von 1.7 million Euro). Prosper, Lendingclub and Zopa have much bigger p2p lending volumes per year. Boober’s loan volume in the Netherlands is about the same size as Smava’s but in a market with only one fifth the size (by inhabitants). First priority of Smava must be to accelerate growth.

German startup Valuna.de wants to help companies to raise capital through loans from private investors without a bank. The first offer is by printing service QuickPrinter which offers 15 percent interest for a 7 year 100,000 Euro loan. Minimum amount for investors is 100 Euro. The platform Valuna offers marketing, but does not handle the financial transactions which are conducted directly between the lenders and the company. More information in an detailed article on the Valuna launch (German language). 

In Germany at least four companies developed an approach that makes use of the media hype on buzz words like peer-to-peer lending or social lending.

Under the headline peer-to-peer lending they offer kind of a "dating platform" for borrowers and potential lenders. To attract borrowers they offer hope - even borrowers with bad credit history have the chance to get a loan. To the lender they promise high rates. But a close examination of these services reveals that one could just as good publish a classified in a paper to seek or offer a loan. The services do nothing but store the requests in a database, match them and inform both sides by email once a match was made. It is then up to the borrower and the lender to negotiate the loan terms, a contract, handle the money transfer and the repayments. Since they are not handling the money, the services are not regulated by German regulator Bafin.
Oh I forgot, the services do something else: they (at least 3 of the 4 I am aware of) charge the borrower a registration fee of about 9.50 Euro (approx. 6.75 US$). Note that the fee is not tied to a successful loan match but payable upon registration.

No wonder a German consumer protection agency cautioned against the use of offers like these. Calling it peer-to-peer lending might not technically be a false claim, but these services are worlds apart from comprehensive services like Zopa, Prosper and Smava.

P.S.: No I did not name the companies here in order not to give them more free traffic. The media already did that enough, because they often do not research enough.

The German site for social lending Smava.de today allowed borrowers of the lower credit grades G and H to participate. Previously only borrowers of credit grades A through F could participate. According to information published by Smava, 80% of the German population have credit grades in the range A-F, while credit grade G accounts for 10% and credit grade H accounts for 5% of the population.

This move is contrary to the development at Prosper.com which started with a very broad range of credit grades and only later restricted borrower access tighter.

However Smava, so far has experienced not one late payment. Three payment cycles have been completed with 100% of borrowers paying on time.

Other changes at the Smava site today included a lower minimum bid of 250 Euro (down from 500 Euro) and a higher interest rate ceiling (maximum interest rate 18%; up from 15%).

As P2P-Kredite.com writes, German Toogly plans to apply the idea of p2p lending  to funding startups and companies. Anybody can draft a loan request between 1000 and 100000 Euro describing the business objective. Private lenders can bid between 50 and 100000 Euro. Interest rate and term are set by the borrower.

Currently Toogly only has the idea and a domain as placeholder. The application is currently developed and the CEO Carsten Hansen says he hopes to launch in the end of the 3rd quarter.

Hansen even wants to raise the funding Toogly needs via this way rather then using Venture Capital or other means of financing.

The concept differs from site like GoBignetwork, because Toogly will handle all repayments of the loan from the borrower. It is therefor involved in processing just like other p2p lending services.

It's been roughly 3 month since the launch of German p2p lending service Smava.de and I want to do a short résumé on the results so far. One huge achievement is that all borrowers made their first payment on time - no lates so far. While it certainly is to early for conclusions, since only one payment cycle (first repayment in the beginning of June) has taken place, the outlook for Smava concerning low default rates is very good. Looks like Smava will be much nearer to Zopa then to Prosper in this point.

Smava has a very restrictive approach for admitting borrowers and loan applications. Not only does Smava verify identity, credit score and income documentation - it goes one step further and calculates if the borrower's financial situation is well enough to allow repayment of the desired loan sum. Only after completions of all these checks is the borrower allowed to publish is loan listing.

As a result the majority of borrowers (about 70 to 80 percent of all applicants) are declined from using Smava. While this strict validation is good for quality it does slow the growth of Smava.

Since the launch Smava enjoyed large and positive press coverage (newspapers, magazines, TV, internet). Despite the good PR, Smava funded only about 50 loans with a loan volume of about 150000 Euro in the first 3 month. There are enough lenders - Smava lacks borrowers. The low volume contrasts sharply from the figures Boober.nl achieved in the Dutch market (see previous post)

The majority of loan listings that were published did get funded. Smava has two interesting functions that are unique and not used on other p2p lending services:

• Borrowers can close the loan early provided it is more than 50% funded
  At Smava, listings usually run 14 days. However a borrower can decide to take the funded amount (provided it is at least 50% of the total amount) and close the listing early. Several borrowers have used this function. A borrower can open another listing (provided he has not reached his personal maximum repayment allowance) instantly for the remainder (he can even choose a different interest rate for subsequent listings)
• Borrowers can increase the offered interest rates on their open listing. If this happens the change is applied for all bids on this listing. This is a widely used feature. Many borrowers start with (ridciously) low rates. After a few days they realise their loan will not fund and they increase their interest rate - often in several steps

Smava has yet to find a good concept for groups. While there are groups their purpose is yet to be defined. Consequently the majority of borrowers did not bother to join a group.

I will continue post updates on the development of Smava here on P2P-Banking.com.

German p2p lending service Smava succeded in raising another 4 million Euro VC from Earlybird after previous cash inflow from private investors was announced just weeks ago. (Source: P2P-Kredite.com blog)