I hear from a lot of platforms both in the US and around the world in various stages of launch. Never before have I heard of a new platform launch with such a large cash war chest. Harmoney has received NZ$100 million (around US$80 million) in lending commitments – for a p2p platform to raise that kind of debt capital before launch is unprecedented.
Harmoney is the first New Zealand (NZ) p2p platform to have been licensed by the government there under the new rules that took affect in April. I have been following their evolution with great interest and have had several phone calls with their founders over the past year. I also met with them in person at LendIt 2014 in San Francisco back in May.
I have been very impressed with Harmoney from day one. Last week they launched publicly and garnered a lot of attention in the local press. But if you think this is just an NZ story, think again. There is a lot we can all learn from Harmoney and, not only that, US investors may soon be able to invest on their platform. More on that later.
First, I want to share some details of the conversation I had last week with Harmoney’s CEO, Neil Roberts and Duncan Gross their Director of Business Development.
Both gentlemen were obviously very excited about their launch. They have assembled a large cash war chest and are eager to get their business going. They have had several trips to the US over the past year and met with many prominent people in our industry including some executives at Lending Club who they said have been “very helpful.” At LendIt they also met with several of the funds in our industry and have received a commitment from one of those funds as part of the $100 million.
A Partnership With a Prominent New Zealand Bank
Also part of the $100 million is an investment from an established NZ bank called Heartland. This bank has been so impressed with Harmoney that have also taken a 10% equity stake. Heartland Bank CEO, Jeff Greenslade told TV NZ last week that his bank was attracted to the Harmoney customer base.
“We see it as a platform that gives us access to a customer base that we like anyway,” Greenslade said. “We like the concept in terms of the UK and the US, we think the model has been proven to our satisfaction overseas and also the nature of the channel being online just adds another dimension to our strategy.”
Having an established bank involved from the get-go is significant for several reasons. First, it gives a vote of confidence to both borrowers and investors alike. Second, it indicates that the banking industry is open to finding ways to work with the p2p platforms in NZ. Third, it is the first time ever a p2p lending platform has launched with the full support of a bank.
A Choice of Secured or Unsecured Loans
The borrowers at Harmoney are similar yet also very different from US borrowers. They tend to be relatively young, they average in the mid-30s; they own a home (with a mortgage) and own a car as well. And this is where it gets interesting.
The fact that the borrower owns a car is something Harmoney takes very seriously. They allow borrowers to take out a secured loan using a car as collateral. By doing this the borrower is eligible for a higher loan amount and Harmoney gets to put a lien on the vehicle.
Another interesting twist is that Harmoney allows co-signing on their loans. In fact, 80% of the loans originated so far have been joint loans with two borrowers. This means that Harmoney can take both people’s credit into account when making a credit decision again often leading to a higher loan amount.
A True Debt Consolidation Loan
Most Lending Club and Prosper investors know that the majority of the loans available at both companies are for debt consolidation. But how do we know the borrowers are really using the money to pay down their debt? The answer is we don’t.
Harmoney has a better idea. When a borrower applies for a debt consolidation loan they have the option of having Harmoney send the money directly to the credit card companies (or other lenders). This way investors can be sure the money is really going to pay down debt and isn’t going to be spent on a European vacation or a new motorcycle.
The Opportunity for Investors
Harmoney expect to have an average interest rate of around 20% and an expected annualized loss rate of around 3%-3.5%. This is an excellent opportunity for investors and helps explain how they were able to raise $100 million. And despite this large commitment they are looking for more investors.
And this is where it might get very interesting for US investors. Harmoney intends to launch their own fund called Harmoney Platinum soon. This will work in a similar way to LC Advisors insofar as it will take investor money and deploy it on to Harmoney’s platform. And they are working on making this fund available to US accredited investors. Of course, if this does in fact come to fruition you will read about it here on Lend Academy.
The Harmoney management are also looking to do a securitization at some point in the not too distant future. And unlike in the US, they have setup their platform so that they can securitize fractional loans. This will help them put a securitization together while still a young platform.
Harmoney has been operating in closed beta since July so they had already made a few loans before their launch. In the first two weeks of September they have issued NZ$1.2 million with a NZ$13,000 average loan size.
As the first p2p lending platform in NZ they realize they will have some educating to do. But the huge amount of coverage from the press has certainly helped with hundreds of investors signing up.
The Harmoney team has put together a rock star advisory board with names that would be familiar to many Lend Academy readers. I spoke with one of these board members last week and this is what he said, “Harmoney have built a Ferrari, now they get to start it up and we will see how it runs.” It should be quite the ride.
