Published on the 23/01/2015 | Written by Clare Coulson
As peer to peer lending platforms gain momentum, traditional lending institutions will need to evolve to remain relevant in a new lending culture…
Last week TradeMe bought a $7.7 million, 15 percent stake in New Zealand’s first peer to peer lending platform, Harmoney after a successful round of capital raising. The round saw Harmoney receive multiple offers from investors in New Zealand and overseas, and left it $10 million the richer.
The Trade Me investment is a strong endorsement for the fledgling company, which was established in September last year as an alternative way for ordinary New Zealanders to borrow and lend money. Harmoney CEO Neil Roberts said it was fantastic to have publicly listed Trade Me on board as a key investor and partner. “More importantly, we gain a strategic partner and distribution channel with deep domain knowledge of building and running an online marketplace,” he added.
TradeMe and Harmoney are a natural fit. As Trade Me’s CEO Jon Macdonald put it: “Harmoney and Trade Me share a common purpose in that we are both all about providing Kiwi consumers with a safe, trusted, scalable, efficient online platform to undertake a transaction – the Trade Me platform is all about items changing hands, and Harmoney’s platform is all about dollars changing hands.”
Sue Brown, a partner with DLA Phillips Fox with a background at the Financial Markets Authority, agrees. She sees peer to peer lending as a game changer for the financial sector, although it is still early days.
New Zealand was one of the first countries in the world to overhaul securities law and to allow for peer to peer lending platforms in a once-in-a-generation change to the way in which financial products are managed and sold. The US and UK led the way but Australia has been slow to join the party, which has led some commentators to suggest that Australian businesses will come to seek funding through New Zealand-based platforms.
The new growth capital that Harmoney has accrued, combined with Trade Me’s brand, reputation and its online platform will help Harmoney to quickly scale its operations and remain at the forefront of the peer to peer lending market, she says. With a foothold in Trade Me, Harmoney has the ability to eventually become a force in the New Zealand lending market place. While the peer to peer sector isn’t yet big enough to challenge the current lending model in a significant way and may never be, Brown says it could “develop into a viable sector that will snap at the heels of the big financial institutions and cause them to think long and hard about their business structures and about finding tech savvy and appealing ways of reaching out to investors”.
Although traditional lending institutions reactions to peer to peer platforms have been mixed Brown says the savvy ones could learn a lot from the likes of Harmoney about developing business models that meet the market in a way that is ‘right sized’ from both a regulatory and customer perspective.
“The traditional lenders rightly say that they are subject to a raft of regulation that doesn’t apply to the peer to peer or crowd funding sectors and that this will affect their cost to investors and potentially their own bottom line. But listening to customers and their needs, and developing a ‘right sized’ response to regulatory change, are great ways to remain relevant in a rapidly changing market,” she concludes.
