New P2P lender LendMe talking to a local bank that fits its vision of 'kiwis lending to kiwis'
Fresh from gaining its peer-to-peer lending licence from the Financial Markets Authority, LendMe's actual launch looks set to be delayed by talks aimed at forming an alliance with a New Zealand bank.
Mark Kirkland, LendMe's founder, major shareholder and director, told interest.co.nz in a Double Shot interview LendMe had planned to launch its platform to facilitate lending and borrowing within six weeks to two months.
"(But) we're in discussions with a trading bank in New Zealand and they've asked us to basically hold back and see if we can conclude discussions and form a relationship with them," Kirkland said. "If we can that launch is likely to be in about three months time, and it will be a co-ordinated launch with them (the bank)."
"I can't name them because I've signed a confidentiality agreement," Kirkland added.
"This particular bank fits with our vision, which is basically kiwis lending to kiwis, which is the true peer-to-peer model," he added. "It has an extensive branch network and we're very excited they've got capital to put into the pot so expect to lend. And also they would be looking to take an equity position."
Heartland Bank has a stake of about 10% in New Zealand's other licensed peer-to-peer lender Harmoney, and lends money through Harmoney's platform.
Hoping to build retail funding over time
Kirkland said institutional funding will comprise the bulk of LendMe's lending initially. But over time he hopes the majority of funding will come from New Zealand retail investors.
"That may be through retirement savings funds, it might be through people just getting on the site and saying 'we want to invest in a different kind of product'... As we gain the trust and confidence of people over time we would hope to match what the banks are doing which is about 80%. But initially probably 10% to 20% (of funding will be from retail investors," Kirkland said.
He hopes LendMe will facilitate at least $50 million of lending in its first year of operation, and potentially as much as $200 million.
"The minimum bar would be $50 million and we're very profitable at that, but my target is higher, is about $200 million."
Kirkland is a former Westpac counsel. He's a director of Auckland law firm Kirkland Morrison O'Callahan, and founded LendMe with business partner Edwin Morrison.
"We've both been involved in nominee companies, which is the way lawyers used to lend money. And we were basically looking for a model some time ago that we could (use to) get back into that market, and noticed that Parliament was proposing a change to the capital markets including peer-to-peer lending. So we thought this is a great opportunity," Kirkland said.
'Golden years loans'
Two key areas LendMe will target are loans to retirees, and the rural sector. It's promising "golden years loans" aimed at older people.
"They have trouble with banks because banks think that they've got a limited number of years to pay a loan back. Banks don't like taking enforcement action against older people, it's a bad look for them. So that results in older people not really being able to engage with banks in any meaningful way, in other words get loans," Kirkland said. "So that is one area of particular emphasis we're looking at. And we have some funders that are particularly interested in that area."
'People who understand farming lending to farmers'
Having grown up on a farm himself, Kirkland said he's keen on the rural sector.
"We think there is a real lack of service by the banks. Basically we don't believe banks really understand farmers very well. So what we want to encourage, if you like, is a subset of peer-to-peer lending. So farmers lending to farmers. And that's what we're going to focus on. So people who understand farming lending to farmers," said Kirkland.
Another key focus will be New Zealand's Chinese community, with Chinese lending to Chinese, and LendMe's in discussions with "one of the largest banks in the world, a Chinese bank."
Kirkland wouldn't name the bank, but said it is registered in New Zealand. The Bank of China, the Industrial and Commercial Bank of China, and China Construction Bank are all registered as banks in New Zealand.
'A lot of work to do on interest rate pricing'
Loans done via LendMe will range in size from $25,000 to $2 million. Loans will be secured by mortgages over borrowers’ assets. LendMe says lenders/investors may fund loans in full or in increments of $1,000.
Earlier this week LendMe said its interest rates and origination fees for borrowers will be based on a credit risk grade that's assigned to each loan application. At this stage, indicative interest rates range from 5.89%, for borrowers with the lowest perceived risk, to 14.29% for borrowers with the highest perceived risk.
Lenders/investors will receive a gross interest rate, which will again be based on the risk grade of the borrower within the above range, minus an administration fee ranging from 0.95% to 2.25%, LendMe said.
However, Kirkland said LendMe still has a lot of work to do on pricing.
"The reason for that is that we're three months away from launch and the markets are fluctuating at the moment and it's very difficult to predict." "We anticipate that the very best loans, the best propositions with very good borrowers, will be paying rates pretty much similar to the bank rate, maybe a little bit higher. As the credit risk of those propositions and those borrowers goes up, their interest rate will go up."
"On the lending side, the lenders will get a lot more return than they would do investing in a bank," said Kirkland.