Between burger and an ice cream in Hard Rock Cafe I jotted down notes from today’s bootstrap. I needed them in electronic form anyway. I wrote down stuff which seemed useful for me, so it’s not guaranteed to be complete.
This time it was in an unusual for boostrap form of a panel. Meeting took 3 hours, but I found it very interesting. Technical people might beg to differ, though, as tax/legal discussion was really exhaustive (exhausting).
I made some comments below in the notes, but here I can also share my “first impression” of the P2P lenders present. It is really first impression because I didn’t bother to check them myself, so some doubts below might be result of this.
Finansowo – approach to start as simple as possible, no collections or support in executing transactions between peers. The biggest risk is that some things that they ignore seem critical (collections).
Monetto (blog)- most advanced approach, ensured partners from the beginning, including bank (mBank) and collectors. The biggest risk is that they start with a very complicated machine that no-one will use.
Kokos – midway between the two, with the advantage that it is already up and running.
On a first glance I like Finansowo and Monetto, because they follow clear-cut concepts of simplicity and exhaustiveness, while Kokos was less clear, at least as much can be judged from the presentation, and also takes cautious approach regarding some legal challenges (e.g. possibility to grant anonymity and stick to electronic contract form).
Presentation of Arkadiusz Hajduk about his P2P startup (IOU Central):
- The startup was initially located in Denmark
- Two guys on a sofa
- I liked the quote – “expert is a person who committed all possible mistakes in a narrow field of specialty”
- Idea was inspired by prosper
- They didn’t bother with business plans and presentations (note: maybe not so good in the end, given later credit history problem, see below)
- Nevertheless, they got angel from early on – entrepreneur, house builder
- Features of their angel – did call from time to time, but otherwise didn’t require much reporting, in retrospect now they would prefer someone more of a “mentor” type
- They coded for 4 months without office
- Then they got office, at respectable location (good for customer trust)
- They coded another 6 months when they had office
- First version was seen and tested by some 30 people
- Operating model assumed that they don’t make credit decision or take on risk – all this is on the lender
- Highlight of the “growth” period – 90 minutes on the front page of a major business portal
- After launch, lenders turned out not a huge problem; in a first week, one person offered equivalent of ca. PLN 50k
- However, huge problem with (good) borrowers
- Also, in Denmark there is no access to credit history (only yes/no credit problems query possible)
- Side note: banks in Denmark do not care to advertise to people more than 25 years old, because no one ever changes the bank
- They had two evident fraud cases
- In the end, business model didn’t fly because of borrower problem (people took wait-and-see approach), resulting in the “decline” phase
- Luckily, they were approached by people from Canada, who had non-technical capabilities in the area but needed technology platform, and they sold out
- Angel apparently got 150% of his initial contribution
- Lessons learned: don’t hesitate to kill your own ideas
Then there was a panel.
- P2P lending – general term, people lending to each other (online I guess)
- Social lending – more specific, people lending to other people they know, like relatives, colleagues etc. – more like social networks, not really lending to strangers
“Competences” represented by the players
- Kokos – backed by Blue Media
- Monetto – some seed fund, experience from Inteligo, Moje Rachunki, Central Bank, on top of this Sebastian Kwiecien
Tax & legal stuff
- (this was most heated and longish section of the panel and I think more technical people must have been fed up with it)
- “Belka” tax has to be paid (19% of financial income)
- There was some longer discussion about legal operations tax (or whatever it’s called)
- Finansowo mentioned some threshold of PLN 1000 up to which there is no tax, but this apparently relates to buy-sell contracts and not loans; btw finansowo seemed “happy-go-lucky” to me at times and in particular they don’t seem to care so much about legal stuff, or at least not so much as other guys
- For loans, limit is PLN 5000 for transactions with one person (in three years?), and PLN 25,000 with multiple people
- Then another quarrel whether it is necessary to have written agreement, Kokos thinks that it is necessary (btw Kokos founder is a lawyer) with deals over PLN 500 to be valid as evidence, while Monetto thinks electronic form is just fine
- Then another about people doing P2P lending being classified by tax authority as conducting economic activity (because it would be continuous and organized etc.)
- Then another about possibility to have anonymous contract between parties, Kokos thinks not possible (evidence again), Monetto plans to have such option
- Then another about whether P2P sites are in the deposit business through blocking money, which would be illegal according to banking law etc.
- There was a question I would ask myself, ie. whether it wouldn’t be easier to just go in a cooperative bank model (SKOK). However, they considered it and there are some barriers related to entering SKOK association (need to pay it money for admission, software, etc), and also some day SKOKs are expected to lose their privileged position, so little potential for future
- Requirements related to fraud prevention (term of the day: “social laundry”) – Kokos thinks they are obliged to inform authorities, others think they are not required because of the small transaction limits, or because the banks already to it for them when money transfers are executed
- Companies – not in scope, because, I don’t remember exactly, they need written form or something like this
- Type of loan:
- It was emphasized that loans should be purposeful
- “I don’t give money to the beggars”
- Predefined purpose types
- Possibly functionality to verify that money was used for declared purpose, or even cashless loan execution (ie. lender pay money directly to the shop, which delivers product to the borrower); like POS loans, cool! (but seems too complex)
- Average expected loan ticket:
- Finansowo – ca. PLN 500
- Kokos – ca. PLN 1,200
- Monetto – ca. PLN 3,000 (thinks going to P2P portal for PLN 500 is ridiculous)
- Client verification and credit decision:
- Finansowo – does not plan to do any checks including BIK and KRD (debtors registry), “not to be more demanding than the banks”, they do however check the client’s credential through 1 PLN money transfer, and verify mobile phone; in general their approach is “loan tickets will be small so potential losses will also be small so the customers will not hurt and moreover customers can diversify loans they give”
- Monetto – will do checks in BIK, KRD
- Transaction execution:
- Finansowo – they will act just like an intermediating party, “will not even touch the money”, I guess people will simply transfer it on their own
- Kokos – they provide some support for executing transactions, didn’t understand exactly how, but it is not bulletproof, e.g. money to be lent is not blocked, so lender may fail to fulfill their part of the transaction in the end, also customer may not receive all the money he requested (with a minimum of 50%) etc.
- Monetto – seems to be (planned to be) most tight, money block, 100% of the amount requested guaranteed etc.
- Time to money:
- Finansowo – 1-2 days depending on where clients have current accounts (ok, but they hardly do anything other than match parties)
- Kokos – 10-12 days since the day of registration
- Monetto – claims a dozen minutes or so (ooook)
- Finansowo – doesn’t plan to have support for collections in the beginning, “trust people”, lender and borrowers are supposed to be acquainted etc.
- Kokos – n/a
- Monetto – expected to have Collections (through partner) from the very beginning
- (My comment – if P2P is like Consumer Finance business, then collections is critical from the beginning and going to the market without it would not be recommended. On the other hand, perhaps peers who know each other can handle collections on their own, which would be pretty convenient. Personally, I would find pushing someone I know to pay me installment akward, I would prefer some “third party” to do the dirty job instead, but I’m not in the target group)
- Not discussed but I find it quite interesting – if my loan is granted in pieces by 10 different lenders, do I have to execute 10 money transfers each month? Do sites provide support for this? Who calculated repayment schedule etc.
- Even though P2P is supposed to be more financially attractive than the banks, panelists emphasized more important benefits attracting the customer, especially “personal dimension of the finance” – having direct control over lending, or even understanding it as “helping” people
- Also, lenders often fail to understand that their advertised interest rate is composite, i.e. they earn it only till first installment, because then credit balance decreases
- Selling proposition by players:
- Finansowo – “help someone”, easiness
- Monetto – safety, more interest than on bank deposit, no risk
Target customer group
- All sites target young people, defined 22-34
- Finansowo especially targets students
- (Students are the worst borrowers. Also, some “peers” must act as lenders, and finding them among students might be difficult by definition. When I was a student I don’t really remember lending larger amounts from other students)
- Expects 1% commission
- Nevertheless, commission revenues will be “symbolic”, more important will be referral revenues (e.g. from the banks)
- I forgot how much commission
- Commission, but expects to earn money on other services, on top of P2P lending
- How are new ideas received?
- Denmark – worst
- Canada – better than Denmark, but still they wait for six years before considering idea proved and implementing it in Canada
- Poland – surprisingly open for new ideas, for example regarding P2P lending, there are several sites in the US, in China there are 2, in other countries 1 or none, while in Poland four of them are already starting
- Market share of P2P – Monetto found some Gartner projection that in the future (don’t remember which year) P2P will have 10% share in the lending market (hopefully online P2P, because as for offline, I expect it to always having much more than that already)
- Important trends:
- Some directive will allow international money transfers for price of local ones in 2009, and they should not take more than 1-2 days
- Opening of P2P lending in muslim countries, where they apparently are not supposed to use interest on loans (so P2P in competitive position against the banks? perhaps that was the idea)
- Kokos – already on the market
- Finansowo – within a week
- Monetto – “within a bit more than a week”