| Mar 14, 2013
Financial services entrepreneur Matt Symons believes there is a gaping hole in the personal credit market.
Consumers using unsecured personal credit, including credit cards, are slugged an average interest rate of 19 percent. It doesn’t matter if they have the best credit record or the worst, they pay the same high rate.
“It’s not a risk-adjusted pricing model,” Mr Symons said. “The most inequitable pricing model is for people who have excellent track records.”
Banks dominate the market for personal credit in Australia. After seeing the success of an alternative personal credit model while living in the United States, Mr Symons believed there was room for a niche player in Australia.
So-called “peer to peer lending” connects sophisticated investors who have surplus funds with creditworthy borrowers, who want to access unsecured credit at a more competitive rate.
US financial services start-up, LendingClub, has originated more than $US1 billion in loans and appointed former US Treasury secretary Larry Summers and the former head of Morgan Stanley, John Mack, to its board.
Mr Symons and his business partner, Greg Symons (no relation), hope to follow in the footsteps of such models.
Last year they set up an online business in Australia, SocietyOne, which recently surpassed $1 million in loans.
Amazon, eBay and online dating sites have successfully built pure online businesses but online success in personal credit has been limited, perhaps due to the complexity of credit assessments and originating loans.
Matt Symons began his career as a corporate lawyer at Minter Ellison specialising in intellectual property and technology, before building his own data and analytics start-up, Memetrics, which was sold to Accenture in the US.
Greg Symons has built and licensed consumer finance technology platforms to banks around the world.
SocietyOne is targeting sophisticated investors, such as wealthy individuals and family office trusts to provide funds, which are stored in a Macquarie trust account. It then intermediates the funds to creditworthy borrowers. They can borrow between $5000 and $30,000 and repay the loan in principal and interest. Eventually, the business may provide car loans and credit for small business.
Borrowers must have a strong and stable employment history and their credit track record is verified through Veda, a credit records bureau.
SocietyOne’s team of about 20 ex-bankers also examines past bank statements, checks verification data and makes other inquiries regarding the credit history of potential borrowers.
Matt Symons said borrowers receive a much more attractive interest rate, from 12.95 per cent. Investors are offered targeted returns of 10 per cent, net of management fees and allowing for the provisioning for losses in the portfolio.
“It’s an asset class that has been fantastic for the banks and which investors haven’t traditionally had access to,” he said.
But what if a loan turned sour? Mr Symons said each investor owns only a small proportion of each loan and risk is diversified.
An investor can have more than 100 borrowers in his or her portfolio.
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The Australian Financial Review