Aussie peer-to-peer lending stalwart SocietyOne has secured $15 million in funding, and established a $100 million funding warehouse facility, as it rides the wave of a successful pivot and gears up for a potential initial public offering.
The funding comes from existing investors, and comes hand-in-hand with the warehouse facility, provided by NAB.
This news follows a period of growth for the fintech, after a slight change of strategy: in late 2018, the team ‘reset’ the business, SocietyOne chief Mark Jones tells SmartCompany.
The ‘reset’ involved installing a new credit scorecard, giving the business the ability to assess potential customers more efficiently, and to offer better pricing to good existing customers.
The business also put in a new front-end system, improving customer experience, and launched a new broker distribution channel.
Before this, SocietyOne was processing $6 million to $7 million of loan originations each month. Now, it’s tripled its volumes, says Jones.
Loan originations in 2019 reached more than $230 million, up 50% on the previous year. That equated to about $17 million in revenue for SocietyOne, an increase of 44% on 2018.
The business has just passed the milestone of $800 million in total loan originations.
“When you grow quickly in a peer-to-peer business, you have to find the funds to lend to borrowers,” Jones explains.
It means the business has moved away from what Jones calls fractionalised lending, “where we would break the loan up into 100 parts”, and towards bigger investors who can commit more, making it easier for the team to manage funding.
“We’re more concentrated on funding from people like insurance companies and super funds and investment vehicles, rather than mums and dads,” he says.
However, this didn’t go down too well with the Australian Prudential Regulation Authority (APRA), which demanded more scrutiny as to where these institutions’ money was going.
Hence, the warehouse solution, set up by NAB, which holds the investments of large institutions to the tune $100 million, and scalable to $200 million.
The $15 million capital raise, Jones says, provides the “most risky” tranche of the warehouse funding, as well a mechanism to drive growth in the business more generally.
“The institutions like it when we do some ourselves, because it means we’re all aligned in our objectives,” he explains.
All grown up?
For a peer-to-peer lending fintech, this is all starting to sound very institutional, and Jones admits the startup has grown up and evolved since its scrappy startup beginnings.
“We are certainly the biggest peer-to-peer lender in Australia on the consumer side,” he says.
“When our investors look at us, we’re high-quality now and we know what we’re doing.”
However, he maintains the business is still a fintech; it’s data-driven and still relies on digital processes.
And, regardless of where the funds come from, it’s still all about matching money with borrowers.
“That’s still a core part of our business,” Jones adds.
However, there’s no escaping the fact it’s a bigger beast now, he says. And, if it’s going to do all it set out to do, it’s going to need even more cash.
“The whole idea was that we were going to disrupt the banks and provide customers with a better experience,” he says.
“We’ve now got to a point where we’ve got personal loans going, but if we would like to grow products and services, we will probably need some investment capital.”
So in the current market, at a time when everyone seems to be talking about fintech, Jones is considering an initial public offering before the end of the year.
“The business is tracking really well and in the marketplace generally fintechs are seen as disrupting the banks,” he explains.
“If we’re going to go, 2020 would be a good time to do it.”