Squirrel's Bolton launches P2P lending site, taking swipe at 'bank-owned rivals'
By Sophie Boot
Nov. 2 (BusinessDesk) - Squirrel Money, the peer-to-peer lender owned by former Australia & New Zealand Banking Group executive John Bolton, has opened for business, taking a swipe at 'inauthentic, bank-owned rivals'.
Squirrel, which gained its Financial Markets Authority licence in August, offers secured and unsecured personal loans of between $3,000 and $70,000. Managing director and owner Bolton said it was the first "authentic" peer-to-peer lending service in New Zealand because it didn't source its funds from banks.
"Other offerings are really just marketing campaigns for the very banks we’re disrupting," Bolton said. "Squirrel Money is about connecting borrowers with real lenders, not banks or finance houses."
Squirrel is the second P2P lender in the New Zealand market after Harmoney Corp launched in September 2014 with $100 million in funding from Heartland Bank and New York-based Blue Elephant Capital Management. Harmoney has attracted investors including auction site operator Trade Me, which paid $7.7 million for a 15 percent stake, and the UK's P2P Global Investments, which owns 4.7 percent and provided a $200 million funding line.
P2P Global's investment valued Harmoney at $100 million. The business has gained more than 3,000 active lenders in its first year, with an average individual account balance of $6,000, and between 7,000 and 8,000 borrowers.
Bolton says Squirrel wants to draw investors away from banks by marketing itself as a safe option for investors who want a higher return than they can get from a term deposit, but don't want the risk of investing in the stock market. Investors will be able to choose an interest rate of between 6 percent and 12 percent, although rates had to be set where they would attract borrowers. By contrast, a two-year term deposit is paying annual interest of 3.71 percent.
Bolton told BusinessDesk that investors who chose a lower interest rate would have their money lent out more quickly, as that would be the "hottest money on the market", and he anticipated returns settling at around 7-to-8 percent.
As a protection mechanism for investors, Squirrel charges borrowers a "variable risk premium" based on their credit rating, and has established a reserve fund, topped up by fees from borrowers, to cover any missed payments or defaults. The reserve fund meant investors wouldn't have to be as concerned with the underlying credit risk. The fund will be set at 4 percent of loan balances, which would exceed the estimated credit losses of 1.5 percent.
Interest rates for Squirrel borrowers are determined by an auction bidding process. All borrowers are credit checked and assigned a credit score. Bolton estimates borrowing rates at between 9 and 12 percent, with the potential for borrowers with high credit scores to pay less depending on investor demand.
Bolton said Squirrel isn't targeting borrowers with a poor credit record who would otherwise go to a finance company, but rather borrowers with good credit ratings who would benefit from his firm's lower borrowing costs and an application process he says is easier than for a bank loan.
Bolton has also set up Squirrel's parent company Squirrel Mortgages, which claims to be Auckland's largest mortgage broker, writing over $800 million of home loans a year.