Harmoney a leading online lender operating in New Zealand is winding down its peer to peer lending business. This means retail investors will no longer be able to invest in loans originated on the platform. The news was revealed earlier this month in a blog post where the shift was described as a move to “free up resources” as all loans will now be directly financed.
An email has been distributed to Harmoney investors stating:
“After careful analysis of Harmoney’s business model and the company’s strategic direction we have made the decision to no longer offer new loans for investment by retail lenders from 1 April 2020.”
The company said they have not taken the decision lightly but it is the right move for Harmoney and the move will enable the Fintech to lead in creating better personal loan products in a competitive market. Existing loans will be wound down.
Harmoney CEO David Stevens stated:
“Our purpose is to help and inspire people to achieve their goals through financial products that are friendly, fair and simple to use, and we are proud that Harmoney created a new class of retail investment and has become a Kiwi-made Australasian success story in what is still a young sector. We recently completed a successful Series C capital raise, and have surpassed $1.5 billion in lending, and we look forward to continuing to innovate for the improvement of the whole industry and to support borrowers and investors.”
Harmoney added that it will maintain its P2P license with the FMA.
Harmoney is not the first Fintech to exit the peer to peer lending space. While a good number of P2P platforms helped to fuel the Fintech boom, fewer and fewer are matching retail investors with borrowers.
At the end of last year, several prominent UK P2P platforms announced the same transition away from P2P. While some industry participants believe the shift was due to new, stricter rules, others believe it is the pursuit of profitability that got in the way. In the US, marketplace lending platforms still accept individual investor money but the percentage of overall financing has grown smaller as platforms seek diverse capital streams and a lower cost of funding. In the end, managing thousands of individual investors, and the affiliated legal risk, is simply too high. Taking institutional money is easier.
Perhaps, this is all part of the natural evolution where it is the ability of Fintechs to be agile and quickly iterate in the pursuit of sustainability. While it may be sad for some retail investors, they will move their money elsewhere – perhaps to another Fintech.
For former Harmoney investors, it seems that while one door has closed another has opened wider.
The very next day of the Harmoney announcement, competitor Squirrel they were making it both easier and more accessible for retail investors to get better returns:
“In March, Squirrel investors will be able to invest in Kiwis buying property as well as the usual personal loan investment class already available. Given the background to Squirrel with over 10 years experience writing over a billion dollars in mortgages each year, this is a natural progression for us into a space we’re very comfortable.”
Retail investors may expect returns from 4% to 7% depending on the asset. Of note is the fact that Squirrel has a reserve fund that helps to cover credit losses. A secondary market adds liquidity to the equation. Competition in Fintech is good.