European online lender October explains that they aim to effectively connect borrowers and lenders.
Lenders are able to invest their savings “usefully” and “profitably” in order to facilitate the funding of the “real economy” while companies or businesses “find new, simple and effective sources of finance independently of banks.”
As mentioned in a blog post by October, their platform allows users to support their companies’ growth and boost their savings at the same time.
In an update, the October team explains that repayments are the capital and interest that lenders “obtain from supporting companies’ growth projects with their savings.” The online lender adds that repayments are made on a regular basis, “depending on the amortization schedule of their loan.”
October provides amortizable loans, “for which you will receive capital and interest each month, and deferred loans, for which you will receive repayments after a period of time, such as the French state-guaranteed loans,” the company explains.
The October team further noted that on the 5th of every month, they order their payment service provider to “charge the borrowers’ bank account for the amount of the monthly instalment.”
As noted by October, this direct debit is “made following the Single Euro Payment Area (SEPA) standards.” According to SEPA, payment rejections may “occur up to 5 business days after the operation date.” That’s why a delay is “taken into account to confirm the transfer, after which your October account is credited, between the 15th and the 20th.”
The October team also mentioned that the date of your next repayments may be checked from the Transaction tab in the portfolio. The date “showed is indicative and there may be a lag of 1 to 2 days between the predicted and actual repayment date,” the company’s blog post explained. It also noted that this lag may be due to a bank holiday during that period or “due to an exceptional technical issue, but you will always be repaid by the 20th of the month.”
Every month, the October team works cooperatively to “ensure that you receive your repayments on your October account.” It’s an organized process where all teams are responsible for carrying out certain tasks.
As noted in the blog post:
“At the beginning of the month, the Operations team monitors if the direct debit for the monthly instalment has been processed successfully. This team is also responsible for recovering the late payments in case of incident and sharing information to the Lenders team to communicate on a payment delay to lenders.”
October also noted that during all the repayment processes, the Operations team works with their payment service provider, Lemon Way.
As mentioned in the update, Lemon Way is a financial entity that has been approved and supervised by the French financial regulator, that “manages all the financial transactions on the platform.”
Lemon Way authorizes the direct debits and “assigns the funds to the right borrower wallet.” After the funds are assigned, October will organize the repayments “by ordering a peer-to-peer transfer from the borrowers’ wallets to the lenders’ wallets,” the company explained.
After the Operations team knows the final status of each direct debit, the Lenders Relations team “comes into play.” The Lenders team obtains all the necessary information and details regarding late or rescheduled projects and early repayments from the Operations team and “prepare the communication that lenders will receive on the repayments day.”
In order to do so, they add a message that has been prepared in all languages “on the Activity page of the project and change the status of the project.” Each time the project status gets updated, a provision (a loss estimation) will be “applied to your outstanding capital and your net IRR will be adjusted,” the company noted.
The October team further noted:
“Finally, when the Operations and Lenders Relations teams are done with their tasks, the Tech team processes the repayment transactions and monitors them in case of errors. More than one million transactions are processed every month by the team! Besides, they are responsible for generating the new repayment schedules and managing the credit paybacks and early repayments.”
Even when all the teams coordinate their efforts, “repayments can suffer a delay” because of several different issues, the blog post from October revealed.
They also mentioned that the mandate is an authorization provided by the borrower, when formalizing the loan agreement, which allows October to “charge their bank account every month.” The bank of the borrower then is required to register this mandate so that October is able to process the direct debit.
As noted by October, Mandate issues usually occur when the registration by the bank is not successful. For instance, if the mandate is registered “with a wrong reference.” In that case, there will be “a mismatch between the mandate reference and the information at the bank, which will lead to the failure of the direct debit,” October’s blog post noted. It also mentioned that direct debits being done at the beginning of the month, October “usually has enough margin to solve the mandate issue and charge the instalment before the date of the repayments.”
Technical issues can also arise and be “related to a third party problem or be internal.”
The company clarified:
“October does not manage the money from our clients directly. Every borrower and lender has a wallet on Lemon Way and it is where October monitors the financial transactions. At the same time, Lemon Way is backed by banks. If any of these actors experiences a technical issue (which origin can be diverse), even temporary, that may create a time lag on our refund processes.”
“The same is true for October. Any technical issue, on our system can delay the repayment slightly, for example an unplanned server maintenance by our hosting provider or an overload of the servers. If that occurs, our Tech team will make its best to solve the issue as quickly as possible.”
It can also be the case that the firm has insufficient funds on the bank account to “repay their loan and the bank declines the direct debit” which “means that we do not receive the money,” the October team noted.
In this case, their Operations team is the one that “reaches out to the company to understand why the direct debit was declined and to find a solution.”
Depending on the situation, there may be two different scenarios or possibilities.
As noted by October, the company may be able to “regularize the situation and transfer the money before the repayment day or close to the repayment date.” The repayments are “credited to your October account,” the company noted
Or, it could be the case that the firm “really has a liquidity problem” so it may “not possible to repay lenders.” The Lenders Relation team “communicates the late payment to the lenders of the project and the recovery actions will start.”
As noted by October:
“When a borrower has liquidity issues and is in default, our Operations team reaches out to understand the situation of the company. Together with the borrower they will try to find ways to recover the outstanding debt.”
If the firm works cooperatively with October, then the the online lender will “lead amicable recovery actions.” An amicable recovery “goes from a quick regularization of the instalment to a rescheduling process if the company experiences more structural difficulties,” October explained.
The online lender also mentioned:
“If the company is not willing to collaborate with October or if the company is in insolvency proceeding, we will start the judicial recovery actions. In this case, we will handle the judicial procedures along with the external recovery agency and external partners (attorneys, receiver, etc). Judicial procedures are usually long processes and the recovery updates might become less frequent during that period. Lending to companies represents a risk of losing capital, but our mission is to defend your interest at anytime.”
“At October, we believe in transparency. By sharing … our processes, we aim [to] build a trusting relationship with our community of borrowers, lenders and partners.”