After a series of false starts, personal lender SocietyOne is finally hitting its stride: loan originations are sharply higher, it has just secured a new
warehouse funding facility with National Australia Bank, and a long-anticipated public market listing could happen this year.
A SocietyOne initial public offering has been touted for many years, after various media moguls piled into the company in 2014. But building a professional, properly governed alternative to the major banks in the $20 billion personal loan market has taken longer than expected.
Yet each of the past three months have seen new lending at record levels. Originations in 2019 were $234 million, up 51 per cent. The business, founded in 2011, is profitable and writing between $20 million to $25 million of new loans a month.
SocietyOne chief executive Mark Jones: “We know what a good customer looks like, so we can spend more time in the places where good customers are."
Its loan book now exceeds $300 million as it heads towards $1 billion of cumulative lending. Based on a global peer average valuation multiple of 65 per cent of the lending book, the fintech has a valuation of around $200 million – but could be worth more on the ASX.
“The market could put more value on the opportunity for us to have an impact relative to existing incumbents,” said chief executive Mark Jones.
Simon Cant, Reinventure Group co-founder. “All of the metrics are now better than they ever have been."
SocietyOne has just inked a new $100 million warehouse facility with NAB, scalable to at least $200 million, and its major shareholders recently tipped another $15 million of equity into the company, to back the new facility and support growth, as revealed by Street Talk.
“I am more bullish about the business then I have ever been,” said Simon Cant, co- founder of Reinventure Group, the Westpac venture capital fund that first invested in the business in early 2014.
“As first mover, you get a break on the market, but you are the first one making all the decisions and learning from all the challenges. There were certain things to work through to get the business into shape. We have come through that.
"There's a really strong management team with deep experience and understanding of banking, that is energised and heartened by the scale-up experience.”
The warehouse comes alongside a new unit trust funding structure for sophisticated investors and the consolidation of its bank funders. “Peer-to-peer lending” is no longer about mum and dad investors backing loans, but institutional funding.
Mr Jones wants the warehouse to provide up to half of the total funding, with a quarter coming from the unit trust and another quarter from institutions. The cost of the warehouse is under 4 per cent, and slightly over 7 per cent in total. Investors, who assume credit risk, have been receiving a 6 per cent annualised interestrate.
SocietyOne prices loans based on customers' riskiness; the annual percentage interest rates varies between 9 per cent and 21 per cent. It has served more than 32,000 borrowers and is using targeted, digital marketing techniques to find new customers. A couple of new products are about to be launched.
“We know what a good customer looks like, so we can spend more time in the places where good customers are," Mr Jones said.
Since he took over from Jason Yetton in mid-2018, SocietyOne's lending volumes have tripled, revenue is up 60 per cent, and credit defaults have more than halved. The number of loans more than 30 days due is 2.3 per cent, while those more than 90 days past due are just 1.1 per cent.
“We have figured out what a good loan customer is online: we can find them, and we can originate them cost effectively," Mr Jones said. "So we have been able to push our volume up at the same time as halving our credit default rate. That’s a great world for a lender to be in.”
SocietyOne was gearing up for a float this time last year but plans were derailed when the Australian Prudential Regulation Authority wrote to mutual banks, telling them it wasn't comfortable with them funding P2P loans.
This has resulted in the institutional lending panel being reduced from 28 mutual banks to around 10; funders are now providing larger amounts, and taking whole interests in loans rather than fractionalised amounts.
Over the next few months, SocietyOne's powerful shareholders – which include Seven West Media, Consolidated Press Holdings, News Corporation, and Australian Capital Equity – will determine whether timing is right for a tilt at the ASX.
“Public markets have swings and roundabouts, but markets are seeing growth in fintech businesses, which is warranted," Mr Cant said.
"Overall, this is a positive market open to fintech listings. Banks are gradually pulling out of personal, unsecured lending and the public is getting more comfortable with fintechs as time passes. They see some are here to stay.”
Senior Reporter - Feb 10, 2020