Thinking of going for a holiday? There’s a good chance you’ll now click into Airbnb before looking for a serviced hotel.
Then, when going out from that Airbnb apartment, you might call an Uber instead of flagging down a taxi.
Airbnb and Uber are pioneers of the sharing economy, and are changing the way we travel and conduct our business. They are part of a tech culture making life simpler for consumers and offering more alternative choices.
The traditional pillars of banking and finance have so far been insulated from the disruptive world of technology.
Rise of the peer
Peer-to-peer lending has been making waves in banking in the US and the UK. In Britain, loan volumes are doubling every month, passing the £1 billion mark last year.
It essentially bypasses the middleman - the banks, credit unions, or loan sharks - by connecting investors and borrowers online.
Investors are able to earn more on their cash than they can in a traditional savings account, spreading their risk by investing in small portions of numerous loans, while borrowers get access to personal loans at cheaper rates.
Harmoney, which launched in New Zealand last year, is currently New Zealand’s only peer-to-peer lending platform, and the first to receive approval under the Financial Markets Conduct Act.
Important organisations are taking notice. In January, New Zealand’s answer to eBay, Trade Me, bought into the business with a 15 per cent stake.
In Australia, peer-to-peer lending has caught the attention, and investment dollars, of prominent businessmen like Lachlan Murdoch and James Packer.
An American P2P company has even attracted a $125 million investment from Google.
Peer-to-peer lending offers a better deal for both lenders and borrowers. Its fast, uncomplicated process also makes it easy to invest and borrow.
Without bricks and mortar branch networks to maintain, Harmoney is able to pass on profits to investors and keep borrowing costs down.
Here’s how it works:
- Borrowers complete a fast and straightforward application online for a loan between $1,000 and $35,000.
- Harmoney assesses each case and gives a credit grade and an interest rate.
- Investors invest in chunks of loans that meet their criteria, diversifying their total investment over multiple loans.
- Borrowers pay fixed monthly repayments, and investors receive monthly returns on their investment.
Risks and rewards
Because an investor does not fund the full amount of a loan, they can start with as little as $500. Likewise, there is no set interest rate – your overall return will reflect the range of rates in your loan portfolio. Harmoney has a strict screening process for borrowers, meaning the risk level is clear. Since its launch, the company has actually rejected more than 70 per cent of loan applications, maintaining a low credit risk to investors.
With rates starting from 9.99%, the main benefit for borrowers with low risk and great credit histories is the potential to get a lower interest rate than they might elsewhere. Borrowers may also be able to get a loan with Harmoney if they’ve been unsuccessful elsewhere.