Lender warns of heavy write-offs

‘Market talk’ has it that some Australian P2P lenders are deliberately dropping their lending standards, according to The Invoice Market (tim) managing director Angus Sedgwick, in a crude attempt to accelerate the growth of their asset books.

If correct, this would follow the trend currently being seen in both the UK and US, he said, and could see the sector being hit with unnecessary write-offs in the long run.

“Typically, if funders are experiencing higher than expected loss ratios it may be a reflection of a heavy reliance on algorithmic credit underwriting processes,” he added.

“They may allow for higher volume of transactions but typically are not intuitive or robust enough to accurately assess the quality of transactions in the SME space, particularly where the business is a start-up,” Mr Sedgwick said.

In contrast, he said that by adding an element of human intervention to its own credit assessment process The Invoice Market has kept its loss ratio to below 0.4% of the total book over the past two years.

His comments follow the announcement of a significant milestone being reached by the P2P invoice funder.

One of the early entrants, The Invoice Market is celebrating its second anniversary in the market this week, since it helped its first client cash flow a batch of invoices two years ago to the value of almost a million dollars. 

“From funding our first client tim has built a strong business supporting SMEs where the traditional funders are unwilling, or unable, to do so,” Mr Sedgwick said. 

He also reflected on a number of changes the fledgling industry has already experienced — including the rapid increase in the competitive landscape, funder consolidation, and the development of lead capture portals. 

“Many of these changes have been positive as they are helping to build an awareness of the alternative financing options available for businesses,” he said.

Mr Sedgwick said the main upside of having this extra choice is that SMEs are no longer restricted to on-balance sheet funding only — which many do not want, or are unable to get.

[Related: P2P funder announces rebrand]