While it took a decade longer than their neighbours to the south, Canada finally has a true peer-to-peer lending platform available for retail investors.
goPeer’s digital lending platform debuted September 1, co-founder and CEO Marc-Antoine Caya said. The company’s technology connects credit-worthy Canadians seeking a loan with those looking to invest as little as $10.
“Unlike other platforms, with goPeer you don’t need to be an accredited investor to start investing,” Mr. Caya said. “We want to democratize lending, and make it accessible to all Canadians.
“Canadian investors want to diversify their investment portfolio, but are faced with limited options beyond traditional stocks. We are changing that”.
The American P2P system was borne out of the 2008 crash and goPeer is introducing Canada’s system under similar circumstances, Mr. Caya said. With the COVID-19 pandemic causing financial hardship for many Canadians, they could find even fewer options when seeking a loan for home renovations or debt consolidation.
And that is impacting the economy. As banks chase bigger financial fish upstream, they reckon it makes more sense to spend the underwriting time and effort on a six- or seven-figure loan instead of $20,000 to improve a home or to consolidate debt.
The size of the Canadian consumer loan marketplace (57 per cent of Canadians carry expensive credit card debt, Mr. Caya said) makes it enticing and technology makes it accessible, Mr. Caya explained. Their serverless architecture combines machine learning and artificial intelligence to digitize the process while providing a strong UX. Approval to list on goPeer can be delivered in minutes.
Demand has been strong in the first 10 days, Mr. Caya said, with more than $2.5 million in loan applications received. goPeer if focusing on onboarding investors so a strong base will be available to invest in the loans as they come in.
Once assessed, buyers are assigned a letter grade on their request and that dictates the interest rate they pay. Rates begin at 7.5 per cent and terms are either three or five years. Maximum loan amounts are $25,000.
Lenders can view the different opportunities and screen them based on purpose, borrower income and location and other data. They can then allot their available capital as they see fit, with $1,000 being able to be diversified over as many as 100 different borrowers.
A graduate of the London School of Economics, Mr. Caya worked as an investment banker where issuing convertible debentures was among his duties. Such opportunities, among many others, were only available to institutional investors. Once again, the little person was shut out.
“It was impossible for retail investors to access them,” Mr. Caya said. “Only large institutional investors with trading desks.”
The everyday investor is left with few options beyond stocks, with even bonds hard to come by. Borrowers have few options, and those available often soak them with high interest rates, rates much higher than the risk the borrowers actually present.
“That really struck me,” Mr. Caya said. “Yes there are some people that would present a high credit risk and from an investment perspective you need to be appropriately rewarded. But many credit-worthy individuals are being charged excessive rates.”
Over the last decade, many American peer-to-peer executives said Canada wasn’t a large enough market to enter. That is false, Mr. Caya said, while estimating the credit card debt opportunity alone at $80 billion.
One reason why the P2P wave hasn’t crashed into Canada yet is Canadian securities law, which does make it costly to get licensed and maintain legal obligations, Mr. Caya said. Regulators are concerned that all investments are the right fit for investors. Because the opportunities are available to retail investors, the compliance burden is higher.
That is fine with Mr. Caya, he said. During the onboarding process, potential investors are asked questions to determine their risk appetite and tolerance. Should they look at a loan that might be beyond their tolerance level, they receive a warning. Investors cannot divest early either, so they must be prepared to be in the process for at least three years. As long as they are living in Canada, whether they are Canadians or not, investors are eligible.
Going live during a pandemic was interesting but goPeer was prepared, Mr. Caya said. As part of their preparations for regulators, goPeer had to establish contingency plans, which included operating during a pandemic when no one had heard the term COVID-19. So when it came time to work from home, they had it covered.
“We originally planned our launch for May, but we delayed it until September when things had hopefully settled down,” Mr Caya said.
On the positive side, rates should remain low for possibly years, so both investors and borrowers have good certainty.
If the Canadian P2P industry follows the American pattern, what was initially meant to democratize investing and lending could quickly turn into another investment vehicle for the rich, as institutions quickly saw the success of the Prospers and Lending Clubs and generated algorithms which allowed them to snatch up the best opportunities.
Does Mr. Caya see that happening in Canada?
He said it was unfortunate how some of the American platforms gave the first right to institutions. goPeer expects institutional interest, but Mr. Caya said there will always be a seat at the table for the retail Canadian investor.
“It’s against our vision and what we want to accomplish,” Mr. Caya said.