PEER-TO-PEER lenders are shifting their focus to recurring revenue to improve business stability.
Upfront origination fees typically comprise 70 per cent of lenders’ revenues, while ongoing loan servicing fees account for the remaining 30 per cent.
Iain Niblock, chief executive and co-founder of Orca Money, said a disadvantage of taking a substantial proportion of the fee upfront is the business model may be reliant on sourcing new loans.
“If revenue was earned over the length of the loan this may create a more sustainable business model,” he added.
ArchOver earned 78 per cent of its revenue from origination fees in 2017, but it expects this to drop to 71 per cent in 2018.
Angus Dent, chief executive of ArchOver, said: “The trend is in the right direction, i.e. we’re increasing recurring revenue and reducing one-off, while growing revenue overall and making the business more stable.”
RateSetter has been charging a greater proportion of fees over the lifetime of the loan rather than upfront over the last couple of years, believing this to be a more sustainable revenue stream.
Meanwhile, a spokesperson for Funding Circle said although 70 per cent of its revenue comes from origination fees, 35 per cent of revenue is from existing customers and this has been increasing year-on-year. This suggests the company is not chasing new loans.
“We expect the majority of fees to come from repeat customers in future, for both borrowers and investors,” Funding Circle stated.
Assetz Capital claimed origination fees comprise just a third of its overall income. Chief executive Stuart Law said the weighting towards recurring income represents “a more comfortable model”.
Read more: The biggest P2P funding deals of 2017