PEER-TO-PEER property lender Loanpad is forecasting profitability by next year, which it attributes to its focus on sustainability over “exponential early growth”.
The firm noted recent platform failures and said that the industry should focus on running their businesses “in a stable manner”. It went on to criticize platforms that generate a substantial proportion of their income from new loan origination and said that this was one of the issues identified through the corporate failures to date.
“At Loanpad, despite being just nine months post-launch, we anticipate reaching profitability and self-sustainability by 2020,” the firm said in a blog post on its website. “This is as a result of our unmovable focus on sustainability ahead of exponential early growth.”
Loanpad went on to highlight a lack of profitability across the industry and opposed the supposition that bigger platforms are safer for investors.
“With the Financial Conduct Authority’s minimum regulatory capital requirements in place, losses can only be sustained via new equity being raised,” Loanpad said. “However, the ‘golden years’ of ever-increasing equity injections appear to be dwindling. Quite simply, platforms must now become self-sustainable to survive over the coming years and we envisage large-ranging changes to platforms’ business models.”
The firm also said that the incoming regulation changes should help investors evaluate platform risk due to the increased disclosure requirements.
With regard to revenue models, Loanpad noted that many platforms generate a significant proportion of their income at the time of loan origination.
“Whilst perfectly acceptable to charge fees, this creates an inherent need to originate new loans to fund operating expenses which in turn relies on regular loan repayments and / or new investment,” the firm said.
“At Loanpad, our income is generated from a loans under management margin such that we earn income on a daily basis in the same way as when our investors do. This ensures that our income is stable irrespective of the level of new loans originated in any given period.
“In the coming month and years, we envisage greater scrutiny on how platforms earn their revenues and the sustainability of the underlying business models.”