Lend.ch started 6 years ago with student loans. It has quickly become Switzerland’s largest crowdlending platform for personal loans. Since inception, it has paid out 246 million Francs in loans to individuals and SMEs.
How did Lend.ch start?
My co-founder Michel and I worked at an investment bank. We were convinced that by taking the middleman, the bank, out of the equation we could offer better rates for borrowers and better returns for lenders at the same time. We initially started with student loans on splendit.ch that allow very good students to come and study in Switzerland. We saw that they’re very good risks and usually repay their loans before the end of the term. And they were charged too much by banks. This hasn’t changed, even today, on lend.ch, three quarters of borrowers refinance loans they previously had at a bank with us at better terms.
What has changed since you made your first loan in 2016?
Lending platforms in general have become much more professional. I would say that our risk assessment today is probably better than that of many banks. We’ve integrated machine learning models that can predict the default probability of a personal loan with very high accuracy. On the investor side, things have changed as well. When we started, it was mainly retail investors. Over the years, family offices, pension funds and specialized investment funds have joined the fray. We have shown that we’re in a good business and that we offer stable and attractive returns. To date this year we’ve returned 3.44% to investors in Swiss Francs, net of fees. With a bond fund, you would have lost 15%.
If your proposition is so attractive, why aren’t investors joining en masse?
We already have around 5’000 investors on lend.ch, which is significant. Now if you ask why there aren't ten times more investors, one possible explanation is that we offer a very boring investment product. Many retail investors think they can achieve 30% returns per year, and aren’t aware of the risks associated with such returns. When it comes to pension funds, I think they should be much more active. Still, lend.ch has managed to become Switzerland’s largest crowdlending platform for personal loans. We have 60% of the p2p private loan lending market, and just recently paid out our 5000th loan. By the end of this month, we’ll have paid out more than CHF 250 million.
How difficult is it to grow more?
Achieving impressive growth in crowdlending isn’t difficult; growing while building a stable credit portfolio without too many defaults is. And that is our goal. Another challenge is to keep customer acquisition costs under control. There, we’re doing a very good job too. Banks work with agents and pay them up to 6% of the loan value upfront. We don’t work with agents in our private loan business. Even when we go full steam with advertisements, our acquisition cost is 2.5 times smaller than that of a bank.
Lend might be the biggest crowdlender for consumer loans in Switzerland. But when we look at the whole market for consumer loans in Switzerland, which is dominated by Cembra Money Bank, Bank Now, Cashgate and Migros Bank, lend.ch is still very small. How much of the incumbent’s business do you think you can take?
I think in a few years we can grow our volume to 200 million Francs, which would correspond to about 5% market share. We’re now at 65 million of outstanding consumer loans. The bottleneck for our growth still are the borrowers. We’re still building our brand, and that takes time. When we started, some people said they didn’t want to fill out a credit application online, they wanted to visit a branch. We don’t hear that anymore, it has become much more acceptable to work with an online lender. The big players will at one point start to notice us, because we’re following a clear strategy. We go after the best credit risks and offer them rates banks can never match, due to their balance sheet cost. As with an insurer, when all good risks have left your portfolio and gone to find a better deal, you have a problem.
Who are these good risks that you attract?
They are people that are a bit older, not the ones who are 20 years old asking for their first loan. We lend to people that have a solid employment history and have shown in the past that they pay their debts. We reward them by offering them a better deal. This quality strategy has proven very successful for us and our investors. People who pay their installments on time also cause a lot less work for our collection department.
How sophisticated is the technology platform lend.ch has built?
Many are surprised when they hear that our platform handles 30’000 payments per month and everything is automated. We have added a secondary market to our platform in the past. This means that as an investor, you can sell your investments if you need liquidity. We also added a robo-invest functionality to make investors’ lives easier and continue working on it to make it more granular. We receive about 1500 credit applications per month and gather a lot of data. Our machine learning model, contrary to a human credit officer, doesn’t have predetermined ideas about who is worth getting a loan or not. Humans can be sexist or racist, but our model is impartial and takes a lot of data into account. The only loan type that defies automation are SME loans. Small companies are simply too diverse to fit into one credit model.
Lend.ch offers consumer loans, SME loans and real estate-backed loans. Will there be new categories in the future?
We have seen a lot of interest from the investor side for sustainable project finance. We could imagine launching a new loan category to finance solar installations. This would be very interesting for investors, and it would be a good way for project developers to finance new installations.
I2 group has been active on the lend.ch platform for more than 2 years now and is one of about a dozen of institutional investors. Would you say that private investors are disadvantaged because of the rise of institutional investors on lending platforms?
Every platform struggles all the time to balance its two sides of borrowers and investors. It is true that as a private investor you might not even get a chance to invest in a given credit project because it has been filled by one institutional investor. But it could have been filled by several private investors as well. I think that as long as there is a strong enough flow on the platform and you have several credit projects to choose from it is a good opportunity for all to invest.
