Harmoney signals need to change fees

Harmoney’s decision to change its fee structure will lead to higher costs for investors in the future, its founder says.

Friday, February 12th 2016, 6:00AM

by Susan Edmunds

The peer-to-peer lender opted to change its fee structure late last year, moving to a flat fee of $375 for borrowers, instead of a percentage charge.

It followed a Commerce Commission inquiry into the fees. It had been suggested they might have breached the Credit Contracts and Consumer Finance Act, which requires that admin fees on loans are linked to the amount of work involved in processing the lending.

Neil Roberts said the decision to change them was made before the Commerce Commission reached a conclusion.

Although he said he was confident the percentage fee structure was legitimate and the legal advice Harmoney received had been sound, Harmoney wanted the regulators to be completely comfortable with the way it operated.

He said if it was able to do that, the marketplace would remain one that facilitated peer-to-peer lending rather than putting more regulation in place to make it difficult.

“We are pleased that we made that change but in time where we have missed out on income there we will need to make it up in fees elsewhere,” he said.

A recent round of capital raising had resulted in $30 million being invested in the business but Roberts said it was not cheap to run and the new capital was minimal by international peer-to-peer operators’ standards.

He said it was quite a low-margin business.

“Over the next six months we will look to move our fee structure and are taking good counsel on that at the moment. We need to be upfront and say we need to review in totality the fee structure and it will mean lenders paying more.”

But he said Harmoney’s lender investors should be able to see that higher fees were worthwhile when the platform had a realised actual return of 12.65% a year.

It was also working on developing product enhancements and other improvements, he said. “The more they can see that I don’t think they mind paying for a globally competitive really beautiful online product.”

Roberts said Harmoney’s arrears and defaults were running at half what had been expected.

“We see the market we’re targeting as money that is in bank term deposits. It’s a different product and the returns should be higher because people take more risk but it’s manageable risk and we have been able to demonstrate that so far.”

Roberts said Harmoney was very close to having turned over $200 million in loans. “In the first 50 weeks we did $100 million and then it has taken 16 weeks to do the next $100 million.”

About 30% of borrowers were taking up the option of Payment Protect cover, which pays out if they cannot make loan repayments due to redundancy, bankruptcy, disability, terminal illness or debt. The fee is a percentage of the loan amount.

Harmoney makes a sales commission from the product and charges a management fee.

Harmoney is also planning to expand into Australia and has been licensed for the lending side of the business, with a draft license issuyed for the investment side. Roberts said Harmoney did not want to commit to a launch date but was weeks away from live testing.

Harmoney had been careful not to over-promise and under-deliver, he said.

“There is so much we want to do and so much aspiration for the product we are absolutely focused on that on getting on with what we want to do,” he said.

Tags: Harmoney