On a Friday just a few weeks ago, Lutz Dittert, a Mannheim-based office supplies dealer, has approved a loan of 25,000 euros - but not from his bank. The money comes from "CarloKühn1988", who gives 25 euros, from "Mrs. Leberwurst", who contributes 250 euros, or from "Stoapfalzer", who gives 50 euros. Most of these and similar names are pseudonyms, but the money is real. In the end, Dittert's 330 lenders confided their money, averaging just over $ 75. Within two years, the entrepreneur must now pay off the credit. The interest rate is 13.8 percent, the monthly repayment at 1,357.47 euros.
On the same day that Lutz Dittert receives his pledge, the man who arranged the loan sits in a good mood in his office on Düsseldorf's Kö. Philipp Kriependorf is not a banker, as can be quickly recognized by his outfit. Instead of shirt and suit he wears jeans and T-shirt. So it is common practice among the fintechs , those small, creative companies that have been frightening banks for two or three years. However, the German company that founded Kriependorf with others has been in business for almost ten years.
Auxmoney, the name of the company, is an Internet platform where loans are given "from the same to the same". Anglo-Saxons speak of peer-to-peer lending . The idea behind it is: If people like Lutz Dittert need money, then why not simply borrow it from other people, such as "Frau Leberwurst"? Radically finished, this idea leads to a world that can do without banks, but does not have to give up loans and the economic growth they generate. It's an idea that is currently spreading worldwide. Swarms of private investors are always financing new projects.
There are providers that provide corporate loans, such as Funding Circle, which claims to be among the top five financiers of small businesses in the UK. But there are also platforms such as Auxmoney, Lendico or Bondora , which are aimed at private borrowers. Industry leader is Lending Club in theUSA , which went public at the end of 2014 and has already provided around $ 10 billion in loans. Currently, the market share of these platforms in the US credit market is estimated at two percent. At first this sounds like a little, but the business is growing very fast. In just ten years, the share could be 15 percent, according to investment bank Goldman Sachs in a recently published study.
However, the success comes along with a development in which many see an infiltration: the larger the providers of peer-to-peer lending, the further they seem to move away from their original idea. To put it bluntly, Wall Street ismaking a massive impact.
Founder Philipp Kriependorf makes this a simple observation. Once a year, Lendit, the most important trade fair for the young industry, takes place in the USA. "Two years ago, the jean wearers were clearly in the majority," says Kriependorf, "last year the suits were no longer overlooked." This year? "Most suits had pinstripes."
The conquest of the industry by the classic financial houses began when funds came up with the idea to lend themselves on the platforms themselves - in principle just as "Mrs. liver sausage", only in other sizes. First of all, yield-hungry hedge funds like Eaglewood entered the business. They soon created the first dedicated peer-to-peer funds, which institutional investors such as pension funds or family offices could then invest in. Even banks themselves repeatedly say that they are on the P2P platforms. In the US, 80 percent of the money comes from professional investors, and only a small proportion of real peers, ie private individuals, estimates the head of a Europe-wide active platform.
The game goes on, however. For example, Blackrock, the largest asset manager in the world, purchased tens of millions of peer-to-peer loans, bundled them into new securities, and sold those securitizations to other investors - a construct that spontaneously recalls the unfortunate times of mortgage securitization. Similar deals struck the US investment bank Jefferies. In keeping with this, Moody's and S & P, two of the major rating agencies, have gotten involved and given credit scores to first bundles of peer-to-peer loans.
Meanwhile, it sometimes seems as if the peer-to-peer industry is merging with the established financial industry. Credit Suisse, the Spanish BBVA and Morgan Stanley from the US recently added $ 165 million to the US platform Prosper. At Lending Club, Wall Street greats such as former Morgan Stanley boss John Mack or former star analyst Mary Meeker sit on the board. At Funding Circle, Bob Steel is one of the consultants who once led the US bank Wachovia and today heads the rather exclusive investment house Perella Weinberg.
In a way, the peer-to-peer utopia is based on their own success. The default rates of the industry are remarkably low so far. For Auxmoney, the rate has been below three percent for years, says Philipp Kriependorf, which is no higher than most banks. Although or because the lending process is automated. Decide on the creditworthiness of a computer-based "score," says the founder. How does it come about? "Trade secret, that's like the Coca-Cola formula." The idea that his employees would have to know the applicants personally, to judge their creditworthiness warns Kriependorf only a tired smile.
What you know: As with the banks, Auxmoney's score is based on data from the Schufa credit agency, as well as information from other data collectors such as Creditreform, Avato and Bürgel. In addition, information left by the applicant when filling out the application on the Internet: Who needs two minutes to type in his date of birth, rather not improve his chances to obtain the desired loan.
Of 100 applications, says Kriependorf, Auxmoney rejects around 80 from the outset. The rest are subdivided into risk classes ranging from AAA (very safe) to X (quite risky). Investors like "Mrs. Leberwurst" can then choose which projects they want to invest in. As always with the investment, the higher the risk, the higher the potential return. Of course, a lender can also spread his money across multiple borrowers. Those who spend their money evenly across all risk classes have recently achieved a return of 6.7 percent, says Kriependorf. That sounds almost too good to be sustainable. But with all the necessary skepticism: So far, the model works. Since it can not be surprising given the otherwise low interest rates currently,
Borrowers like Lutz Dittert are likely to benefit from the development. The more donors pour into the market, the cheaper the terms become. At the same time, however, with the recent billions, there is the danger that loans will be given too recklessly and thus default rates will rise. Supposedly, some funds have recently targeted the risky credit segments. This could mean that the platforms could soon increasingly advertise to those customer segments that should better not borrow because they lack the financial power to repay.
Philipp Kriependorf sees his own industry quite critical. He knows that in markets where retail investors compete with big professionals, retail investors are likely to lose out. For example, on some US platforms institutional investors were favored in their choice of credit.
On the other hand, of course Kriependorf wants to grow. Finally, Auxmoney collects fees for each brokered loan: the higher the brokerage rate, the greater the sales. Auxmoney recently opened for three professional funds, says Kriependorf. He does not reveal what they are called, only that they come from abroad. Although they do not get more than 50 percent of the mediated volume, Kriependorf says, but it is clear that if Mr. Dittert needs money next time, "Frau Leberwurst" will have new competition.
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