DirectMoney readies for ASX listing
Revitalised non-bank lender DirectMoney, operating in what the firm called the "marketplace lending industry" in Australia, is following a well-worn path to the ASX via a simple "reverse listing" transaction. This involves being taken up by a firm with an ASX listing but no assets or income.
In this instance, the firm is ASX-listed former automotive parts distributor, Basper. Its board's previously stated intention was "to identify an asset with a compelling investment case to support the re-capitalisation of the company and re-commence trading on ASX".
In yesterday's announcement to the ASX, Baspar noted that "marketplace lending" is a new financial services model operated by intermediary companies, such as DirectMoney, which originate consumer loans funded by in-house retail funds and third parties.
The intermediary company does not borrow to lend. Instead, it acts as a fund manager, earning a fixed management fee for servicing the loans on behalf of the loan investors.
Personal lending stands out as the next aspect of bank activity facing disruption in the disintermediation space, said DirectMoney's executive chairman Stephen Porges.
He pointed to the gap between what the banks pay for deposit funding - around two or three per cent per annum - compared to the gain made from lending via business loans to small business, now paying around 12 to 14 per cent - a margin Porges labelled as "obscene"
Others borrowers agree: since commencing lending in October 2014, DirectMoney has rapidly grown its presence and has now lent to over 350 borrowers, with a total loan book value of more than $6 million.
Credit risk is assumed by the loan investors and the redemption profile of the loan investors is matched exactly to the loan book.
Nevertheless, as Porges is quick to point out, credit assessment will not be compromised for cost: "We automate where we can, but it is a bank level credit approval process," he said.
"We use bank account details where we have permission, we use social media, but we also call employers to confirm that potential borrowers have jobs. So it's the next generation of old-style credit meets new technology meets social media to improve the credit process."
Porges said that for a company like his - now ramping up its activity following an enforced shutdown from 2008 in order to get through the financial crisis - acquiring the capital needed for a more active balance sheet means either going overseas for venture capital or trying to tap the Australian equity markets.
This is because loans are approved before they are pooled. "We grant borrowers access to those funds via our balance sheet for 30 days. So, once the first payment has been received, the loan is then moved into a series of other funding vehicles."
In other words, borrowers need to prove themselves over at least that first month in order for the loan be pooled with other similarly rated loans, which are then taken up by institutional investors such as fund managers.
The sale agreement requires Basper to complete a capital raising for a minimum of A$5 million and up to $10 million, the Basper board and management to be replaced by DirectMoney's experienced team.