goPeer is Canada’s first consumer peer-to-peer lending platform. We had the pleasure of speaking with the team behind goPeer about what that means and how they plan to achieve their goal of helping Canadian consumers improve their financial well-being.
goPeer is a peer-to-peer lending platform, can you start by explaining what that means and how the platform works?
Peer-to-peer lending, although new to Canada has been in wide use throughout the world for quite some time. It is a modernization of lending made possible with technology, allowing individuals to lend and borrow from each other. For borrowers, it offers a seamless fully online process and competitive rates, while providing access for investors to a new diversified, passive income asset class.
How difficult was it to build the platform and obtain the necessary licensing to launch?
To bring peer-to-peer lending to Canada we had to overcome two significant challenges, regulatory approval, and technology. Prior to goPeer, although many had tried, no business had ever successfully obtained approval and launched a platform that securitizes personal loans, to sell the corresponding “notes” as investments to “non-eligible” investors. Meaning that any Canadian can invest, which is key to the peer-to-peer model.
The second key challenge was in building the technology, and although countless lending and securities products exist on the market, including a few specialized p2p products in foreign markets, there was none that met the strict requirements of Canadian regulation, and with the robustness and flexibility to provide the rich and nimble feature set that we feel is essential to long term sustained success.
Your goal is to improve Canadians’ financial well-being by eliminating market inefficiencies. How does goPeer accomplish this?
Responsible lending and social good are very important to us, we will not engage in business that we do not believe is good for all parties, but this is very difficult to achieve in practice.
The Canadian lending ecosystem has evolved very little over the past few decades, but this has begun to change over the past few years as new innovations and supporting products are rapidly entering the market. It is to the credit of forward-thinking regulators and leading fintech start-ups that we are today empowered to make our goal a reality. It is certainly a very exciting time to be a fintech in Canada.
The major inefficiencies that exist today reside on the lending side and relate to the difficulties in assessing creditworthiness, a lack of financial education, the high cost of retail networks, and the consequentially high institutional cost of capital.
We use new rich data sources and AI-powered technology to assess creditworthiness, allowing us to right-price loans with improved accuracy of risk. We use technology to bring the process entirely online, eliminating the retail network, and nearly fully automating the laborious process of on-boarding borrowers and underwriting loans. Finally, we use our network of peer lenders to eliminate costly layers of institutions that drive up capital costs.
What kind of returns should investors expect to receive on this platform?
Within the goPeer platform, loan grades range from A+ (least risky) to E (most risky) with annual interest rates from 7.5% to 30% per year. From these rates, goPeer will charge a fixed 1.5% annual servicing fee to investors, deducted from interest earnings. The rates are calculated to fairly reward investors relative to the risk in lending, with the expectation that some borrowers will not repay, and therefore actual returns may be less.
Investors may select which loans to invest in based on their comfort level and investment objectives and will achieve varying results. Investors are able and encouraged to diversify within the platform, investing as little as $10 per loan, so with the initial minimum deposit of $1000, an investor may diversify across 100 different loans, mitigating risk and stabilizing returns. As borrowers make regular repayments of interest and principal, the investor may choose to reinvest those funds, effectively compounding their returns.
How involved are investors in the lending process? Do the investors choose who they want to lend to? And what information do the investors receive regarding the borrowers they lend to?
We put a lot of effort into creating a simple and fun investment experience, making it very easy for investors that prefer to be less involved, while also providing rich data and controls for those that choose to take a more active role in the management of their portfolio.
All investors must initially complete a series of questions to help us assess their suitability for investment through goPeer, as well as to determine their risk tolerance and objectives. For most investors, we recommend enabling auto invest, a feature that will automatically invest across a suitable range of loans through the platform. This is recommended primarily in its ability to evenly diversify the investor’s portfolio across the range of suitable risk grades and deals. Auto invest also allows the investor to sit back and let the system do the heavy lifting, including automatically reinvesting returns for a compounding effect. Investors may additionally enable automatic recurring deposits to grow their portfolios faster.
For investors interested in a more involved approach, our platform maintains an active listing of funding loans. While maintaining the privacy of borrowers, we share with investors the key metrics, for example, the goPeer grade, loan amount, rate, purpose, a range of the borrower’s credit score, the borrower’s income, profession, industry, location, and debt-to-income (DTI) ratio.
What happens if a borrower is unable to qualify for a loan?
We have put a lot of effort into creating a pleasant experience for borrowers, making it as smooth and seamless as possible, currently, most applications are responded to in under 1 business day, but we are working toward real-time decisioning.
There is a common misconception that getting an approval on peer-to-peer platforms is easier than traditional lenders, the process is certainly easier, however it is not the case for approvals. Since we right price the loans to offer substantially lower rates than traditional retail lenders, our margin for error is less. Traditional lenders can often be more liberal in approving loans given higher margins and rates, we, however, rely heavily on our rich AI-powered underwriting to assess risk more accurately and in turn provide lower rates.
We never want to reject an applicant, but unfortunately, not everyone meets our qualifications for a loan. That long-term relationship however remains very important to us despite the temporary outcome. We, therefore, maintain transparency by disclosing the reasoning for the decision and further provide constructive feedback to help the individual progress toward their financial goals.
Considering your lending requirements are higher than most alternative lenders, why should consumers choose goPeer over traditional lending institutions? What about other alternative direct lenders?
Our platform was built from a new perspective conscious of social responsibility and with a focus on the wellbeing of our customers. We, therefore, ensure that our lending products help to better the lives of borrowers by getting them ahead in life or solving a problem for them. We will not lend when we do not believe that the loan is a healthy choice for the borrower, and we will not offer rates that are too high or inappropriate. This does conversely result in fewer approvals but allows us to offer better rates for most borrowers while building a long-term healthy relationship.
The process has been designed for the customer, therefore built to be fast and convenient, fully digital, highly automated, efficient, and respectful. We find that many of our borrowers appreciate the intent of social good that comes with our platform, specifically in how their payments of interest are going back to their fellow Canadians, and not major financial institutions. Borrowing or investing through goPeer allows Canadians to help Canadians, strengthening our economy.
What kind of borrowers would benefit from applying for a loan through goPeer?
goPeer is accessible to borrowers across Canada, offering unsecured personal term loans of $1,000 to $25,000, at rates between 7.5% to 30%, and targets the near-prime segment of consumers with FICO credit scores of 600+. We offer a convenient online platform, many self-help tools, and no pre-payment penalty.
To ensure responsible lending our range of offers varies widely based on the characteristics of the borrower. The lower range is an excellent option for prime borrowers that do qualify for bank loans but prefer the convenience, speed and social good of our platform. As we enter the mid and average range of our offering, it becomes an excellent option for those looking to consolidate credit card debt, for example, our average interest rate of 15% beats most credit cards. As we reach the high end of our range, these rates are no longer appropriate for credit card consolidation but are excellent for consolidation of high-interest debt. For example, traditional retail lenders charge average rates of 40-50% annually, which are even higher for pay-day lenders, so for this range, our offerings can save a borrower hundreds per year, reducing monthly payments by as much as $100.