Online market place, auction house and employment conglomerate Trade Me Group Ltd (ASX: TME) has experienced a bit of a rollercoaster in the past few days, with shares leaping nearly 10% on positive New Zealand jobs data, before sinking 3% today on news of a 15% acquisition of Harmoney.
Harmoney is New Zealand's only licensed peer-to-peer ('P2P') lender, and presents an exciting alternative to low interest rate term deposits for investors.
In Harmoney's P2P lending model, investors like you and me (but with New Zealand residency) invest their savings, which are allocated to various individuals who apply for loans, and the investor receives the full interest and principal repayments in return, less a small 'service fee' kept by Harmoney.
With loans starting at 9.99% and only going up from there, it's easy to see the appeal compared to term deposit rates of ~4% (New Zealand) and ~3% (Australia). It's a win-win-win situation, as customers end up paying lower interest rates, investors receive higher interest rates on their cash, and Harmoney also takes a cut – although an obvious drawback is that the cash is not immediately available to withdraw as with standard savings accounts.
It's an exciting entrance into one of the world's fastest growing lending models, and appears to be the perfect complementary business to Trade Me's online marketplace. Harmoney benefits from Trade Me's high domestic traffic and ability to cross-promote P2P products, whilst Trade Me gains a 15% stake into a rapidly growing, albeit small, new entry into the banking industry.
The acquisition cost $7.7 million, and Trade Me Chief Financial Officer Jonathan Klouwens will join Harmoney's board of directors.
While no guidance was provided to the market as to the profit implications of this investment, it seems likely that the increasing popularity of P2P lending over time will see a growing return to Trade Me shareholders.
If New Zealand citizens are anything like our own, increasing dis-satisfaction with record bank profits and shady conduct – like NZ's recent interest rate swaps scandal involving ASB Bank and Australia and New Zealand Banking Group (ASX: ANZ) – are likely to lead to an influx of support for non-bank lenders, while P2P lending has its own appeal for term deposit investors.
Over time this could potentially emerge as a threat to the banks' ability to fund their loans through deposits, forcing them to offer higher interest rates, better service, better products, or enter the lower margin world of P2P lending themselves.
That's all a way in the future though; in the meantime Harmoney (and thus Trade Me) enjoy significant advantages from being the 'first-mover' into this exciting sector.
Investors should watch closely.
