Dealflow, scalability, and trust – a P2P crowdfunding startup is a 3 legged stool, without one of these, it risks a collapse. P2P crowdfunding has been a relatively recent phenomenon in Singapore, with the first platforms that are still operational having started in 2014/2015.
1. Dealflow – Gaining traction and proving the concept
Lining up a decent quality dealflow and attracting companies that are stable will be the main challenge that the platforms face. Two things are required for this, first, the interest rates of between 10% – 40% annualised need to decrease to become competitive with those of established financiers. Those rates are good to compensate yield hungry investors for the risk, but are difficult to sell to companies with a stable outlook that might be able to access bank financing at a lower interest rate.
Second, platforms need to increase the organic inbound leads and automate the onboarding of new clients. Hence, the challenge is to compensate investors adequately for riskier loans, while making the interest rate attractive enough for SMEs to see P2P Funders as a strong long-term partner, and to decrease the customer acquisition cost.
2. Scalability: Making the business viable in the long run
Once a platform has been able to implement the right processes, scalability is critical for the long term viability and also mostshareholders.
3. Trust: Ensuring stable operations
Lastly, Fintech is ultimately about offering a financial service and therefore, trust is paramount. Many Fintech companies are still young and have not established a track record. Becoming a player in the P2P Financing sector requires staying power and a sufficient amount of capital.
The P2P lending spaces have involved in the recent years in SouthEast Asia. Alternative lending refers to financial channels and instruments that have emerged outside of the traditional finance system such as regulated banks and capital markets. Alternative financing activities through online marketplaces are reward-based crowdfunding (e.g. Kickstarter, Indiegogo), equity crowdfunding, peer-to-peer (P2P) consumer and business lending, and invoice trading. In 2016, more than US$245 billion of funding was channeled through online alternative finance platforms across Asia Pacific (APAC), according to a report by the University of Cambridge, the Australian Centre for Financial Studies and the Tsinghua University.
According to the Singapore Fintech Association, a cross-industry non-profit initiative, there are 60 startups in the online lending and crowdfunding space.
The city state’s three major alternative finance players are peer-to-company (P2C) lenders which specialize in providing loans for SMEs. These are Funding Societies, MoolahSense and Capital Match. Funding Societies had raised S$95.4 million in loans through 1,606 campaigns, as of December 2017. The company, which also operates in Indonesia and Malaysia, has received US$7.5 million in funding so far. MoolahSense, which is backed by East Ventures and Pix Vine Capital, had raised S$41.3 million in loans through 359 campaigns as of December 2017. MoolahSense has over 11,920 registered investors. Capital Match, which was established in 2014, provides business and SME loans and invoice financing facilities of S$50,000 to S$200,000. The platform had funded S$62 million in loans, as of December 2017. Capital Match has raised S$1 million in funding so far from Innosight Ventures, Crystal Horse Investments and CE-Tech Invest.