Capital Match is one of the pioneers of p2p lending in Singapore. I have participated in several of its SME loans. Recently, Capital Match is shifting from unsecured SME lending to secured lending and invoice financing. Everything being equal, secured lending is usually less risky than unsecured lending because it is backed by an asset (e.g. property) can be sold in event of a loan default.
Although it is still very early days, I believe this shift towards secured lending would make Singapore p2p landscape richer and more diverse. Investors will also have more options to invest their money. I spoke to Capital Match’s CEO and Co-Founder Pawel Kuznicki to find out more about his story.
How did you and your co-founder (Arnaud Bailly) come to decide to do a start-up in Singapore?
I came to Singapore 4 years ago to join Rocket Internet. Having spent 2 years at Zalora and Lazada, I have followed the development of peer-to-peer lending industry in the US and UK. The moment we started Capital Match in Singapore there has been no other platform operating. We saw it as a great opportunity, even in a fairly small country like Singapore.
How was 2015? What were some of the highlights and the challenges you encountered last year?
2015 was a good year for us, though we have since pivoted to a slightly different business model. We have moved almost entirely to secured lending as well as developed a loan brokerage arm. 2015 was a great learning experience but we closely follow changes in the economic environment and adapted accordingly.
What can investors expect from Capital Match this year?
Plenty of invoice financing facilities and also new secured lending products (coming soon). The economic conditions are tough so we are adjusting the product to address it.
One of the arguments against p2p lending is this: lending platforms do not risk their own capital. They merely originate and distribute loans, hence their interest may not be aligned with the investors. What would you say to this?
Our fees are 100% collected over the loan term. We do not charge any fees upfront – we will only generate revenues if the loans are paid over time. This way we believe our interests are aligned with investors’.
How is Capital Match different from your p2p peers? What would you say are your strengths?
We have recently shifted to secured lending. We started with invoice financing and are working on a number of facilities with other securities as well. Given current economic conditions, we have made this strategic shift to better hedge against credit and market risks.
What is the default rate so far? Can you give a few examples of how you are handling the defaulted loans?
We are having a few of delinquencies and defaults. Each case is different – from negotiating repayments and receiving small amounts every month to engaging lawyers to sue the borrower and its directors for the amount owing. Some cases have been recovered, some are still being processed.
p2p lending today is still largely unregulated, but MAS is understood to be keenly studying this space. What do you hope to see on the regulatory front?
It would be great if MAS would, in fact, regulate the sector. The biggest risk is the agency risk. SMEs default risk is obvious and possible – but most investors are aware of this risk. The key risk that investors do not have enough information to address and mitigate is the risk of a fraudulent platform. That’s where MAS should implement regulations and monitor all types of crowdfunding platforms.
Recently, several SMEs have borrowed through different p2p platforms. Do you see this as a potential risk – that borrowers over-borrow or shop around for lower rates, leading to unhealthy level of competition?
Yes, definitely. It would be less of a risk if the economy was booming. But in the market were there is little growth for SMEs, excess debt makes it even more difficult for them to operate and meet their monthly obligations.
Several p2p platforms have implemented escrow accounts. Will you be implementing this too?
We would like to, however, the cost of running an escrow account is prohibitive for now. We will look into implementing it later this year.
What p2p issues or challenges are you most concerned about?
Economic conditions that deteriorate overall quality of loans and borrowers, and increased competition that leads to surplus of debt capital in the market that also increase the default risk of the borrowers. Thus, our shift to secured financing.
What advice would you give to a novice p2p investor in Singapore?
Diversify as much as possible (across borrower, platforms and product types) and look for opportunities that address the current economic climate in Singapore.