Ever since I came across New Union’s funny CNY video, I’ve been wanting to meet the people behind New Union. I always like people who can make fun of themselves. During their recent Invest Vision event, I finally had the chance to speak to their management. Eddie Lee, the MD of New Union (Singapore), has also kindly agreed to do a blog interview to explain their unique business model and perspectives on p2p lending. More details below, but for those interested in viewing the funny CNY video first, please scroll right to the bottom.
How did New Union first started?
New Union in Singapore was incorporated in 2013 as a proof of concept that was only open to a small group of investors, we wanted to see whether debt-based crowdfunding would take off in Singapore before making a big commitment to bring the business model into full drive. During that period, we remembered that every single lawyer we spoke to advised us of the business risks involved especially in the regulatory segment. But we saw the sliver of hope and opportunity in the Singapore market as the customer segment was more sophisticated. After a year, we were convinced of the opportunity and publicly launched our platform in 2014.
I would categorize New Union as half start-up and half SME. The founding team has been involved in traditional corporate finance advisory services since 2010 in Singapore. We felt that the original business needed to keep up with the times to remain competitive in this field given our small beginnings versus the industry and its incumbents in the SME side of our company DNA. Crowdfunding and technology platforms was a direction we chose to disrupt ourselves and change the way we do business so that we can be more productive, hence the start-up side of our company DNA.
How is New Union different from other p2p platforms in Singapore? What would you say are your key strengths?
Firstly, with our SME beginnings as a financial advisory firm, we fully understood the challenges felt by SMEs in terms of fund raising and how it should be structured to ensure interests of all parties are protected. While we are building our own data analytics system to make efficient funding, we strongly defer to traditional credit analysis as there is still value in the wisdom of traditional financing.
Secondly, we resolved to apply pre-funding to ensure our interests are aligned with those of the investors. We would not be able to make a funding to a SME that we would not be comfortable to finance ourselves. Hence we are not in the business to originate loans as fast as possible and transfer all the risks to the investors.
Thirdly, New Union is also present in other regions like PRC China, ROC Taiwan and Cambodia. The funding characteristics of each of these regions allow us to have a better overview of how we can make crowdfunding safer for everyone and the New Union platform. It is clear for everyone to see that New Union’s results in crowdfunding are largely attributed to our China division. The issues that appear about the Chinese P2P industry are unsettling but not unknown to us, we are fully aware of what we must do to ensure this large ship stays on the right course. This also pertains to our commitment to engage an escrow service to ensure investor funds are segregated from company accounts.
Unlike other p2p platforms, New Union lends and pre-funds loans using its own capital. How would you assure investors of New Union’s own credit risk?
With respect to our pre-funding philosophy, we set aside a provisional sum to ensure our balance sheet is strong enough to support any potential default that may take place in the course of the business. Currently, that sum is pegged at 20% of the current funding extended to SMEs. For example, if current funding exposure is S$10m, New Union Singapore must set aside S$2m in cash or cash equivalent assets to act as a buffer in case of potential default.
As mentioned, we are in the business of making sensible SME funding and will not aggressively make loans in order to chase after growth. This is because Fintech is an industry that has the potential to change our lives for the better and thus has the same potential to affect it negatively if any misstep takes place.
New Union has business operations in several countries. How do you manage the risks arising from cross-border lending?
The loan exposure from cross border funding is also included against our metric of keeping a 20% provisional sum. That said, the other counterparts must be capitalized in their own aspects to undertake funding in their own region as well.
Cross border funding also exposes us to external economic and foreign exchange risk, we denominate cross border crowdfunding projects in SGD to keep it simple for investors. Contractually, we expect a guarantee from our counterparts to make good on the funding clauses.
What can investors expect from New Union this and next year?
New Union is continually looking to find the best way to structure funding that will benefit both the fund seeker and investor. We will be introducing funding of different characteristics to suit the risk profiles of different investors. We would also be working with members on the platform to bring about exciting partnerships for the whole membership, so stay tuned!
What do you see as the biggest challenges today?
Funding today is more competitive than ever. A funding request rejected on one platform may find confidence from another. Interest rates on loans have gone down so much that they are inching closer to the bond yields offered by SGX listed companies today. It is hard to tell if the risk commensurate with the promised yield at such attractively low borrowing rates.
Fintech infrastructure in Singapore is still young at best. It may take a while before we can see practical connectivity for electronic payments and transactions. Due to the small size of Singapore as a consumer market, I do fear innovation will be slower unless a seismic shift takes place on new players or incumbents.
What advice would you give to a novice p2p investor in Singapore?
Understand the credit methodology for different platforms to see if they match your risk profile.
Acknowledge the risks involved in P2P lending and invest only in something that won’t keep you up at night in worry.
Diversify your investment portfolio by ensuring your investments are spread across different tools.
Avoid risk concentration in P2P lending even if the rates are fantastic.
How did the funny CNY video come about?
New Union Singapore seldom markets itself to the public and we feel more comfortable when communicating with investors usually on a face to face basis. As such, the general public is less aware of New Union’s presence in Singapore. In some cases, we get similar feedback from our members and other financial institutions! The purpose of our video was to get in touch with our membership in a festive manner and also allow the public to see the faces behind Team New Union. This is our small way of thanking all our investors who placed their trust in us and our service. Their recognition of our efforts goes a long way for all of us behind the scenes. Just in case you are interested to look at it again: https://www.youtube.com/watch?v=WUJLuccnNLU (Don’t forget to stay all the way to the back for the NG scenes)