New social lender hits South Africa

Online-only peer-to-peer lender, Lendico is launching in South Africa as a digital alternative to traditional banks.

The start-up is launching through Africa Internet Holdings (AIH) – an e-commerce development platform supported by Rocket Internet, Millicom International and MTN.

The platform was started in Germany, and has since moved into other markets across the globe, including Spain, Poland and Austria.

Being a peer-to-peer (P2P) platform, Lendico connects investors directly to private individuals seeking loans.

Lendico is fully licensed by the NCR and allows consumer loans and investment credits between R3,000 and R200,000.

The platform is online-only, sticking to a true digital alternative to banks, though there are plans to develop a mobile extension to the platform, though this is not currently a major focus for the group, according to AIH co-founder Jeremy Hodara.

How it works

  • Prospective borrowers create a loan project on https://lendico.co.za;
  • Lendico analyzes their credit worthiness and offers borrowers an interest rate starting from 7.92%;
  • Investors can compare all loan projects online and enter bids of R250 or more;
  • If a loan project gets fully funded, the borrower receives his or her loan;
  • Investors receive their respective principal and interest payments from the first month;
  • By diversifying their portfolio across several loan projects, investors can earn higher returns in comparison to similarly secure investments.

For the analysis of the loan applications the company utilizes an algorithm that classes loan projects in real time, the company said.

The Conditions

  • Loans: from 7.92% APR;
  • Loan volume: R3,000 – R200,000;
  • Term: 12 – 60 months;
  • Returns: up to 18.73 %;
  • Minimum investment: R250;
  • Maximum investment: depends on usage; investors can upgrade to higher-volume account.

“South Africa is ready”

According to AIH’s Hodara, South Africa was the logical choice when deciding where next to launch the platform.

Speaking to BusinessTech, Hodara noted that when looking to move into new markets with platforms like Lendico, the company looks at three main criteria:

  • The country needs good financial infrastructure, with all the necessary components in place;
  • There needs to be an expanding online population, with adequate Internet penetration;
  • There needs to be a demand for personal loans.

“The costs associated with a loan are extremely important to consumers. Even one percentage point less means R15 billion more in the pockets of consumers,” the company said.

In South Africa, with the volume of outstanding consumer credit balances is R1.49 trillion, Hodara believes South Africa is definitely ready, and will serve as an excellent starting point for a move further into Africa.

Lendico is not the first P2P lender to open in South African shores, however.

Market challenges

In July 2012, social lender RainFin made an early play in the peer-to-peer market in South Africa.

Within its first year of operation, the company admitted some teething problems, particularly hitting its intended market, and subsequently it modified its approach.

In March 2014, Barcalys Africa (Absa) acquired a 49% stake in RainFin, showing faith in the peer-to-peer model – but also indicating interest from traditional banks into the market, which, according to Absa, is “here to stay”.

Hodara, however, believes that Lendico will succeed on its own in the South African market, and that he doesn’t look to the success or failures of other players to determine the success or readiness of the market.

When asked about the risks of big banks making a stronger play in the peer-to-peer market, Hodara noted that there’s too big a difference in the “DNA” of traditional banks and platforms like Lendico.

He pointed out that traditional banks are rooted in traditional cost structures – “traditional DNA” – which are difficult to adjust to the type of digital-only cost structures Lendico employs – “true Internet DNA”.

“I don’t think they will succeed,” Hodara said.

“Traditional mindsets are difficult to alter, or change – in the end, they (traditional banks) have their DNA, and we have ours.”

In a bid to root itself on South African soil, Ledico is currently building a local team to handle the business in the country.

Lendico currently employs a dozen financial and analysis people, while training more support staff to join the 2,500 employees across the continent.

“The most important thing is building trust and giving reassurance to customers, locally – so we’re building a strong team to handle things in South Africa,” Hodara said.

Lendico is expected to launch on Monday, 7 April 2014.

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New social lender hits South Africa